India and Malta have signed a new Double Taxation Avoidance Agreement (DTAA) on April 8 2013.

The provisions of the treaty generally follow the provisions of the OECD Model but the definition of a permanent establishment includes a building site or construction, installation or assembly project that continues for at least six months. The definition of a permanent establishment also includes the provision of services in the other contracting state by employees or other staff engaged for the purpose, if the activities continue for more than 90 days in a twelve month period.

The maximum withholding tax rate on dividends paid from India to Malta is 10%. The withholding tax on dividends paid from Malta to India cannot exceed the Maltese tax payable on the profits from which the dividend was paid. The withholding tax on interest is limited to 10%, and the maximum withholding tax rate on royalties and technical service fees is also 10%. The definition of technical service fees for this purpose includes fees for technical, management or consultancy services, including the services of technical and other personnel.

The agreement contains an Article in respect of the limitation of benefits. This provides that benefits under the treaty are not available to a resident of a contracting state or transactions undertaken if the main purpose or one of the main purposes of the creation or existence of the resident or the transaction was to obtain benefits under the agreement.

The protocol to the treaty notes that Maltese law currently permits Malta to lend assistance on collection of taxes only to countries that are members of the EU. If at a later date the law permits Malta to lend assistance in collection of taxes to non-EU countries, Malta will inform India’s competent authority and the competent authorities will enter discussions to settle the method of mutual assistance in tax collection.

The current DTAA and the Protocol for the avoidance of double taxation and for the prevention of fiscal evasion with respect to taxes on income between the two countries is in force since February 8, 1995. Once in force and effective, the new treaty will replace the current treaty. It is intended to stimulate the flow of capital, technology and personnel between the two countries, further strengthening their economic relationship.