Malta and Curaçao Sign Landmark Double Taxation Agreement: What It Means for Businesses and Individuals

In a significant move to enhance economic cooperation, Malta and Curaçao have officially approved the double taxation agreement as of June 11, 2024. This treaty with The Kingdom of the Netherlands concerning Curaçao aims to eliminate the burden of double taxation on individuals and businesses operating between the two jurisdictions. 

The agreement is based on the OECD Model Tax Convention on Income and Capital, which is the typical model used for bilateral tax treaties. It covers various taxes, including income tax, wage tax, profit tax, and dividend withholding tax.  

Primarily, the treaty sets clear rules to determine which country has the right to tax residents’ income, ensuring fair and equitable taxation. Additionally, it facilitates the exchange of tax information and mutual assistance in recovering tax debts, further strengthening the financial relationship between Malta and Curaçao. 

Key Provisions of the Double Taxation Agreement 

1. Residency Rules: Defines residency for tax purposes and outlines criteria for individuals and companies. 

2. Immovable Property: Income from real estate located in one state and earned by a resident of the other state may be taxed in the state where the property is located. 

3. Business Profits: Generally, a business is taxed only in its country of establishment unless it has a permanent establishment (PE) in the other state. 

4. Dividends: Dividends paid by a company in one state to a resident of the other can be taxed in both states, but with limits. 

5. Interest and Royalties: Interest and royalties arising in one state and paid to a resident of the other state are generally taxable only in the recipient’s state of residence. 

6. Pensions: Pensions and similar remuneration paid to a resident of Malta for past employment are taxable only in Malta. 

7. Capital Gains: Provisions related to the taxation of capital gains, especially those arising from the sale of shares or properties. 

8. Prevention of Tax Evasion: To prevent tax evasion these provisions have been made; 

• • Exchange of Information: Allows tax authorities to exchange information relevant to enforcing tax laws, including details about income, assets, and financial transactions.
  • Assistance in Collection of Taxes: Enables tax authorities to assist each other in collecting unpaid taxes, ensuring tax debts are collected even if assets or residence move to another country.
  • Anti-Avoidance Rules: Includes measures to counteract treaty shopping and other forms of tax avoidance.
  • Mutual Agreement Procedure (MAP): Provides a mechanism for resolving disputes regarding the application of the treaty, ensuring consistent and fair application.
  • Beneficial Ownership Requirement: Requires the recipient of income to be the beneficial owner to qualify for treaty benefits, preventing improper claims by intermediaries.
  • Limitation of Benefits (LOB) Clause: Limits treaty benefits to residents who meet specific conditions, ensuring only genuine residents can claim benefits.

9. Dispute Resolution: Mechanisms for resolving disputes between the tax authorities of Malta and Curaçao.

10. Technical Assistance: Clauses regarding technical assistance or capacity building in tax administration between the two jurisdictions. 

This development is expected to boost cross-border investments and economic activities, providing a more favorable environment for businesses and individuals alike. 

For more details on the agreement and its implications, stay tuned for updates.

Suggested Reading: Malta's Taxation System