The Ministry of Finance of the Russian Federation has prepared a draft agreement on cancellation of the double taxation treaty (DTAA) between Malta and Russia. If it is signed, from January 1, 2021 the tax burden will increase for Russians who accumulate money in Malta or receive income from assets in this country.
According to Immigrant Invest lawyers, the cancellation of the DTAA will not affect investors' interest in Malta's citizenship or permanent residence programmes for investment.
Cancellation of the DTAA between Russia and Malta
The Russian government is preparing to dissolve DTAA with Malta. An agreement has already been prepared, which provides for the cancellation of the agreement from 1 January 2021.
DTAA allows reducing the tax rate on dividends, interest and license payments (royalties) from Russia to Malta by up to 5%.
If the DTAA is terminated, some Russian citizens and companies will pay taxes on general terms in the two countries. The tax rates in Russia for payments to residents of Malta will be 15% for dividends and 20% for interest and royalties.
Preparations for the dissolution of DTAA began in March 2020. Then Russian President Vladimir Putin said that tax rates on dividends paid abroad were too low. Already in March-April 2020, Cyprus, Luxembourg and Malta received letters proposing changes to the DTAA.
Who will be affected by the cancellation of the DTAA
Cancellation of DTAA will affect two categories of Russian citizens.
- Tax residents of Malta, who withdraw their income from Russia to their Maltese accounts in the form of dividends, interest, income from the sale of shares.
- Russian tax residents who receive income from investments in Malta, for example, from renting out real estate.
We present the tax rates that will be effective in Russia and Malta in case of cancellation of the DTAA.
Tax rates after cancellation of the DTAA
|Country of tax residence||Financial transaction||Tax in Malta||Tax in Russia|
Transfer of dividends from Russia to Malta
Up to 35%*
Transfer of dividends from Malta to Russia
Renting a property in Malta
Property for sale in Malta,
over 5 years of ownership
Property for sale in Malta,
tenure less than 5 years
* Investor may participate in GRP program. Under this program, all income from foreign sources of the main applicant, his or her spouse and children under 18 years old is taxable at the rate of 15%.
** The tax has been reduced due to economic stimulus measures and amounts to 1.5%. The new rate is valid until March 2021. It applies to properties that do not require an AIP permit for purchase, such as those located in Special Designated Areas.
Impact on investors who plan to obtain Malta citizenship or permanent residence for investments
Termination of DTAA will hardly affect investors who take part in Malta citizenship and permanent residence programs for investments.
Important: "Optimisation of taxation is not the primary goal when applying for a second passport or co-payment status in Malta. Investors are interested in the opportunity to live and do business in any EU country or travel around the world without visas", - said Victoria Atanasova, head of the Malta office Immigrant Invest, international and economic law lawyer.
The most important advantages of a passport and permanent residence status in Malta are freedom of travel and the creation of a “reserve airfield”.
Important! “The advantage of the Maltese passport is that it allows you to live and work in any EU country. The advantage of permanent residence status is that an investor can travel around Schengen countries without visas and live in Malta. At the same time, there are no requirements for living in Malta as part of investment programs, ”said Victoria Atanasova.
To become a tax resident of Malta, you need to live in the country at least 183 days a year. Moreover, the tax regime in the country, although quite mild, is not always the most profitable.
We therefore consider that Malta's citizenship and permanent residence programmes will not lose their popularity due to the abolition of DTAA. Participants in investment programmes have other priorities, and transfers of funds or business to Malta are quite rare.
Earlier we said that Malta reduced stamp duty for property buyers and sellers. The new tax rates apply until March 2021. This is an opportunity for investors to save on home purchase for Malta citizenship and residence permit programmes for investment.