On November 18, 2010,  a treaty for the avoidance of double taxation was initiated by and between Israel and Malta.
Like other tax treaties Israel has signed lately, this treaty is based on the OECD model. The treaty sets out the withholding tax rates between the two countries as we will specify herein. The treaty will enter into force following the formal signing and ratification procedure by both states, assumingly not before 2012. We should note that the full text of the treaty was not yet published.

Dividends

According to the treaty, there will be no withholding tax (“WHT“) from dividends paid by a company, resident of a contracting state, to a company that is a substantial share holder (holding 10% or more), and a resident of the other state; in all other cases, the WHT will not exceed 15%. It should be noted that according to the law in Malta there is no withholding tax on dividend payments.

Interest

According to the treaty there will be a WHT of only 5% on interest paid to a resident of the contracting state by a resident of the other. It should be noted that according to the law in Malta there is no withholding tax on interest payments.

Royalties

The treaty follows the OECD model by setting an exemption from WHT by the source state on royalties paid to a resident of the other contracting state. We may note that other tax treaties recently signed by Israel also follow that rule by allocating the taxation right of royalties to the state of residence. As with dividends and interest, according to the law in Malta there is no withholding tax on royalties payments.

In addition, the treaty sets out broadly the article regarding Exchange of information between the tax authorities of both countries. Accordingly, the Israeli Tax Authority can receive information regarding income derived by Israeli residents in Malta, also with regard to information held in the banks of Malta.

It should be noted that there may be a great advantage for Israeli investors to use a Maltese company, as part of an International tax planning, to perform investments and provide services in European countries as well as in other countries around the globes. This, in light of the tax regime set in Malta (i.e. the internal tax law in Malta when distributing dividends etc’), and in light of the fact that Malta is a member in the European Union and as such is part to different directives that apply to the European Union countries. In addition, Malta is part of many treaties for the avoidance of double taxation, including recent tax treaties that were signed with the United States and china (both based on the OECD model).