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Norway; Malawi

23 March 2010

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Treaty between Norway and Malawi – details

Details of the income tax treaty between Norway and Malawi, signed on 8 December 2009, have become available. The treaty was concluded in the English language. The treaty generally follows the OECD Model Convention. Once effective, the treaty will replace the Norway-Great Britain treaty of 2 May 1951 which was extended to Malawi by the exchange of notes.

The maximum rates of withholding tax are:

-   15% generally on dividends; 5% on dividends if the beneficial owner is a company (other than a partnership) which owns directly at least 10% of the capital of the company distributing the dividends (Art. 10 (2));
-   10% on interest (Art. 11(2) with exceptions; and
-   5% on royalties (Art. 12(2)).

Deviations from the OECD Model include that:

-   the term "permanent establishment" (PE) also encompasses: (i) a building site, a construction, assembly or installation project or connecting supervisory or consultancy activity provided that such site, project or activities continue for a period of more than 6 months (Art. 5(3)); (ii) an installation or structure used for the exploration of natural sources (Art. 5(2)(g)); (iii) an insurance company is, except in the case of reinsurance, deemed to have a PE in the other contracting state, if it collects premiums in the territory of that state or insures risks situated therein through an employee of a person other than an independent agent (Art. 5(8)); and (iv) a situation where an enterprise of a contracting state performs services in the other contracting state either (a) through an individual who is present in the other state during a period or periods exceeding in the aggregate 183 days within any 12-month period and more than 50% of the gross revenues attributable to active business activities of the enterprise during this period or periods are derived from services in that other state through an individual; or (b) during a period pr periods exceeding in the aggregate 183 days within any 12-month period, and these services are performed for the same project or connected projects through one or more individuals who are performing services in that state or are present in that state for the purpose of performing such services (Art. 5(4));
-   the term "royalties" includes films, tapes and discs used for radio or television broadcasting (Art. 12(3));
-   pensions and social security payments may be taxed in the source state (Art. 18(1)); and
-   alimony and other maintenance payments to a resident of the other state shall be taxable in the residence state of the recipient. However, such payment shall, to the extent it is not allowable as a relief to the payer, be taxable only in the source state (Art. 18(3)).

Both states generally provide for the credit method to avoid double taxation (Art. 21). Norway also provides for the exemption-with-progression method (Art. 21(2)(b)).

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