The income tax treaty between Kosovo and Malta entered into force on 20 September 2019. The treaty, signed 6 March 2019, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Kosovo personal income tax and corporate income tax and covers Malta income tax.

Service PE

The treaty includes the provision that a permanent establishment will be deemed constituted when an enterprise furnishes services within a Contracting State through employees or other engaged personnel and the activities continue for a period or periods aggregating more than 183 days within any 12-month period.

Withholding Tax Rates

• Dividends –
  • for dividends paid by a resident of Kosovo to a resident of Malta, 0% if the beneficial owner is a company that has directly held at least 10% of the paying company's capital throughout a 365-day period that includes the day of payment; otherwise, 10%
  • for dividends paid by a resident of Malta to a resident of Kosovo, the tax is limited to the amount of Malta tax on the profits out of which the dividends are paid
• Interest – 5%, with an exemption for interest paid:
  • with respect to the sale on credit of any equipment, merchandise, or services;
  • on any loan of whatever kind granted by a bank;
  • to a collective investment scheme;
  • to the other Contracting State or the central bank or local authority thereof; or
  • on intercompany loans
• Royalties – 0%

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

• Gains from the alienation of immovable property situated in the other State;
• Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State; and
• Gains from the alienation of shares or comparable interests if, at any time during the 365 days preceding the alienation, the shares or comparable interests derived more than 50% of their value from immovable property situated in the other State.

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Arbitration

Article 23 (Mutual Agreement Procedure) includes the provision that if any issues of a case cannot be resolved under MAP within two years, the person that presented the case may request that the case be submitted to arbitration. Unresolved issues may not, however, be submitted to arbitration if a decision on the issues has already been rendered by a court or administrative tribunal of either Contracting State.

Entitlement to Benefits

Article 26 (Entitlement to Benefits) provides that a benefit under the treaty will not be granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit would be in accordance with the object and purpose of the relevant provisions of the treaty.

Effective Date

The treaty applies from 1 January 2020.