India-Malta DTAA: Complete Guide to the Double Taxation Avoidance Agreement

Quick answer: The India-Malta DTAA, signed 8 April 2013 and in force from 7 February 2014, caps dividends and interest at a flat 10% and puts royalties and fees for technical services together in one 10% article. Relief is asymmetric on dividends: India caps its withholding at 10%, while Malta charges no separate dividend withholding at all under its full imputation system. Article 13(4) lets India tax a Maltese resident's gain on shares of an Indian company with no threshold, and since 2020 the OECD Multilateral Instrument (MLI) overlays the treaty's own Article 27 with a Principal Purposes Test.

Key takeaways:

• Dividends are capped at 10% on the Indian side (Article 10(2)(a)); Malta adds no further withholding under its full imputation system (Protocol paragraph 1)
• Interest is capped at 10%, with a narrow exemption for the RBI, EXIM Bank, National Housing Bank, the Central Bank of Malta, and government bodies (Article 11(3))
• Royalties and fees for technical services share one Article 12 at 10%, with no "make available" test
• Construction PE threshold is 6 months; a services PE arises at more than 90 days in any 12-month period, with no carve-out for technical-service engagements
• Article 13(4) gives India an unconditional right to tax gains on Indian-company shares; the MLI has added a land-rich rule reaching partnership and trust interests too
• The MLI is a Covered Tax Agreement here: it adds an anti-abuse preamble, the Article 13 land-rich rule, and a Principal Purposes Test replacing Article 27's own main-purpose test

Overview of the India-Malta DTAA

The Double Taxation Avoidance Agreement (DTAA) between India and Malta stops the same income being taxed twice as it crosses the two countries. Malta is an EU member state with a full-imputation corporate tax system, and the treaty is a frequent reference point for Malta-based holding, shipping and financial-services structures.

The India-Malta DTAA applies to residents of either State (Article 1) and to taxes on income imposed by either country, including any Indian surcharge (Article 2) — India's income tax and Malta's income tax are the taxes named. Its 30 articles cover permanent establishment, business profits, dividends, interest, royalties, fees for technical services, capital gains, employment income and relief from double taxation. A three-paragraph Protocol forms an integral part of the Agreement and deals with Malta's imputation system, a carve-out for Malta's special fiscal regimes, and assistance in tax collection.

The treaty is a Hybrid model: OECD-style in its residence tie-breaker (Article 4), business-profits attribution (Article 7) and associated-enterprises rule (Article 9), but UN-influenced in Article 5's 90-day services PE test, its sales-outlet and farm/plantation PE listings, and its broad order-securing agency PE. A combined royalty/FTS article, the unconditional source right over company-share gains (Article 13(4)) and source taxation of gambling income (Article 22(3)) round out the UN influence.

Treaty History and Current Status

The Agreement was signed on 8 April 2013 at Malta, with a Protocol forming an integral part of it. It entered into force on 7 February 2014 (Article 29(1)), notified by S.O. 1996(E), dated 5 August 2014. Under Article 29(3) it has effect in India from fiscal years beginning on or after 1 April 2015, and in Malta from tax years beginning on or after 1 January 2015. Article 29(4) terminated the countries' earlier 28 September 1994 agreement.

India and Malta have both ratified the Multilateral Instrument (MLI), and this treaty is a Covered Tax Agreement. India ratified 25 June 2019 (MLI in force 1 October 2019); Malta ratified 18 December 2018 (in force 1 April 2019). It took effect for withholding taxes from 1 April 2020 (India) and 1 January 2020 (Malta), with three provisions adopted: an anti-treaty-shopping preamble (MLI Article 6(1)); a land-rich rule added to Article 13 (MLI Article 9(4)); and a Principal Purposes Test replacing Article 27's operative substance (MLI Article 7(1)). Article 5's PE thresholds are unchanged.

Residence and Permanent Establishment

Article 4 defines a resident as any person liable to tax by domicile, residence, place of management or similar criteria, excluding one taxed only on local-source income. Dual-resident individuals apply the standard tie-breaker in order: permanent home, centre of vital interests, habitual abode, nationality, then mutual agreement. Dual-resident companies look to place of effective management (Article 4(3)), unchanged by the MLI since the alternative dual-resident-entity provision was not adopted here.

Article 5 defines a permanent establishment (PE) as a fixed place of business, listing eight examples including a sales outlet, a farm or plantation, and a mine, oil or gas well or offshore drilling site. Two thresholds are time-based:

• Construction PE — more than 6 months. A building site, construction, installation or assembly project, or connected supervisory activities (Article 5(3)(a)).
• Services PE — more than 90 days in any 12-month period. Furnishing services (including consultancy) through personnel, aggregated for the same or a connected project (Article 5(3)(b)) — a rolling window, not a fiscal year, with no carve-out for engagements that are also FTS under Article 12.

Preparatory/auxiliary exclusions (Article 5(4)) are narrower than usual — storage, display and only occasional delivery. Article 5(5) adds an agency PE for a dependent person who concludes contracts, delivers from a stock habitually, or habitually secures orders for the enterprise; Article 5(6) adds an insurance PE (excluding re-insurance); the Article 5(7) independent-agent safe harbour is lost where an agent works wholly or almost wholly for one enterprise.

Business Profits and Shipping Income

Article 7 taxes profits only in the enterprise's residence State unless there is a PE, in which case only profits attributable to that PE may be taxed — "so much of them as is attributable," with no force of attraction. The PE is treated as an independent, arm's-length enterprise (Article 7(2)); notional royalty, know-how, commission or (outside banking) interest charges to head office are disallowed (Article 7(3)).

Article 8 keeps international shipping and aircraft profits taxable only in the enterprise's residence State, extending this to container-leasing income (Article 8(2)). Article 8(3) treats interest integral to running a ship or aircraft business as Article 8 profit, not Article 11 interest.

Dividends, Interest, Royalties and Fees for Technical Services

Dividends — an asymmetric Article 10

Article 10(2)(a) caps India's tax on a dividend to a Maltese beneficial owner at 10% of the gross amount — flat, no shareholding tier. Article 10(2)(b) instead caps Malta's tax at "that Malta tax chargeable on the profits out of which the dividends are paid." Protocol paragraph 1 explains: under Malta's full imputation system "there is no withholding tax on dividends in addition to the tax chargeable in respect of the profits" — a Malta-sourced dividend to an Indian shareholder carries no further Maltese tax. Effectively-connected dividends go to Article 7 or 14 (10(4)).

Interest — a narrow, recipient-side exemption

Article 11(2) caps source-State tax on interest at 10% for a beneficial owner in the other State. Article 11(3) exempts interest paid to the Government or a local authority, and — naming only three Indian bodies — the Reserve Bank of India, the Export-Import Bank of India and the National Housing Bank, or the Central Bank of Malta. A non-self-executing limb lets the competent authorities agree further institutions by exchange of letters, but this is a mechanism, not an existing list — an ordinary bank stays at the general 10% cap. Late-payment penalties are excluded from "interest" (11(4)); effectively-connected interest goes to Article 7 or 14 (11(5)).

Royalties and FTS — one article, no make-available test

Article 12 combines royalties and FTS in a single 10% cap (12(2)) — no separate FTS article exists. The royalty definition (12(3)(a)) is the wide Indian-model list: copyright, films/broadcast tapes, patents, trademarks, designs, secret formulas, industrial/commercial/scientific equipment use, and technical experience information. FTS (12(3)(b)) means "payments ... as consideration for managerial or technical or consultancy services, including the provision of services of technical or other personnel," excluding only Article 14/15 payments. Managerial services are covered and there is no "make available" requirement, unlike India's Singapore, US or UK treaties — a routine fee is taxable without any knowledge transfer. Source is payer-based with a PE override (12(5)(a)); a second-chance rule (12(5)(b)) deems the payment to arise where used/performed if (a) places it nowhere. Effectively-connected amounts go to Article 7 or 14 (12(4)).

Capital Gains

Article 13(4) is unusually broad: "Gains from the alienation of shares in a company which is a resident of a Contracting State may be taxed in that State" — full stop, with no minimum-holding, substantial-participation or grandfathering test as in India's Mauritius, Singapore or Cyprus treaties. India's own indirect-transfer rules under section 9 of the Income-tax Act, 2025 (section 9(1)(i) of the Income-tax Act, 1961) can separately reach offshore transfers of Indian-derived value.

The base treaty had no land-rich share clause; the MLI added one. MLI Article 9(4) taxes gains on "shares or comparable interests, such as interests in a partnership or trust," where, in the 365 days before alienation, they derived over 50% of their value from immovable property in the other State — reaching beyond company shares, and sitting alongside 13(4) rather than replacing it.

Employment Income and Other Distinctive Provisions

Article 15 taxes salaries where employment is exercised, unless present under 183 days in any 12-month period with a non-resident employer and no Indian-PE burden. Article 14 gives similar treatment to independent professional services — residence-State only unless there is a fixed base or 183+ days' presence.

Narrower rules: directors' fees taxable where the company is resident (Article 16); entertainers/sportspersons taxable where they perform, unless substantially publicly funded (Article 17); pensions taxable only in the residence State (Article 18), subject to Article 19's government-service rule; visiting professors/researchers get a two-year exemption (Article 20); students get up to six years' exemption on maintenance/education remittances (Article 21).

Residual income falls to the residence State (Article 22(1) and (2)). Article 22(3) then adds a UN/Indian-model feature absent from the OECD Model: income from lotteries, races, card games or gambling may be taxed at source regardless.

Relief from Double Taxation

Article 23 gives both countries an ordinary-credit method. India allows a deduction equal to the Malta tax paid, capped at the Indian tax attributable to that income, with exemption-with-progression for treaty-exempt income (23(1)). Malta credits Indian tax against the relative Malta tax, subject to Malta's own domestic credit rules, with the same exemption-with-progression mechanism (23(2)). Neither side offers tax sparing — there is no deemed-credit clause for tax waived under either country's incentive regimes.

Anti-Abuse Rules: LOB, PPT and GAAR

Article 27 ("Limitation of Benefits") is a main-purpose test, not an objective US-style LOB clause — no ownership/base-erosion test, no publicly-traded exception, no expenditure threshold. As drafted it preserves domestic anti-evasion rules (27(1)), denies benefits where obtaining them was a main purpose of a resident's creation or a transaction (27(2)), and extends this to entities lacking bona fide business activity (27(3)).

Since the MLI took effect, the Principal Purposes Test (PPT) is the treaty's live anti-abuse standard: a benefit is denied if obtaining it "was one of the principal purposes of any arrangement or transaction," unless granting it accords with the object and purpose of the relevant provisions. This treaty has no most-favoured-nation clause anywhere, so a lower rate agreed with a third State cannot be imported here.

India's domestic GAAR, under section 159(6) of the Income-tax Act, 2025 (section 90(2A) of the Income-tax Act, 1961), applies independently. Protocol paragraph 2 separately switches off Articles 6–22 for special-regime entities under Malta's Merchant Shipping Act 1973 or Freeport Act 1989, and any similar later Maltese regime — but only "to the extent that" the entity is not subject to Malta tax on the sheltered profits.

Tax Residency Certificate and Claiming Treaty Benefits

A Maltese resident needs a valid TRC from the Maltese tax authority — Article 3(1)(i)(ii) names the competent authority as "the Minister responsible for Finance or his authorized representative." An Indian resident claiming relief in Malta obtains a TRC from the Income Tax Department under section 159(8) of the Income-tax Act, 2025 (section 90(4) of the Income-tax Act, 1961).

The non-resident must also file Form 41 (formerly Form 10F), declaring status and beneficial ownership/PE position — relief at source needs this filing, though PAN is optional. The payer deducts tax under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961), applying the more-beneficial rate under section 159(4) (section 90(2), 1961 Act), and files Forms 145 and 146 (formerly 15CA/15CB) before remitting, with Form 146 needed only above ₹5 lakh without a lower-deduction certificate. Related-party transactions also need Form 48 (formerly Form 3CEB); if uncertain, apply under section 395(1) (section 197, 1961 Act) for a certificate. See the full rate-by-rate breakdown on our India to Malta withholding tax rates page, our withholding tax glossary entry, or our DTAA advisory services.

Worked Example

Dividend. An Indian company pays ₹40,00,000 to its Malta-resident corporate shareholder (beneficial owner, no Indian PE, TRC and Form 41 on file). TDS at the Article 10(2)(a) rate of 10% is ₹4,00,000, against ₹8,00,000 at the 20% domestic rate under section 207(1) (Table, Sl. No. 1) of the Income-tax Act, 2025. Reversed, a Malta company's dividend to an Indian shareholder attracts no further Maltese withholding at all.

Interest. An Indian borrower pays ₹12,00,000 interest to an ordinary Maltese bank — not on the Article 11(3) list — so the general 10% cap applies: TDS ₹1,20,000, against ₹2,40,000 domestic.

Technical fees and the services-PE overlap. A Maltese consultancy invoices ₹18,00,000 for advisory work; TDS at 10% under Article 12(2) is ₹1,80,000. If its staff are present in India, on the same or connected project, for more than 90 days in any 12-month period, Article 5(3)(b) also creates a services PE — the 10% withholding at source does not preclude PE-basis assessment.

Common Mistakes

• Assuming a lower dividend rate for a large shareholding. Article 10(2)(a) is a flat 10% regardless of size.
• Treating any Maltese bank as interest-exempt. Article 11(3) names exactly three Indian institutions, the Central Bank of Malta, and government bodies.
• Assuming a "make available" test applies to FTS. Article 12(3)(b) has none.
• Missing the services-PE overlap. A technical-services engagement over 90 days in 12 months can create a PE even though it is also FTS.
• Overstating the anti-abuse machinery. Article 27 is a main-purpose test, not an objective LOB.
• Ignoring the Protocol carve-out for Malta Merchant Shipping Act 1973 and Freeport Act 1989 entities.
• Filing Form 41 late, or not at all — treaty relief at source is unavailable without it.

Frequently Asked Questions

What is the India-Malta DTAA and when did it take effect?

The India-Malta DTAA is a bilateral tax treaty signed on 8 April 2013 and in force from 7 February 2014. It has effect in India for fiscal years beginning on or after 1 April 2015, and in Malta for tax years beginning on or after 1 January 2015. It replaced an earlier agreement between the two countries signed on 28 September 1994.

What is the withholding tax rate on dividends under the India-Malta DTAA?

Article 10(2)(a) caps India's withholding on dividends paid to a Maltese beneficial owner at a flat 10%, with no shareholding-based tier. Going the other way, Malta charges no separate dividend withholding at all — under its full imputation system, the dividend already carries the tax paid on the company's underlying profits, so nothing further is withheld (Protocol paragraph 1).

Is any interest exempt from withholding under this treaty?

Yes, but narrowly. Article 11(3) exempts interest paid to the Government or a political subdivision of either State, and to a short named list — the Reserve Bank of India, the Export-Import Bank of India and the National Housing Bank on the Indian side, and the Central Bank of Malta on the Maltese side. An ordinary commercial bank remains subject to the general 10% cap under Article 11(2).

How does the treaty tax capital gains on shares of an Indian company?

Article 13(4) gives India an unconditional right to tax a Maltese resident's gains on shares of an Indian company, with no minimum shareholding, land-rich test or grandfathering date. Since 2020, the Multilateral Instrument has added a further rule taxing shares, partnership interests or trust interests that derived more than 50% of their value from Indian immovable property within the preceding 365 days.

Does the Multilateral Instrument (MLI) change this treaty?

Yes. Both countries ratified the MLI, and it has applied to this treaty's withholding taxes from 1 April 2020 (India) and 1 January 2020 (Malta). Only three changes were adopted: an anti-treaty-shopping preamble, the land-rich rule added to Article 13 for shares and comparable interests, and a Principal Purposes Test that now operates as the treaty's main safeguard in place of Article 27's own main-purpose test.

What documents does a Maltese resident need to claim treaty benefits in India?

A valid Tax Residency Certificate from the Maltese tax authority, an electronically filed Form 41 (formerly Form 10F) declaring status, beneficial ownership and Indian PE position, and — from the Indian payer — Forms 145 and 146 (formerly 15CA/15CB) before the remittance, with Form 146 required for a taxable remittance above ₹5 lakh without a lower-deduction certificate.