Withholding Tax Rates: India to Malta Under DTAA

India to Malta Withholding Tax Rates Under DTAA

When an Indian entity pays a Malta resident — dividends, interest, royalties or fees for technical services (FTS) — tax must be withheld under section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17; section 195 of the Income-tax Act, 1961). The India-Malta DTAA, signed 8 April 2013 and effective in India from 1 April 2015, caps most of these payments at a flat 10%, well below India's 20% domestic rate.

Under section 159(4) of the Income-tax Act, 2025 (section 90(2) of the Income-tax Act, 1961), the taxpayer applies whichever rate — domestic or treaty — is more beneficial. This page works through each income head, article by article, and flags the treaty's most distinctive and most-missed feature: an asymmetric dividend rule under which Malta itself charges no separate dividend withholding at all.

Dividend Withholding Rates

Under Article 10 of the India-Malta DTAA, a dividend paid by an Indian company to a Maltese beneficial owner is subject to a maximum Indian withholding of 10% of the gross amount — Article 10(2)(a) sets one flat rate with no shareholding tier and no lower threshold for larger holdings.

The treaty's most distinctive and most-missed feature runs the other way. Article 10(2)(b) does not give Malta a rate cap at all — it caps Malta's tax "at that Malta tax chargeable on the profits out of which the dividends are paid." Protocol paragraph 1 spells out why: "under the full imputation system adopted by Malta, there is no withholding tax on dividends in addition to the tax chargeable in respect of the profits or income of the company out of which the dividends are paid." In practice, a Malta-resident company's dividend to an Indian shareholder carries no separate Maltese withholding beyond the tax the company already paid — but this is Malta's own imputation mechanism, not an Indian rate, and it has no bearing on what an Indian payer must withhold under Article 10(2)(a).

A dividend effectively connected with a PE or fixed base that the recipient has in the paying company's State falls out of Article 10 altogether and is taxed as business profits under Article 7 or 14 (Article 10(4)) — for a foreign company with an Indian PE, that means the 35% foreign-company rate on a net basis rather than the 10% gross withholding.

Interest Withholding Rates

Article 11 caps Indian tax on interest paid to a Maltese beneficial owner at 10% of the gross amount (Article 11(2)) — a straightforward 50% reduction from the 20% domestic rate on foreign-currency debt under section 207(1) (Table, Sl. No. 3) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961). Rupee-denominated interest paid to a non-resident falls outside that section and is taxed at rates in force — 30% for individuals, 35% for foreign companies — so the treaty's saving is even larger there.

Article 11(3)'s exemption list is narrow and entirely recipient-side: it names only the Reserve Bank of India, the Export-Import Bank of India and the National Housing Bank on the Indian side, and only the Central Bank of Malta on the Maltese side — there is no blanket exemption for banks or financial institutions generally, and no payer-side or guaranteed-loan limb of the kind found in some other Indian treaties. An ordinary Maltese bank lending commercially to an Indian borrower is taxed at the general 10% cap, not exempt. A third, non-self-executing limb lets the two competent authorities add institutions by exchange of letters, but that is a mechanism for future agreement, not a standing exemption. Late-payment penalty charges are excluded from the definition of "interest" (Article 11(4)), and interest integral to running a ship or aircraft business is Article 8 shipping profit rather than Article 11 interest (Article 8(3)).

Royalty and FTS Withholding Rates

Article 12, titled "Royalties and Fees for Technical Services," covers both in one paragraph — there is no separate FTS article, and Article 12(2) caps Indian withholding at 10% of the gross amount for either.

The royalty definition (Article 12(3)(a)) is the wide Indian-model list: copyright of literary, artistic or scientific work including films or broadcast tapes, patents, trademarks, designs, secret formulas or processes, use of industrial, commercial or scientific equipment, and information concerning industrial, commercial or scientific experience. FTS (Article 12(3)(b)) means "payments of any kind, other than those mentioned in Articles 14 and 15 ... as consideration for managerial or technical or consultancy services, including the provision of services of technical or other personnel." Managerial services are expressly covered and secondment of personnel is expressly inside the definition. Distinctively, there is no "make available" requirement of the kind found in India's treaties with Singapore, the US or the UK — a routine advisory or management fee stays taxable even where no technical knowledge passes to the Indian payer.

A separate compliance trap sits alongside the rate: Article 5(3)(b) creates a services PE where personnel furnish services (including consultancy) for the same or a connected project for more than 90 days in any 12-month period, and there is no carve-out excluding FTS engagements from that test. A single technical-services contract can therefore be taxed under Article 12 at 10% by withholding, and separately create a PE requiring net-basis assessment once the engagement runs past the 90-day mark.

Effectively Connected Income and the PE Carve-Out

All four income heads share the same mechanism: where the dividend, debt-claim, right or property giving rise to the payment is effectively connected with a permanent establishment or fixed base the recipient has in India, the passive-income article stops applying and the payment is instead taxed under Article 7 (business profits) or Article 14 (independent personal services) on a net basis — Articles 10(4), 11(5) and 12(4). In practice this means the 35% foreign-company rate applies to the net income attributable to the PE, not the 10% gross withholding rate. Whether a PE exists turns on Article 5's tests, including the distinctive 90-day services-PE threshold discussed above, which has no exception for engagements that are also taxed as FTS.

How to Apply the Reduced Rates

Tax Residency Certificate

The Malta resident must hold a valid Tax Residency Certificate (TRC) issued by the Maltese tax authority — Article 3(1)(i)(ii) names the Maltese competent authority as "the Minister responsible for Finance or his authorized representative."

Form 41 (formerly Form 10F)

The non-resident must electronically file Form 41 (formerly Form 10F), declaring status, country of residence, tax identification details, and whether the recipient has a beneficial ownership/PE position in India. Treaty relief at source is not available without this filing, though PAN is optional under a non-PAN registration category.

Forms 145 and 146 (formerly Forms 15CA and 15CB)

The Indian payer files Form 145 before remitting; for a taxable remittance exceeding ₹5 lakh without a lower-deduction certificate, an accountant's Form 146 certifying the correct rate is also required.

Lower or Nil Deduction Certificate

If the applicable rate is genuinely uncertain, the non-resident can apply to the Assessing Officer under section 395(1) of the Income-tax Act, 2025 (section 197 of the Income-tax Act, 1961) for a certificate specifying the correct withholding rate.

Related-Party Payments

Dividends, interest, royalties or FTS between associated enterprises additionally require Form 48 (formerly Form 3CEB), the accountant's report on international transactions.

Domestic Rates vs Treaty Rates Comparison

Domestic rates under section 207(1) and 207(2) of the Income-tax Act, 2025 (section 115A of the Income-tax Act, 1961) can attract further surcharge and health-and-education cess; the DTAA rate of 10% is the final, all-inclusive rate with no addition on top, so the effective saving can exceed the headline 50% once surcharge and cess are factored in.

Worked Examples

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. If the direction were reversed, a Malta company's dividend to an Indian shareholder would carry no further Maltese withholding at all, since Malta's imputation system already taxed the profits at company level.

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

Technical fees. A Maltese consultancy invoices ₹18,00,000 for advisory work; TDS at 10% under Article 12(2) is ₹1,80,000, against ₹3,60,000 domestic. If the consultancy's staff are present in India, on the same or a connected project, for more than 90 days in any 12-month period, Article 5(3)(b) also creates a services PE — the 10% withholding does not preclude a later PE-basis assessment.

Common Mistakes and Compliance Tips

Assuming a reduced or zero dividend rate for a large Maltese shareholding

Article 10(2)(a) is a flat 10% regardless of shareholding size — there is no participation-based exemption on the Indian side. What Article 10(2)(b) and Protocol paragraph 1 give is relief on the Maltese side (no additional Maltese withholding), not a lower Indian rate.

Treating any Maltese bank as interest-exempt

Article 11(3)'s list names exactly three Indian institutions, the Central Bank of Malta, and government bodies — an ordinary bank or NBFC is not covered and stays at the general 10% cap.

Assuming a "make available" test applies to FTS

Article 12(3)(b) has no such requirement — a routine managerial, technical or consultancy fee remains taxable even where no technical knowledge is transferred to the Indian payer.

Missing the services-PE overlap

A technical-services engagement lasting more than 90 days in any 12-month period can create a PE under Article 5(3)(b) even though the same fee is also taxed as FTS at 10% — there is no carve-out excluding one from the other.

Not filing Form 41 before the payment

Treaty relief at source is unavailable without an electronically filed Form 41, even where a valid TRC exists — the payer would otherwise have to withhold at the 20% domestic rate.

Overlooking the Protocol carve-out for Malta special-regime payees

Protocol paragraph 2 switches off Articles 6 to 22 — which includes the Article 10, 11 and 12 rate caps — for a person enjoying special fiscal treatment under Malta's Merchant Shipping Act 1973 or a company licensed under the Malta Freeport Act 1989, and for any similar later Maltese regime, "to the extent that" it is not subject to Malta tax on the sheltered profits. A payee inside one of those regimes gets no treaty rate at all, and the Indian payer withholds at the domestic rate.

For the full treaty background, see our India-Malta DTAA guide, and for related compliance concepts see our entries on withholding tax and GAAR, or our DTAA advisory services.

Frequently Asked Questions

What is the withholding tax rate on dividends from India to Malta?

Article 10(2)(a) of the India-Malta DTAA caps India's withholding on dividends at a flat 10% of the gross amount, with no shareholding tiers. Going the other way, Malta charges no separate dividend withholding at all under its full imputation system, since the dividend already carries the tax paid on the company's profits (Protocol paragraph 1).

Is interest paid to a Maltese lender exempt from Indian withholding tax?

Only for a short named list. Article 11(3) exempts interest paid to the Government of either State, and to the Reserve Bank of India, the Export-Import Bank of India, the National Housing Bank, or the Central Bank of Malta. An ordinary commercial bank or NBFC is not covered and remains subject to the general 10% cap under Article 11(2).

What is the withholding rate on royalties and fees for technical services to Malta?

Article 12(2) caps both royalties and fees for technical services at 10% of the gross amount, since the treaty combines them in a single article. There is no separate FTS article and no 'make available' requirement, so managerial, technical and consultancy fees are all taxable at 10% even without any transfer of technical knowledge.

Do I need Form 146 for every payment to Malta?

Form 146 (the accountant's certificate, formerly Form 15CB) is required only for a taxable remittance exceeding ₹5 lakh where no lower-deduction certificate has been obtained. Form 145 (formerly Form 15CA) must still be filed for the remittance itself, and Form 41 (formerly Form 10F) is required to claim the treaty rate at all.

Can the Indian tax authority deny the 10% treaty rate?

Yes. The Assessing Officer can deny treaty benefits and apply the domestic rate if the recipient is not the beneficial owner, if a permanent establishment exists in India, or if the arrangement fails the treaty's Principal Purposes Test or India's domestic GAAR. A valid TRC and Form 41 do not by themselves guarantee the treaty rate applies.

What happens if TDS is deducted at the domestic 20% rate instead of the treaty rate?

The Malta resident can claim a refund of the excess tax deducted by filing an Indian income tax return and claiming credit for the tax withheld. It is preferable to apply the correct 10% rate upfront by filing Form 41 and providing the TRC before the payment, so the excess withholding and refund process can be avoided altogether.