Review of the Treaty between the Russian Federation and Malta

The Russian Federation has ratified the doublet tax treaty with Malta on 26 March 2014 and since Malta has ratified it last year, the treaty will come into force from 2015.

However, Malta (unlike Cyprus) is now on the Russian Ministry of Finance's so-called "black list" and the fact that the two countries have signed the DTT does not mean that Malta will be excluded from the list.

If a country is in the black list of the Russia Federation, it has the following consequences:

(1) dividends transferred to Russia cannot be subject to zero tax rate in Russia;

(2) deals with independent parties from Malta are subject to the Russian transfer pricing rules;

(3) controlled companies based in Malta are very likely to be subject to CFC rules that will be established in Russia (if the same "black list" will be used for CFC purposes).

Based on the fact that Malta is still on the black list of Russia and considering the withholding tax rates of the DTT between Russia and Malta, on interest and royalties, we consider that Malta is unlikely to be used as financial center for Russian individuals and or companies.