Clarification Issued by the Inland Revenue Department Regarding Director’s Fees Payable to Non-Resident Directors by Resident Companies
News    ·   17-12-2012

AUTHOR: Donald Vella, David Farrugia

On Friday 14th December 2012, the Inland Revenue Department (Malta) (the “IRD”) issued a clarification regarding the issue of the tax treatment of director’s fees paid by a company resident in Malta to non-resident directors. The IRD clarified queries which were being received in relation to the deemed source of such income.

The IRD’s clarification confirmed that such income is deemed to arise in the country of residence of the company paying out the director’s fees. This is in line with the OECD Model’s commentary whereby it is stated that the directors’ services are considered to be performed in the state of residence of the company. Therefore director’s fees payable to non-resident directors by a Maltese company would still be taxable in Malta due to the fact that such income is considered to have arisen in Malta.

On the other hand, any remuneration which does not fall within the definition of director’s fees and which is paid to any director who is not resident or domiciled in Malta, would not be subject to such treatment. Therefore such income would not automatically be considered to have arisen in the company’s country of residence. Consequently, the definition of director’s fees is a fundamental issue to consider when determining which country can exercise jurisdiction to tax such income.

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