Legislating for Luxury in the Sky

Legislating for Luxury in the Sky

A decade or so of key regulatory innovation spanning various industries, such as financial services, gaming, yachting and aviation, has incentivised several global entrepreneurs to use Malta not only as an efficient domicile of choice for their business interests but also as a base for their luxury ‘toys’. 

The world has witnessed an exponential growth in the number of people using private aircraft and/or luxury yachts and this represents the wealth that the legislator has been striving to draw within the island’s shores.

The result is that Malta is able to couple its unparalleled corporate offering with an attractive option for yacht and aircraft registration enabling entrepreneurs and ‘big corporates’ to effectively house the majority of their assets in one pragmatic yet prudent EU jurisdiction. A natural corollary in this respect is the generation of increased ancillary business for various local industry players and service providers and an overall benefit to the Maltese economy in general.

the majority of registrations comprise private jets and other commercial aircraft

Through the introduction of The Aircraft Registration Act 2010 Malta became a force to be reckoned with in Europe’s aircraft registration industry. As at November 2016, Malta’s Aviation Registry totals 239 aircraft and over 31 operators in its register. It is noteworthy that the majority of such registrations comprise private jets and other commercial aircraft. To this end, large corporate chartering operators such as Comlux, Orion Malta and VistaJet chose Malta as a base for their operations. 2015 represented several key ‘firsts’ for Malta’s aviation industry with the registration of two Airbus A340 and a Sukhoi Superjet 100, the latter being the first ever model of its type to be registered in the European Union.

This growth has been bolstered by solid physical infrastructure including an investment to the tune of €17 million in the 200,000 sqm Safi Aviation Park which hosts various aircraft operators and ‘repair and overhaul’ businesses including Lufthansa Technik.

The Aircraft Registration Act also implements the Cape Town Convention on International Interests in Mobile Equipment and its Aircraft Protocol thereby granting secured lenders a higher degree of protection and more effective remedies whilst allowing lower borrowing costs. Moreover, the island’s role as a European financial services hub, facilitates the structuring of aircraft finance arrangements through, inter alia, syndicated loans and securitisation in terms of Malta’s Securitisation Act, under which a number of asset classes may be securitised including aircraft charter and lease payments.

Malta’s private aviation industry is complemented by an attractive VAT leasing regime which has ostensibly served as the primary catalyst for attracting private jets to fly our flag and which mitigates VAT leakage to an extent dependant on the aircraft range which would in turn determine the deemed period of time that the aircraft is used within EU airspace. By way of example, an aircraft with a range of up to 2999km has a deemed EU use of 60% and attracts an effective VAT rate of 10.8%, whilst an aircraft with a range of over 7000km has a deemed EU use of 30% and attracts an effective VAT rate of 5.4%.

Malta’s private aviation industry is complemented by an attractive VAT leasing regime which has ostensibly served as the primary catalyst for attracting private jets to fly our flag and which mitigates VAT leakage

In order to benefit from this regime the following conditions must be satisfied:

  • A lease agreement is to be entered into between the owner of the aircraft (qua lessor) and the user of the aircraft (qua lessee) whereby the lessor contracts the use of the aircraft to the lessee for a consideration which is payable on a monthly basis;
  • Both the lessor and the lessee must be established in Malta;
  • The operative period of the lease agreement shall not exceed 60 months;
  • Prior approval must be sought in writing from the VAT Department with each application being considered on its own merits.

Following the lapse of the lease period, the lessee may exercise an option to purchase the aircraft and, provided that all VAT payments have been duly effected, a VAT paid certificate will be issued in respect of the aircraft.

With recent statistics showing that circa 40% of the world’s aircraft are being leased, the availability of the abovementioned regime means that Malta is well-positioned to further establish itself as a global key player and centre of excellence in the aviation industry.

This Article was first published on Money Magazine, December 2016.

Contact Be. Legal Advocates to find out more about Malta’s strategic aviation offering

About Dr Doran Magri Demajo

Dr Doran Magri Demajo is a Partner at Be Legal and is primarily responsible for corporate law, employment law, financial services and Maritime law.
View all posts by Dr Doran Magri Demajo

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