Malta has in recent years become an attractive base for anyone involved in the aviation industry. Malta’s Aviation Registry has in fact continued to achieve a steady growth with a record of 61 aircraft registered in 2015. The success of the Aviation Registry is sustained by fiscal incentives including a low corporate tax regime as well as rebate on profits. This is complemented by specialised technical personnel who are readily available, flexible and accessible.
Malta’s Aviation Registry has continued to achieve steady growth with a record of 61 aircraft registered in 2015
As at May 2016, Malta’s Aviation Registry totals 222 aircraft and over 31 operators in its register. It is noteworthy that the register includes a large number of commercial aircraft and business jets when compared to light aircraft. Amongst others, the Authority has registered two Airbus A340, four helicopters and a Sukhoi Superjet 100, the latter being the first ever model of its type to be registered in the European Union.
Malta’s register includes a large number of commercial aircraft and business jets when compared to light aircraft
Encouragement of the development of finance and operating leases of aircraft and provides clear rules on the tax treatment of the finance charge, available tax deductions to finance lessors and capital allowances for lessees;
- No withholding tax on lease payments where the lessor is not a tax resident of Malta;
- Competitive minimum depreciation periods for aircraft;
- Applicability of the provisions of 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;
- Recognition of fractional ownership of aircraft so that title may be divided between co-owners in specified fractions or percentages which may each be financed by a different creditor taking security over the particular fractional interest for which finance has been provided;
- Possibility of registering aircraft under construction once uniquely identifiable with airworthiness surveys suspended until the completion of the aircraft;
- Possibility of recording various details pertaining to the aircraft, its ownership or any other relevant interest;
- Availability of a wide range of airline services (aircraft and engine maintenance, repair and overhaul, aircraft management, aircraft maintenance training and other ancillary support services);
- An efficient, skilled, cost-effective and multi-lingual professional workforce;
- Malta is an EU member state and a leading financial services jurisdiction having a clear strategic political vision supporting business and the aviation industry.
Eligibility to Register Aircraft
The following classes of persons are eligible to register an aircraft under the Maltese register:
- An owner operating an aircraft;
- An owner of an aircraft under construction or temporarily not being operated or managed;
- An operator of an aircraft under a temporary title;
- A buyer of an aircraft under a conditional sale or title reservation agreement authorised to operate the aircraft;
- A trustee for the benefit of beneficiaries.
Qualifications to register aircraft in Malta
The qualifying registrants vary depending on whether the aircraft is used in commercial air services or for private purposes.
A. IN THE CASE OF COMMERCIAL AIRCRAFT THE QUALIFYING REGISTRANTS ARE THE FOLLOWING:
- The Government of Malta;
- A citizen of Malta or a citizen of a Member State of the EU or of an EEA State, or Switzerland, having a place of residence or business in Malta, the EU, the EEA, or Switzerland, including a person sharing in the ownership of such aircraft by virtue of the community of acquests subsisting between such person and a citizen as described above in whose name the aircraft is registered;
- An undertaking formed and existing in accordance with the laws of Malta, of a Member State of the EU, of an EEA State, or of Switzerland and having its registered office, central administration and principal place of business within Malta, or the EU, or the EEA, or Switzerland, whereof not less than 50% of the undertaking is owned and effectively controlled by the Government of Malta, or by any Member State of the EU or by persons referred to above, whether directly or indirectly through one or more intermediate undertakings.
All operators of aircraft engaged in commercial air transport activity are required to be in possession of an Air Operator Certificate (AOC) and an Operating Licence. The Civil Aviation Directorate at the Authority for Transport in Malta has the capacity to certify operators of aircraft in accordance with Annex III to Regulation (EC) 3922/1991, as amended (EU-OPS 1)
B. IN THE CASE OF PRIVATE AIRCRAFT THE QUALIFYING REGISTRANTS ARE THE FOLLOWING:
A natural person who is a citizen of, or an undertaking established in a member country of the Organisation for Economic Co-operation and Development and any other country approved by the Minister by notice for the purposes of the Act (termed “International Registrant” in the Act), provided it:
- has legal capacity to own/operate and aircraft in terms of law;
- appoint a local resident agent to represent the owner in Malta for matters concerning the registration of the aircraft;
- complies with applicable regulations/guidelines.
Malta Tax Considerations
A company incorporated in Malta is chargeable to tax in Malta on a worldwide basis. On the other hand, a company incorporated outside Malta but which is controlled and managed in/from Malta would be treated as resident in Malta for tax purposes and would, accordingly, be subject to tax in Malta (only) on:
- chargeable income arising in Malta;
- chargeable income arising outside Malta to the extent that such income is remitted to Malta (remittance basis);
- chargeable gains realised in Malta.
Chargeable gains realised outside Malta would not be taxable in Malta even if remitted to Malta.
Income Derived from the Ownership, Leasing or Operation of Aircraft or Aircraft Engines
Income derived by any person who owns, leases or operates any aircraft or aircraft engine which is used or employed in the international transport of passengers or goods, is deemed to arise outside Malta for Malta tax purposes. Such income is deemed to arise outside Malta regardless:
- of the country of registration of the relevant aircraft or aircraft engine; or
- as to whether the aircraft may have called at, or operated from, any airport in Malta.
Accordingly, any company incorporated outside Malta but resident in Malta for tax purposes (controlled and managed in or from Malta) and which derives income from the ownership, leasing or operation of aircraft or aircraft engines, would only be chargeable to tax in Malta if and to the extent that such income is remitted to Malta.
Tax Treaty Network
Such exclusive jurisdiction to tax, coupled with Malta’s remittance basis of taxation may present attractive tax planning opportunities for aviation companies seeking to set up or shift their tax residence to Malta
Malta has a large and expanding double tax treaty network (exceeding 50 treaties in force as at the date hereof). The said treaties are based largely on the OECD Model and, accordingly, generally reserve taxing rights over profits of an enterprise derived from the operation of aircraft in international traffic exclusively in favour of the country in which the place of effective management of the relevant enterprise is situated.
As a result, profits derived by a Malta resident company from the operation of aircraft in international traffic may be taxable exclusively in Malta. Companies are taxed in Malta at the flat rate of 35%. Malta operates a full imputation system to relieve from economic double taxation where a recipient of a dividend is subject to tax on such income, but has the possibility for a relief of the underlying tax paid by the distributing company. Furthermore, shareholders are entitled to a 6/7ths refund of the tax suffered on the distributed profits, arising from aircraft leasing and other profits derived by Maltese incorporated and Maltese resident entities derived from international air transport and ancillary operations. Following receipt of refunds, the tax leakage is reduced to levels between 0% and a maximum of 5%. Coupled with refunds, Malta offers an extensive network of double taxation treaties with over seventy treaties in force. Thus the availability of tax refunds, access to an extensive double tax treaty network, complemented by a recent amendments to the Maltese Income tax Law and further guidelines issued by Revenue Department, has opened a window of opportunities for tax planning possibilities using Malta in business structures.
Such exclusive jurisdiction to tax, coupled with Malta’s remittance basis of taxation applicable in respect of Malta resident companies (which are incorporated outside Malta), may present attractive tax planning opportunities for aviation companies seeking to set up or shift their tax residence to Malta.
Malta Double Tax Treaties
Income Tax Treatment Aircraft Leasing
Over the last few years, the use of Malta for aircraft leasing structures has seen a sharp increase. Companies engaged in aircraft leasing transactions may benefit from Malta’s tax refund system, however, the tax treatment will vary depending on whether the lease is an operating lease or a finance lease.
In the case of the Lessor:
In an operating lease, the lessor would be entitled to tax depreciation on the value of the aircraft frame and aircraft engine at 16.7% per annum as well as a tax depreciation on interiors and other parts at 5% per annum. Through the application of the tax refund system, although the lessor will be subject to tax at 35%, the effective Malta tax charge will be reduced to between 0% and 5%. Furthermore, a disposal of the aircraft can be structured such that this would not attract any Maltese tax liability.
In a finance lease scenario, the lessor will be taxable in Malta on the finance charge, with deductions allowable for any finance cost. Same as in an operating lease scenario, although the lessor will be subject to tax at 35% on its taxable income, the tax refund system will reduce the effective Malta tax charge to a maximum of 5%. Upon a disposal of the aircraft there are no tax consequences in Malta.
In the case of the Lessee:
In an operating lease, where the lessee uses the aircraft as part of its trade, it will be allowed a deduction for the lease payments and any other expenses which are incurred in the production of its income, and would then be taxable at 35%. The application of the tax refund system will result in an effective Malta tax charge of between 0% and 5%.
In a finance lease scenario, the lessee will be allowed annual tax depreciation on the value of the aircraft frame and aircraft engine at 16.7% and tax depreciation on interiors and other parts at 25%. A further deduction is allowed for the finance charge, the cost of repairs and maintenance and insurance. Through the application of the tax refund system, the effective Malta tax charge will be between 0% and 6.25% on the chargeable income.
Vat Treatment of Aircraft Leasing for Private Use
A leasing agreement of an aircraft is an agreement whereby the lessor (the owner of the aircraft) contracts the use of the aircraft to a lessee (the person who leases the aircraft for private use) for a consideration. In addition, after the end of the lease period, the lessee may opt to purchase the aircraft at a percentage of the original cost. The final purchase is strictly an option which may be exercised by the lessee for a separate consideration.
For VAT purposes, except in the cases of aircraft used by airline operators in international traffic which would be VAT-exempt, the lease of an aircraft is a supply of a service which is subject to VAT with the right of deduction of input VAT by the lessor (where such right applies). This service is taxable according to the use of the aircraft attributed within the airspace of the European Union.
It is very difficult to identify beforehand the movement of an aircraft in order to determine the period that the aircraft is used within the airspace of the EU and the time that it is used outside of the EU. In this regard, the estimated percentage portion of the lease based on the time that the aircraft is used in the airspace of the EU is calculated on the basis of an expert technical study. The standard rate of VAT of 18% is applied on the established percentage of the lease, deemed to be related to the use of the aircraft in EU airspace. The table below indicates the established percentage portions according to the type of aircraft:
|Aircraft range (km)||Community use %||Effective VAT rate|
In order to apply this treatment the following conditions shall apply:
- The leasing agreement shall be between a lessor who is established in Malta and a lessee who is also established in Malta and who would not be eligible to claim input tax in respect of the lease;
- The lease agreement shall not exceed a period of 60 months and the lease installments shall be payable every month;
- The Commissioner for Revenue may require the lessor to submit details regarding the use of the aircraft;
- Prior approval must be sought in writing from the VAT Department and each application will be considered on its own merits. Furthermore, the Commissioner for Revenue may impose other conditions which he may deem appropriate.
Where after the end of the lease the lessee exercise the option to purchase the aircraft, a VAT paid certificate will be issued provided that all the VAT due has been fully paid.