Malta Tax Considerations
Tax Treaty Network
Aircraft and Engine Finance Leasing
The Republic of Malta is situated in the centre of the Mediterranean, south of Sicily, east of Tunisia and north of Libya. Malta gained its independence from the United Kingdom in 1964 and became a republic in 1974. Since 1964 it has been a member of the United Nations and in 2004 it joined as a member of the European Union. Malta is also party to the Schengen Agreement and in 2008 it became part of the eurozone.
Throughout history, Malta's location has given it great strategic importance and has become a maritime hub in the Mediterranean and an entree-port to the EU. Moreover Malta offers an array of aviation services relating to the registration of aircraft and aircraft mortgages, financing and management of aircraft, insurance, brokerage, aircraft maintenance, classification and surveying of aircraft. Increasingly recognised as a flag of confidence by the maritime and aviation industries, Malta offers owners and operators of merchant vessels, superyachts and commercial and private jets tax efficiency, a robust regulatory framework and industry expertise, capabilities and facilities in a central European location.
Through the Aircraft Registration Act, which came into force on the 1st October 2010 and implements the provisions of the Cape Town Convention on International Interests in Mobile Equipment and its Aircraft Protocol, the Maltese Government has developed a comprehensive legal and regulatory framework for the registration of commercial and private aircraft, making Malta the EU jurisdiction of choice for the registration of aircraft.
The Civil Aviation Directorate (part of the Ministry for Infrastructure, Transport and Communications) is the Maltese authority responsible for the safety of aircraft, aircraft and aerodrome operators, air navigation service providers, the licensing of aeronautical personnel and the conclusion of international air services agreements. Moreover it regulates all aviation activities in Malta due to membership of the following organisations:
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).
Whilst the benefits of registering aircraft in Malta are many, the main advantages include:
A company incorporated in Malta is chargeable to tax in Malta on a worldwide basis at the flat rate of 35%. Accordingly, an aviation company incorporated in Malta would be subject to tax in Malta on its worldwide income at 35%. However, non-resident shareholders would, by application of Malta’s refundable tax credit system, be entitled to a refund of 6/7ths of the Malta tax suffered on the profits out of which dividends are distributed – thus reducing the combined overall effective Malta tax rate from 35% to 5%.
On the other hand, an aviation 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 gains realised outside Malta would not be taxable in Malta even if remitted to Malta.
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:
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 (Malta’s refundable tax credit system would likewise apply in respect of such taxable income such that the combined overall effective Malta tax rate applicable in respect of such income should not exceed 5%).
In addition, no Malta tax would be chargeable on lease payments derived by non-Malta lessors from Malta lessees.
Malta has a large and expanding double tax treaty network (currently comprising 58 treaties in force). 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.
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), could present attractive tax planning opportunities for aviation companies seeking to set up or shift their tax residence to Malta.
In terms of specific guidelines issued by the Malta tax authorities with a view to clarifying the Malta tax treatment applicable throughout the term of an aircraft and/or engine finance lease (not exceeding 4 years):
In light of the above, the leasing guidelines are relevant should the lessor and/or lessee be a Malta company (subject to tax in Malta on its worldwide income).
The minimum periods over which aircraft and parts may be depreciated for tax purposes have been lowered as follows:
Whilst fringe benefits represent income from employment for domestic tax purposes, the private use of an aircraft by a non-resident employee or officer of an employer, company or partnership whose business activities include the ownership, leasing, or operation of any one or more aircraft or aircraft engine which is used for or employed in the international transport of passengers or goods would not be deemed to constitute a fringe benefit and would, accordingly, fall outside the scope of Malta tax altogether.
Through our professional team at OCRA Malta we can provide our assistance with a number of services in connection with the aviation industry including the incorporation of the appropriate corporate structures, registration of aircraft and aircraft mortgages, co-ordination of aircraft financing transactions, tax structuring and administration and acting as the resident agent in Malta on behalf of aircraft owners and operators.
If you are interested in more information regarding the registration of your aircraft in Malta,
Back to top
If you are interested in more information regarding the registration of your aircraft in Malta, please contact Michael J. Zammit, Director of OCRA (Malta) Limited.
Michael is a qualified advocate in Malta, practicing primarily in the areas of corporate and insolvency law, financial services regulation, contract law and immovable property law. Michael’s main responsibilities involve the provision of technical consultancy relating to corporate and regulatory matters, general finance issues, permanent residence permits, ship and yacht registration, real estate transactions and estate planning.
Alternatively, to select one of our multilingual offices, click here for a list of our office contact details.
Languages spoken in this office: English,
REQUEST A CALLBACK