The Malta Independent 22 August 2019, Thursday

The tonnage tax regime under Maltese Law

Tuesday, 13 August 2019, 16:38 Last update: about 8 days ago

Dr Jeanine Schembri

Over the years Malta has established itself as one of the leading maritime hubs for both the leisure and commercial sectors. The Maltese maritime registry is currently the largest registry in Europe and the sixth largest worldwide.

Malta has evolved its legal and regulatory framework to better enable it to become one of the most reputable maritime jurisdictions in the world.

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In December 2017, the European Commission endorsed the Maltese tonnage tax system but required Malta to implement certain changes in order to better delineate its applicability. On the 1st May 2018 the Government issued a revamped tonnage tax system through the enactment of the Merchant Shipping (Taxation and Other Matters Relating to Shipping Organizations) Regulations.

According to the Regulations a tonnage tax ship is defined as a ship of any net tonnage, which is engaged in ‘shipping activities’. The Maltese tonnage tax system provides for the payment of annual fixed tonnage dues which are calculated depending on the net tonnage and age of the vessel. Essentially, the fact that a shipping organisation pays the tonnage tax and the applicable registration fees, will exempt it from income tax which would otherwise be payable on income arising from shipping activities as defined herein. The Regulations have also rendered the Maltese Income Tax Act inapplicable to income derived from bareboating out a ship to a shipping organisation which forms part of the same group of companies.

This also extends to the income, profits or gains derived from the sale of tonnage tax ships which are engaged in genuine shipping activities and dividend distribution from shipping organisations, amongst others. Other income which does not fall under the tonnage tax exemption is subject to the normal tax rates applicable in terms of the Malta Income Tax Act. There are no limitations in place in terms of the minimum net tonnage which a ship must have in order to benefit from the exemption.

The Regulations have introduced a non-exhaustive list of ships eligible to the exemption which include ships (as defined under the Merchant Shipping Act), cable-laying ships, pipe-laying ships, crane vessels, research vessels as well as multi-purpose and break-bulk vessels. On the other hand, the following do not fall within the scope of the Maltese tonnage tax system and therefore do not benefit from the exemption - fishing and fish factory ships, private yachts and ships used primarily for sport or recreation, fixed offshore installations and floating storage units, non-ocean going tug boats and dredgers, ships whose main purpose is to provide goods or services normally provided on land, stationary ships employed for hotel and/or catering operations, and ships employed mainly for gambling/as casinos.

The Regulations have also put in place clear rules for towage and dredging activities and also define ‘shipping activities’. The latter are deemed to include the international carriage of goods or passengers by sea (in terms of the EU Maritime State Aid Guidelines) as well as activities which are integral or directly linked to the business of operating tonnage tax ships, in conjunction with the above.

Moreover, the Regulation has extended the exemption to other ancillary activities which includes embarkation and disembarkation of passengers as well as the sales and facilities which are normally provided to customers by seagoing passenger ships, including the provision of food or drink and entertainment for which no additional fee is charged.

In order for a Maltese shipping organisation to reap benefits from the Maltese tonnage tax system it needs to comply with a number of administrative conditions. Most importantly, the shipping organisation must make payment of the annual tonnage tax fees to Transport Malta. It must also maintain separate accounts in order to separate activities which benefit from the tonnage tax exemption, from ones that do not. Certain information must also be submitted to the Maltese authorities such as the vessel type, the activities performed by the vessel, the net tonnage, days in use, flag state and types of operation.

Naturally, the European Commission’s endorsement of our tonnage tax system has provided the necessary legal certainty to the relevant operators. The compatibility of the Regulations with the EU State Aid Rules and the Commission’s 2004 Guidelines on State Aid to Maritime Transport continued to enhance the advantages of establishing a shipping organisation in the Maltese jurisdiction and will definitely enhance the appeal of our shipping register.

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