The Maltese Islands are an attractive jurisdiction for the registration of private or commercial aircrafts, famously known for the demonstration of economic strength as well as the ability to prosper, even in difficult global contexts. The aviation industry in Malta started developing in the 1970s, but it has remarkably grown in the recent years, boasting a fast-growing aircraft registry. It is safe to say that there are a number of powerful and high-ranking operations of various sectors within aviation, based in Malta, namely: maintenance, repair and overhaul, flight training, back office support and ICT.

Several key factors of why Malta is a chosen jurisdiction for aviation businesses are the transparency of the rights and interests in aircraft, broad registration possibilities (whether used for private or commercial air transport), and competitive minimum depreciation periods amongst others.

Over the years, the industry has seen continuous improvement with the help of the implementation of a number of benefits, in particular, tax incentives for both the Malta-based airline operators and their employees. Malta's attractive taxation system, which is applicable to all Maltese companies and branches of overseas entities, grants the shareholder of a Malta company, under the imputation system, the right to a refund of the tax suffered by the Malta company on the distributed profits to its same shareholder.

Additionally, on the 24^th of May 2016, the Maltese Government published the Qualifying Employment Rules. The aim of such rules is to attract non-domiciled nationals who hold an eligible office in the aviation industry to Malta. Having such legislation put in place, Malta's aviation industry flourished, helping the country build up the aforementioned cluster of aviation services. Such rules apply if the individual is not domiciled in Malta and earns income from a qualifying contract of employment in an eligible office within the aviation industry. Provided the that income amounts to a minimum of €45,000 annually, such income is subject to tax at a flat rate of 15%.

The Subsidiary Legislation for the Deduction for Wear and Tear of Plant and Machinery Rules, last updated in 2018, outlines new minimum number of years, over which the aircraft and the respective equipment is depreciated. The update reflects reductions in the number of useful years, providing a substantial benefit in light of the fact that the deductible amounts against taxable income can be taken briskly.

A provision relating to income derived from aircraft ownership, leasing or operation, also including aircraft engines, in any airport, has been put in place. For Income Tax Purposes, such income shall be deemed to arise outside of Malta, and therefore exempt under the remittance basis of taxation, irrespective of the country of registration of the aircraft/engine, as well as to whether the aircraft calls at or operates from Malta. This incentive, along with others on the operation of aircraft in International traffic included in Malta's double-taxation agreements, is another attractive opportunity for an airline operation to set up its residence in Malta.

The Maltese Tax Authorities have also published guidelines on the tax treatment of finance leasing of an aircraft, addressed to leasing arrangements not exceeding 4 years, in which it is outlined that the lessor is taxed on the annual finance amount (the difference between the total lease payments less the capital element divided by the number of years of the lease) whilst the lessee is allowed a deduction in respect of a number of items which include finance charges, maintenance and repair costs and insurance coverage. This ensures that the lessor does not suffer the wear and tear of the aircraft. In the event that the lessee opts to purchase the aircraft upon termination of the finance lease, and the lessor is not trading in the purchase and sale of aircraft, the purchase price received by the lessor shall be considered to be of a capital nature and no tax thereon shall be payable by the lessor.

Malta has attracted some excellent investors in the Aviation sector, whilst also providing the necessary affirmation to potential investors that Malta is competent of servicing the sector. Our team of professionals at E&S Group may assist you in all matters relating to the Aviation Industry, including the registration of aircrafts in Malta. Please do get in touch should you wish to know more on [email protected].