The Malta Tonnage Tax System
The Merchant Shipping (Taxation and Other Matters relating to Shipping Organisations) Regulations exempt from income tax in Malta any income derived by a licensed shipping organisation that owns, charters or operates a tonnage tax ship.
In this regard, the pertinent Regulations stipulate that no further tax under Malta Tax legislation shall be charged or payable on the income, to the extent that such income is derived from shipping activities, of a licensed shipping organisation. A number of conditions ought to be satisfied for the said exemption to apply.
For Malta tax exemption to be rendered applicable the following conditions must be cumulatively satisfied:
- the company must qualify as a ‘shipping organisation’ and must obtain a license from the pertinent Authority;
- the ship must qualify as a ‘tonnage tax ship’ – in this respect, the 2010 amendments have removed the Malta flag-link requirement. Hence, a ship of not less than 1000 net tonnage should qualify as a ‘tonnage tax ship’ if:
- it is registered under the Maltese Merchant Shipping Act; or
- it is registered in another EU/EEA State and has paid the applicable Maltese tonnage tax;
- The Minister declares a third country ship to be a tonnage tax ship provided certain conditions analogous to those found in the EU Guidelines are satisfied.
The exemption from income tax is limited to income derived from ‘shipping activities’, which are defined in the pertinent Regulations as the international carriage of goods or passengers by sea or the provision of other services to or by a ship as may be ancillary thereto or associated therewith including the ownership, chartering or any other operation of a ship engaged in all or any of the above activities or as otherwise may be prescribed.
When a tonnage tax ship is not registered in Malta, registration fees/tonnage taxes are calculated by reference to the registration fees/tonnage tax that would have been paid in respect of the ship had it been registered in Malta. However, in the case of an EU ship, if registration fees/tonnage tax was paid in respect of that ship in another Member State/EEA State, relief may be provided against the Maltese registration fees/tonnage taxes, subject to a minimum charge equivalent to 25% of Maltese registration fees/tonnage tax.
Income, profits or gains derived from the sale or other transfer of a tonnage tax ship or from the disposal of any rights to acquire a ship which when delivered or completed would qualify as a tonnage tax ship, are exempt from tax in Malta. This also includes a person that trades in the acquisition and disposal of tonnage tax ships.
No Maltese income tax and stamp duty should be payable on the disposal of shares in a licensed shipping organisation that owns/charters/operates/administers or manages a tonnage tax ship. Distribution of profits derived from shipping activities should also be exempt from tax in Malta in the hands of the shareholders.
There is still no obligation on the Maltese shipping organisation to subject all ‘tonnage tax ships’ in the same company/ group to the same tax regime. Licensed shipping organisations having no income/no income other than income from shipping activities may submit a declaration in lieu of tax return.
Income derived by a ship manager from ship management activities is treated as income derived from shipping activities and thus exempt from tax in Malta provided a number of conditions are satisfied. Ship management activities are defined as referring to those activities consisting in, but not limited to, the entire crewing of a tonnage tax ship and/or the provision of technical management thereto. A Ship manager must be a licensed shipping organisation which is established in the EU, has assumed responsibility for either or both of the technical or crew management of a ship and complies with international standards. Moreover, it must fulfil requirements established under the EU law.
In order to obtain the income tax exemption in respect of profits derived by a “ship manager” from ship management activities the following conditions are required to be satisfied:
- The ship manager must have settled all applicable registration fees and tonnage taxes;
- Maintain separate accounts distinguishing receipts and payments relating to ship management activities from those relating to any other business at least 2/3rds of the tonnage of the ships to which the ship manager provides ship management activities is managed from the territory of the EU,
- the tonnage of the ships in respect of which the ship manager provides ship management activities meets one of a number of conditions (such as that at least 60% of the managed tonnage is registered under a EU flag, and that the ship manager does not decrease or provides a commitment to increase the tonnage of EU managed ships over a specific period).
The Malta VAT Yacht Leasing Scheme
The guidelines relate to a leasing arrangement with respect to a yacht, entered into between a Malta company and a lessee, which may be either a company or an individual, whether resident in Malta or not.
A Malta company would be set up and this would become the new owner of the yacht. The Malta company would also be registered with a valid VAT number here in Malta. This same company would later become a lessor under the subsequent lease agreement. Given the lessor company uses the yacht for its economic activity – the leasing, it has a right to deduct any input VAT incurred on the purchase of the yacht. The monthly lease charges by the lessor to the lessee are subject to VAT at the standard Malta VAT rate of 18%.
Given that it is deemed that the yacht will be used partly in EU territorial waters and partly outside EU territorial waters, VAT would be chargeable only on the portion that the yacht is deemed, during the period of the lease, to be used in EU territorial waters.
|Type of Craft||% of lease|
|Sailing boats or motor boats over 24 metres in length||30%||30% of consideration x 18%|
|Sailing boats between 20.01 metres and 24 metres in length||40%||40% of consideration x 18%|
|Motor boats between 16.01 and 24 metres in length||40%||40% of consideration x 18%|
|Sailing boats between 10.01 and 20 metres in length||50%||50% of consideration x 18%|
|Motor boats between 12.01 and 16 metres in length||50%||50% of consideration x 18%|
|Sailing boats up to 10 metres in length||60%||60% of consideration x 18%|
|Motor boats between 7.51 and 12 metres in length (if registered in the commercial register)||60%||60% of consideration x 18%|
|Motor boats up to 7.5 metres in length (if registered in the commercial register)||90%||90% of consideration x 18%|
|Craft permitted to sail in protected waters only||100%||100% of consideration x 18%|