Malta - Ready for Take Off

Malta has, in recent years, become an attractive base for anyone involved in the aviation industry with Malta’s Aviation Registry registering steady growth. As at April 2016, Malta’s Aviation Registry totalled 219 aircraft and over 31 operators; among others, are registered two Airbus A340 and a Sukhoi Superjet 100.

Why Malta?

The success of the Aviation Registry is sustained by an attractive Malta corporate tax regime, tax refunds, and other fiscal incentives. This is complemented with other success factors namely:

  1. 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 while allowing lower borrowing costs;
  2. Recognition of Fractional Ownership - allows ownership of aircraft to 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;
  3. Possibility of registering an aircraft under construction;
  4. Availability of comprehensive airline services - aircraft and engine maintenance, repair, overhaul, aircraft management, aircraft maintenance training, and other ancillary support services;
  5. Malta is a member of the EU and a leader in financial services, having a clear strategic political vision supporting business and the aviation industry;
  6. Specific tax treatment for finance leasing arrangements, including availability of tax deductions;
  7. No withholding tax on lease payments where the lessor is not a tax resident of Malta;
  8. Competitive minimum depreciation period for aircraft.

Eligibility to Register an Aircraft

The registrant may be an individual or a company resident in any part of the world. These include:

  • Owner operating an aircraft;
  • Owner of an aircraft which is still under construction or temporarily not in operation;
  • Operator whereby the aircraft is under a temporary title;
  • Buyer in a conditional sale or title reservation agreement authorised to operate the aircraft;
  • A trustee for the benefit of the beneficiaries.

‘International registrants’ - individuals or registered companies residing outside of the EU, EEA or Switzerland - require additional formalities, including appointment of a Resident Agent.

Malta Tax Considerations

A company incorporated in Malta is considered to be both ordinarily resident and domiciled in Malta. Such company is subject to tax in Malta on its worldwide income at the standard rate of 35%, with credit granted for foreign tax.

A company incorporated outside Malta but which is managed and controlled in Malta, derives income from the ownership, leasing or operation of aircrafts or aircraft engines, is rated as resident in Malta.

Income derived by any person who owns, leases or operates aircraft(s) or aircraft engines, which are used or employed in the international transport of passengers or goods, is deemed to arise outside Malta, regardless:

  1. Of the country of registration of the aircraft(s) or aircraft engine(s);
  2. As to whether the aircraft may have been called at, or operated from, any airport in Malta.

Tax Treaty Network and Tax Refund System

Malta has an extensive double tax treaty network, with 70 treats currently in force - based on the OECD Model which generally reserve taxing rights over the profits derived from the operation of aircraft(s) in international traffic exclusively in the country in which the place of effective management of the company is situated. Accordingly, the profits derived by a Malta resident company engaged in international traffic may be taxed exclusively in Malta.

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 or resident companies derived from international air transport and ancillary operations. Following receipt of refunds, the effective Malta tax burden is generally reduced to between 5% - 0%, in certain instances.

The availability of tax refunds; access to double tax treaty network and guidelines issued by the Revenue Department; coupled by the recent amendments to the Maltese Income Tax Law, have introduced opportunities for tax planning possibilities, incorporating Malta as part of the business structures.

Income Tax Treatment of Aircraft Leasing

Companies engaged in aircraft leasing transactions may benefit from Malta’s tax refund system; however, the specific income tax treatment as contemplated in the law and guidelines, depends on the type of lease (i.e. whether it is an operating lease or a finance lease).

 

Lessor

Lessee

Operating Lease

Taxable on the full amount of the lease income.

No tax implications upon the disposal of the aircraft at the end of the lease.

Entitled to claim full deduction for lease payments and any other expenses which are incurred in the production of the income.

Finance Lease

Taxable on the annual finance charge, namely the difference between the total lease payments less the capital element divided by the number of years of the lease.

No tax implications upon the disposal of the aircraft at the end of the lease.

Entitled to claim full deduction for lease payments and any other expenses which are incurred in the production of the income.

Tax Depreciation

A claim for capital allowances can be made by the party that bears the burden of wear and tear of the aircraft.

Category

Minimum number of years

Aircraft airframe

Aircraft engines

Aircraft engine or airframe overhaul

6 years

Aircraft interiors and other parts

4 years

 

HBMGroup
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