By virtue of Act VIII of 2010, Malta has put into place a new legal infrastructure through which aircrafts may be registered. Furthermore, Malta has also implemented the Cape Town Convention and the Aircraft Protocol within the Aircraft Registration Act, thereby placing itself with the leading aviation jurisdictions. New fiscal incentives have also been introduced in order to further incentivise foreign investors to set up their aviation business in Malta.
Eligibility to register an aircraft
In order that one may register an aircraft one must satisfy one of the following criteria: a) be an owner of the aircraft who operates the said aircraft; or b) be an owner of an aircraft under construction or temporarily not being operated or managed; orc) be an operator of an aircraft under a temporary title which satisfies the conditions which may be prescribed; or d) be a buyer of an aircraft under a conditional sale or title reservation which satisfies the conditions which may be prescribed and who is authorised to operate the aircraft
Who may register an aircraft in Malta?
The following persons are entitled to register a commercial aircraft in Malta:
- Government of Malta;
- Nationals of any EEA state or Switzerland, having a residence or a place of business in an EEA state or Switzerland;
- Undertakings formed in any EEA state and having their registered office, central administration and principal place of business within an EEA state or Switzerland provided not less than 50% of the undertaking is owned and effectively controlled by the Government of Malta, or by any Member State of the European Union, or by persons referred to above, whether directly or indirectly through one or more intermediate undertakings;
- Operators of aircraft engaged in commercial air transport activity must have an Air Operator’s Certificate (AOC) which is to be issued by the State of Registry of the operator and must hold an operating licence.
- In the case of private aircraft the following persons may register an aircraft in Malta:
- a natural person who is a citizen of, or an undertaking established in a member country of the OECD and any other country approved by the Minister provided that the person has legal capacity to own or operate the aircraft in terms of the law; the person complies with all regulations and guidelines under the Act; satisfies the Director General that it can and will ensure observance of the laws of Malta; complies with the requirements applicable to international registrant.
Registration requirements
The availability of the authorities together with the non-cumbersome procedures for registration are an asset to Malta’s aviation infrastructure. The necessary documentation required to commence the registration process is the following: – Duly filled in application; – Documents evidencing ownership of the aircraft; – If the aircraft is leased, then the lease agreement should be produced together with all other documents;- Documents proving qualifications of the registrant to register the aircraft- De-registration certificates if the aircraft was registered elsewhere.- Details of any mortgages registered on the aircraft. If all the requirements are met and all documentation is presented to the Director General, the Director General shall issue a Certificate of Registration in favour of the registrant after certain details are noted in the National Aircraft Register.
Newly introduced concepts
Registration of an aircraft under construction
Following the newly enacted Act, it is now possible to register an aircraft which is under construction. In order that such registration is permissible, the aircraft must be uniquely identifiable. This means that upon registration, the registrant shall provide the manufacturers serial number, the name of the manufacturer and its model designation. This is of particular importance due to the fact that it enables the owner to obtain financing at an earlier stage, making it easier for the registration of mortgages to secure the debts at an early stage.
Fractional ownership
Fractional ownership is becoming more frequent due to the advantages which it brings about to the fractional owners. By virtue of the new legislation, one can now register a fractional interest in the aircraft and the Director General of the Civil Aviation will issue a Certificate of Registration in relation to that particular fractional interest. Creditors may also register a security over the fractional interest.
Security interests registration
The registration of security interests can now be made on both the domestic level through the Aircraft Registration Act and also on an International Level by virtue of Malta’s ratification of the Cape Town Convention and Aircraft Protocol. Security interests are treated as separate and distinct assets within the estate of the owners and hence, any creditor wanting to enforce a security interest over the particular engine or aircraft over which he has a security interest registered, would be given a priority over the engine or aircraft over all other creditors of the owner. On a domestic level mortgages are registered in the National Aircraft Register. By virtue of Malta’s self-help remedy approach, upon the default of the mortgagor to pay the mortgagee, the mortgagee could enforce his self-help remedies without the leave of the Court by taking possession of the aircraft, selling the aircraft, lease out the aircraft, collect or receive any income or profits arising from the management or use of any such aircraft object. Notification in writing to the debtor is required in such cases. Security interests in relation to airframes, engines, helicopters may also be registered in the International Registry. The registration of such interests would be regulated by the Implementing Law which is found as a Schedule to the Act. Registering a security interest in the International Register would give priority over any other interest registered in the National Aircraft Register, notwithstanding that such interest was registered after that in the National Aircraft Register. The new Act also introduces a provision where one can prohibit the registration of subsequent interests over the particular asset, without the consent of the creditor.
Tax Issues
Various fiscal opportunities are available to investors wanting to set up their business in Malta. The new fiscal package available to investors wanting to set up their aviation business in Malta is made up of existing incentives coupled up with new fiscal opportunities designed specifically to investors in this area. With over 55 double-taxation agreements signed with different jurisdictions, easy re-domiciliation procedures and good fiscal package, Malta aims to provide investors with one of the best opportunities as a place of domicile. The main fiscal opportunities available are the following: Income Tax In the case of non-resident companies, any income arising from ownership, leasing, or operation of an aircraft or aircraft engines engaged in the international transport of passengers or goods is deemed to be arising outside of Malta and therefore not taxable in accordance with the new provision in the Income Tax Act. Companies which are incorporated outside Malta but are effectively managed in Malta are taxable in Malta only if their income is remitted or received in Malta. The Double Taxation agreements provide that any profits from the operation of ships or aircraft in international traffic should be taxable in the jurisdiction where the enterprise is effectively managed. Companies incorporated in Malta are taxable on their world-wide income from international transport of goods and passengers. The Maltese legislation provides for a number of attractive deductable allowable expenses, claims for capital allowances and double taxation relief. Furthermore, through the full imputation system adopted by Malta, the shareholder could claim 6/7ths of the tax paid by the company, thereby leaving overall effective tax leakage in Malta of 5%.
Depreciation
The minimum number of years over which the assets may be depreciated has been decreased. Through an accelerated depreciation one pays less tax on profits since through the higher yearly deductions for wear and tear, profits are decreased. In this way, the deductions for wear and tear which one could claim in relation to the aircraft, engines and interiors would be higher, thereby decreasing the amount of tax payable on the profits in the early years of the aircraft object since the profits would be decreased by a higher amount of depreciation.The following are the newly shortened wear and tear deduction periods:
- Aircraft airframes 6 years
- Aircraft engines 6 years
- Aircraft engine or airframe overhauls 6 years
- Aircraft interiors and other parts 4 years
In the case of an operating lease the depreciation periods and wear and tear deductions may be availed of by the lessor or the lessee, depending on who bears most of the risks and reward of the aircraft and depending on the agreement between such parties. In the case of a finance lease, the lessee is entitled to avail himself of the shorter depreciation periods and shall be allowed to deduct the expenses for wear and tear.
VAT
The supply of aircraft destined to be used by airline operators for reward chiefly for international transport of passengers and/or goods is exempt from VAT. The supply to constructors, owners or operators of aircraft of equipment incorporated or used therein, as well as supplies of services consisting of modification, maintenance, chartering and hiring of aircraft engaged in the operations of international transport of goods or passengers are also exempt from VAT.Investment tax creditsPersons carrying on a trade or business in relation to repair, improvement or maintenance of aircraft, engines or equipment? incorporated or used in such aircraft’ may benefit from certain investment tax credits. The tax credits are calculated either a) as a percentage of the qualifying expenditure incurred by such company in the year preceding the year of assessment in question; or b) by reference to wage costs pertaining to the jobs created in Malta. Different tax credits apply according to the size of the undertaking. Small companies get a tax credit of 50% of the qualifying expenditure or wage costs incurred, medium sized companies get a tax credit of 40% and large companies get a tax credit of 30% of the costs incurred. Any unutilised investment tax credits may be carried forward against tax due in subsequent years.
Fringe Benefits
The private use of an aircraft by a non-resident individual who is an employee or officer of an employer, company or partnership whose business activities include the ownership, leasing, or operation aircraft or aircraft engine employed in the international transport of passengers or goods, shall not be deemed to constitute a fringe benefit.
Import duty
No import duty is payable in respect of civil aircraft
Stamp duty
Aircraft are not chargeable assets for Maltese stamp duty purposes.
Guidelines on Finance Leasing
The guidelines issued by the Inland Revenue Department provide certainty of tax treatment of finance leases of aircraft. In the case of finance leases the following guidelines shall apply:i. the lessor is not deemed to be the owner of the ii. the lessor is charged to tax 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.iii. where the lessee exercises an option to purchase the aircraft on the 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.iv. the lessee is regarded as the owner of the asset throughout the period of the finance leasev. the lessee is allowed a deduction in respect of the (i) the finance charge; (ii) maintenance; (iii) repairs; and (iv) insurance;vi. the lessee is allowed capital allowances in respect of the aircraft and the parties may not opt to shift the burden of wear and tear onto the lessor. Malta’s new aviation legal infrastructure coupled with Malta’s strategic position, its experience in dealing with international clients and its wide range of aviation related services proves to be an ideal location for the establishment of ones aviation business.
How we can help
Advocates Primei offers assistance in the planning (especially in devising a flexible yet secure structure), the setting up process and obtaining a licence. The planning includes discussing the best opportunities for setting up of the business in Malta, providing advice as to the most ideal tax structure, and meetings with the relevant authorities to provide the best suitable solution for ones needs. We can help in the formation of the vehicle itself and the eventual drafting of all necessary applications, registration requirements, agreements, etc. Advocates Primei may propose suitable personnel to act as local Directors and local representatives. We can also provide the necessary registered office and company secretary for the company.