Over the recent years Malta has witnessed growth in the Aviation industry attracting multinational who choose Malta to set up their operations. The Aircraft Registration Act was enacted in 2010 with a vision to turn Malta into a competitive jurisdiction for aircraft registrations. The appropriate legal framework together with Malta’s accession to the Cape Town Convention, its EU status, the very competitive registration fees and the favourable tax treatment are few factors which have contributed to developing Malta as an aviation hub and create a successful base for aviation operations.
Why register your Aircraft under the Malta flag?
- Stable, EU jurisdiction with a well-established legal infrastructure which provides effective security of lenders’ and financiers’ interests.
- Acknowledgement of ownership through trustees and fractional ownership.
- Access to intra-Community traffic rights
- Recognition of foreign mortgages and foreign Security Interests
- Creditor-friendly jurisdiction
- A Cape Town Convention State enabling debtors situated in Malta to be entitled to a reduction on their borrowing costs (the Cape Town discount)
- A Cape Town Convention State recognising international interest registered in the International Registry having a priority over any other interest.
- Availability of a wide range of airline services ranging from aircraft and engine maintenance, repair and overhaul to software development, aircraft management, aircraft maintenance training and ancillary support services.
- A clear strategic political vision supporting the aviation industry and its cluster.
- Attractive fiscal regime
- Competitive minimum depreciation periods for aircraft
- An efficient, skilled, cost-effective multi lingual workforce in a central European time zone.
Who may register an aircraft under the Malta flag?
Aircrafts eligible for registration under the Malta Flag, used for air services, must be wholly owned by qualifying persons such as:
- The Government of Malta;
- Citizens of member states of the EU, of an EEA State or Switzerland having a place of business or residence in these locations;
- A company or other undertaking formed and existing under the laws of Malta, of a member state of EU, of an EEA State or of Switzerland, having its principal place of business within these jurisdictions;
- Trustees on behalf of the beneficiaries based on the trust deed.
All operators of aircraft engaged in commercial air transport activity are required to be in possession of an Air Operator Certificate (AOC) and an operating licence.
Private Aircrafts/International Registrant
A natural person who is a citizen of or an undertaking established in an approved jurisdiction can register the aircraft in Malta provided that:
- Has the legal capacity to own/operate an aircraft under the law under which it has been established;
- Appoint a local resident agent to represent him for matters concerning the registration; and
- Complies with the requirements established under the Maltese Law.
Under what capacity
Qualified persons may register aircraft in Malta in any of the following capacities:
- As owner of the aircraft who operates the said aircraft;
- As owner of the aircraft under construction or temporarily not being operated or managed; An operator of an aircraft under a temporary title such as a lease or operating agreement;
- A buyer of an aircraft under a conditional sale or title reservation agreement who is authorised to operate the aircraft.
It is common for the title to an aircraft to be split among co-owners either individuals or undertakings in specified fractions or percentages. The Aircraft registration Act allows the registration of aircraft which ownership is vested in more than one person as long as at least fifty percent of the owners of the shares in the aircraft are eligible as qualified persons.
Each fractional interest may be financed by a different creditor which takes security over the particular fractional interest it has financed. Moreover fractional interests may also be treated as separate international interests under the Cape Town Convention and each fractional interest in an aircraft can be separately registrable in the International Registry.
The Cape Town Convention
The Cape Town Convention is regarded as a vital instrument for all the major players in the aviation industry. Malta’s accession to the Cape Town Convention entails that:
- Interests in airframes, aircraft engines or helicopters which are granted by a charger under a security agreement or vested in a person who is the conditional seller or the lessor under a leasing agreement may be registered in the International Registry and are regulated by the National Implementing Law contained in the First Schedule of the Act.
- The general rule is that international interests rank prior to national security interests and once registered to the International Register shall have full effect in Malta.
- A creditor may request that the security interest be also registered in the National Aircraft Register and it is in fact recommended that any such interest be registered both locally and in the International Registry. In this case the international interest will be operative in its own merits and, in the case of any conflict or discrepancy, it is the international interest which will prevail over the registration in the National Aircraft Register
- The establishment of an electronic International Registry which is fully accessible online in order to give notice to third parties of such international interests.
- Offers creditors with a number of remedies in case of default for the enforcement of their rights or interests over aircraft including taking possession or control of the aircraft, selling or granting a lease in the aircraft or receiving income arising from the use or management of the aircraft.
- Mitigate financial risk, interest rates charged are typically lower, resulting in reduced financing and leasing costs borne by purchasers or operators of aircraft in Malta known as the Cape Town Discount.
Security registered in the National Aircraft Register
The aircraft being a highly expensive asset is common to act as a security for debt or other obligation and in that purpose under Maltese Law constitutes a particular class of movables which is separate and distinct from the other assets within the estate of the owners implying that all registered mortgages to which a Maltese registered aircraft may be subject are not affected by the bankruptcy or insolvency of its mortgagor/owner occurring after the date on which the mortgage was created.
Any security over aircraft shall not extend to any engine attached to the airframe when such engine does not belong to the owner of the airframe who has granted the security and shall also include replacement engines.
The mortgage can be executed and registered even in favour of a security trustee including a future obligation as long as the maximum sum for which the mortgage is granted is expressly stated in the registered instrument.
In case of default the mortgagee is entitled to the following self-help remedies upon giving notice in writing to the debtor:
- Take possession of the aircraft or share in respect of which the mortgagee is registered
- Sell the aircraft or share in respect of which he is registered
- Lease the aircraft so as to generate income
- Receive payment of the price, lease payments and any other income which may be generated from the management of the aircraft
- Do all the required thinks in order to maintain the status and validity of the registration of the aircraft in the name of the owner.
The debts listed below enjoy super priority and any debts secured by a mortgage or registered in the International Registry shall rank after these debts:
- Judicial costs incurred in respect of the sale of the aircraft and the distribution of the proceeds thereof pursuant to the enforcement of any mortgage or other executive title
- Fees and other charges due to the Director General arising under applicable law of Malta in respect of the aircraft
- Wages due to crew in respect of their employment on the aircraft
- Any debt due to the holder of a possessory lien for the repair, preservation of the aircraft to the extent of the service performed on and value added to the aircraft
- The expenses incurred for the repair, preservation of the aircraft to the extent of the service performed on and value added to the aircraft and
- Wages and expenses for salvage in respect of the aircraft
The debts listed below will enjoy the priority only if registered in the International Registry:
- Taxes, Duties and or levies due to the Government of Malta in respect of the aircraft and
- Wages and Expenses for assistance or recovery in respect of the aircraft.
The Maltese VAT Authorities have issued guidelines relating to VAT on aircraft leasing arrangements for privately operated aircraft. The aim is to simplify the VAT treatment and establish the VAT liability of such leases when aircraft is used within EU airspace. Under the Maltese VAT legislation when a person established in Malta leases an aircraft for private purposes it constitutes a taxable supply of a service taking place in Malta if the aircraft: is leased for a continuous period of not more than 30 days and is put at the disposal of the client in Malta and is leased for a continuous period exceeding 30 days to a taxable person or non-taxable person established in Malta.
The Maltese VAT Authorities acknowledge the difficulties that arise when trying to determine the period when aircraft is used within EU’s airspace and in this regard they established a percentage portion of the aircraft within EU which is calculated on the basis of an expert technical study depending on the maximum take-off mass, the maximum fuel capacity, the fuel burn, the optimum altitude and the optimum cruising speed of the aircraft. Once the percentage is determined the standard VAT rate of 18% will be applied to the lease portion.
In order to apply for the VAT aircraft leasing procedure the below requirements should be satisfied:
The lease agreement shall be between two persons established in Malta
The lease agreement shall not exceed the period of 60 months
The lessee would not be eligible to claim input tax in respect of the lease.
At the termination of the lease a VAT paid certificate will be issued if the lessee exercises the option to purchase the aircraft.
Income derived from the ownership, lease or operation of an aircraft or aircraft engine used for the international transport of goods or passengers is deemed to arise outside Malta for the purposes of Income Tax Act regardless of the country of registration of the aircraft, or whether the aircraft may have called at or operated from any airport in Malta.
Malta operates a full-imputation system of taxation. Consequently when a company distributes dividends out of profits on which it had paid tax, typically no further tax is due by the shareholders and a credit for the tax paid by the distributing company is available to shareholders. Companies engaged in aircraft leasing structures may benefit from Malta’s tax refund system.
- Malta does not impose any withholding taxes on interest, royalties, dividends, lease payment and proceeds from liquidation, so no withholding tax applies on lease payments made by Maltese lessees to non-resident lessors in respect of aircraft operated in the international transport of passengers or goods
- In an operating lease, where the lessee uses the aircraft as part of its trade, it will be allowed a deduction for the lease payments and any other expenses which are incurred in the production of its income and then he will be taxable at 35%.
- Competitive depreciation rates for aircrafts, engines, aircraft interiors and other parts.
- Tax refunds to shareholders on distribution of profits.
- A Company resident but non-domiciled in Malta i.e. company incorporated outside Malta but it has the place of effective management in Malta will only be taxable in Malta if it receives its income in Malta. Where the income is not received in Malta there would be no tax liability in Malta.
- No taxable fringe benefits from the private use of aircraft by non-resident individuals who are employees, director and shareholders of companies involved in the international transport of goods and passengers.
- Extensive Double Tax Treaty Network.