Revised Regulations on the Malta Tonnage Tax Regime

The European Commission, based on the first subparagraph of Article 108 (2) of the Treaty on the Functioning of the European Union (TFEU), issued a decision on the 19^th December 2017 with regards to the Maltese Tonnage Tax Scheme, which outlines the measures to be taken into consideration for eligible vessels[1]. The decisions refers to specific types of income and activities of tonnage tax ships which may be subject to tonnage tax, the level of tonnage tax, the flag link requirement and ring-fencing measures.

Moreover, it details the exemptions taken into account like those from taxation of capital gains arising either from sale/transfer of ships or in relation to shares in shipping companies, exemptions from taxation of dividends in relation to shares in shipping companies, taxation of interest or other income in relation to financing of shipping companies or tonnage tax ships, and the exemption from certain duties on documents and transfers.

As eligible vessels, income and activities, under the Merchant Shipping Taxation Regulations[2] (“Taxation Regulations”) income derived by a licensed shipping organisation from shipping activities may be exempted from income tax under the Income Tax Act[3], provided that all relevant registration fees and tonnage taxes are duly paid.

Following the definition from the Taxation Regulations in relation to what is to be considered a tonnage tax ship, Malta is committed to exclude from the operation of tonnage tax the following vessels:

1. fishing and fish factory ships;
2. private yachts and ships used primarily for sport or recreation;
3. fixed offshore installations and floating storage units;
4. non-ocean going tug boats and dredgers (Towage services within harbours are excluded, tugs will be eligible when it is confirmed that a majority of their operational time is spent in the international carriage of goods);
5. ships whose purpose is to provide goods and services normally provided on land;
6. stationary ships employed for hotel and or catering operations (floating hotels or restaurants);
7. ships employed mainly for gambling, as casinos (floating casinos or cruising casinos); and
8. Barges which are not engaged in the international transport of goods irrespective of whether they are self-propelled or otherwise.

Additionally, Malta will explicitly limit the application of tonnage taxation to the chartering out of vessels on bareboat basis and similar transactions between third parties. The chartering out of vessels on bareboat basis to third parties and similar transactions can be eligible only as ancillary activity of genuine shipping companies in the context of temporary overcapacity subject to the following conditions:

1. only to deal with a situation of temporary excess capacity;
2. for a maximum period of up to three years;
3. bareboat chartered out capacity will not exceed 50% of the shipping companies’ fleet, calculated on a group basis; and
4. excess capacity specifically acquired for chartering out cannot be eligible.

Existing and new entrants to the tonnage tax scheme must have at least 25% of their tonnage tax fleet EEA-flagged notwithstanding the requirement to maintain or increase the share as set out in 3.1 (paragraph 8) of the Maritime Guidelines.

Income from non-EEA-flagged vessels will only be eligible when the criteria on flagging are met and shall apply only to fleets which are entirely managed from the EEA for commercial and strategic management. Ships which are not commercially and strategically managed from the EEA will be accepted under tonnage taxation only if flying an EEA flag (except for vessels bareboat chartered).

The Maltese legislation will be amended to clearly distinguish between fees which are payable by vessels on registration and annual taxes on non-qualifying ships under the Maltese flag, and tonnage tax, which is only payable in respect of qualifying ships.

For expert legal advice on the Tonnage Tax Regime in Malta then contact our specialist lawyers in Malta today. Jean-Pie Gauci-Maistre, Despoina Xynou and Nielsen L. Avila Rovelo combined, have decades of experience in this area of law and will be more than glad to assist or schedule a call.

[1] In reference to the definition of a “Tonnage Tax Ship” in Article 85(1) of the Merchant Shipping Act, Chapter 234 of the Laws of Malta

[2] Merchant Shipping (Taxation and Other Matters relating to Shipping Organisations) Regulations, Subsidiary Legislation 234.43 of the Laws of Malta

[3] Income Tax Act, Chapter 123 of the Laws of Malta