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Malta Shipping Review


By Tax-News.com Editorial
October 22, 2013


With its location in the heart of the Mediterranean Sea, a centuries old maritime tradition and a respected and favourable regulatory and tax regime for shipping, it is no surprise that Malta has developed one of the world's largest ship registers in modern times, and in the face of stiff competition from other prominent maritime nations.

Vessel registration under the Malta flag and the operation of Maltese ships is regulated by the Merchant Shipping Act, a law based in the main on United Kingdom legislation. The main legislation is also supplemented by a comprehensive set of rules and regulations. Malta is additionally a party to most of the major International Maritime Conventions and Malta-flagged ships are obliged to strictly adhere to the provisions of these international conventions, including the Maritime Labour convention, which Malta ratified on 18 January 2013, and which entered into force for Malta on 20 August 2013.  The MLC has been transposed into domestic legislation through the Merchant Shipping (Maritime Labour Convention) Rules, 2013. By the end of 2012, almost 6,000 ships were registered under the Maltese Merchant Shipping Act, for a total of 46m tonnes. There were also 300 super yachts registered in Malta at the end of 2011, representing 19% growth over 2010.

In January, 2013, Malta was among the 45 flag states that attained the highest quality ranking following the Paris Memorandum on Port State Control's annual inspections. The Paris MoU “White List” represents quality flags with a consistently low detention record.

In order to register a ship in Malta, it must be owned by a company incorporated in the jurisdiction. All types of vessels from pleasure craft to oil rigs may be registered provided that they are wholly-owned by legally constituted corporate bodies, or by European Union citizens. There are no nationality requirements for shareholders or directors of Maltese companies, and neither are there any nationality restrictions on officers and crew employed on Maltese-flagged ships.

A vessel is first registered provisionally under the Malta flag for six months (extensible under certain circumstances) during which period all documentation needs to be finalized. This includes, in particular, evidence of ownership and of cancellation of former registry. Authority to operate still remains linked to conformity with the relative manning, safety and pollution prevention international standards. Once a vessel is provisionally registered, registration, transfer and discharge of mortgages may be effected immediately on presentation of the relative documents to the Registrar. The 1986, 1988, 1990 and 2000 amendments to the Merchant Shipping Act introduced important safeguards in respect of registered mortgages, making financing of Maltese ships more attractive.

Generally, vessels that are more than 25 years old are not accepted for registration by the Maltese Registry, and ships which are older than 20 years will be required to undergo a Flag State inspection prior to provisional registration. Maltese law provides for both bareboat charter registration of foreign ships under the Malta flag and also for the bareboat charter registration of Maltese ships under a foreign flag. Ships that are bareboat charter-registered in Malta enjoy the same legal privileges, and have the same legal obligations, as any other ship registered in Malta. Maltese law also allows for the registration of ships that are under construction.

Yachts which do not carry cargo or more than 12 passengers may be registered as commercial yachts under Malta's Commercial Yacht Code 2006, which sets out standards on safety and pollution. The Commercial Yacht Code was developed in line with international regulations and other industry standards and caters for both small yachts and super-yachts above 24 metres and up to 3,000 gross tons. The Code has been proving successful with major yacht and super-yacht builders alike, with the number of commercial yachts certified in compliance with the Malta Code increasing considerably during the past years. The registration procedure for yachts is similar to that of other vessels, and a six month provisional registration is usually granted allowing time for the appropriate documents to be submitted and the registration finalized.

Malta applies a tonnage tax system to vessels on its register. This varies from EUR1,000 for ships not exceeding 2,500 net tons, up to EUR7,180 for vessels exceeding 50,000 net tons (plus 5 cents for every net ton above this threshold). However, the amount of tax due can be lower or higher depending on the age of the ship: there is a 30% reduction in annual tonnage tax for ships which are less than 5 years old; and a 15% reduction for ships which are not less than five years old and not more than 10 years old. Vessels which are no less than 15 years old and no more than 20 years old pay an additional 5% in tonnage tax, rising to 50% for ships which are equal to or exceed 30 years of age. Commercial yachts pay an annual tonnage tax of EUR175 provided they are less than 24 metres in length. Commercial yachts of 24 metres or more in length pay tonnage tax on the same schedule as other ships.

Unusually for a low tax jurisdiction, Malta has entered into almost 70 double tax treaties, and a reciprocal agreement between Malta and the United States exempts shipping and air operations from income tax. This agreement makes it possible for Maltese companies owning or operating ships calling at US ports to claim an exemption from the 4% gross transportation tax levied on transportation income attributable to transport which begins or ends in the United States. Malta has also concluded maritime agreements with the People's Republic of China and the Russian Federation; similar treaties with several other countries are in the process of negotiation.

In June 2012, it seemed that Malta’s position as the EU’s maritime jurisdiction of choice was further endorsed when reports emerged from Germany that the operator of the German cruise liner the MS Deutschland – the last cruise liner to operate under the German flag – had decided to re-flag the vessel in Malta. This was partly due to the German government’s refusal to offer concessions that, according to the cruise line, “offset the significant cost disadvantages” of operating under the German flag. However, it was said that, with the move to Malta, Deilmann is seeking a more predictable operational environment with the same advantages enjoyed by competitors. It has been estimated that the decision may cut the liner's costs by more than EUR250,000 (USD315,000), as flagging under the Maltese register will provide Deilmann with a number of tax exemptions, including on profits, and competitive annual fees. Malta also provides additional benefits such as eased administrative procedures.

However, in July 2012, the European Commission opened an in-depth investigation to examine whether the Maltese tonnage tax scheme is compatible with EU state aid rules. The Commission has concerns that the favourable tax treatment allowed by the EU Guidelines on state aid to maritime transport for the transport of passengers and freight by sea may have been extended to other categories of beneficiaries that are not suffering from the same handicaps and are therefore not entitled to lower taxes. The Guidelines on state aid to maritime transport allow member states to reduce taxes for maritime transport of passengers or freight under certain conditions. However, according to the Commission, the scope of the Maltese tonnage tax may be too wide as it includes fishing vessels, yachts, oil rigs and ship-owners without any shipping activity of their own.

“Given the multitude of exemptions and reductions available, it appears that in a number of cases the level of tax burden for a given tonnage is lower in Malta than in other Member States,” the Commission stated at the time. “This could potentially make the Maltese tonnage tax system more attractive than the ones applied in the rest of the EU. Moreover, no sufficient safeguards are established to ensure that benefits available under the tonnage tax do not spill over to non-shipping activities of the beneficiaries. The Commission therefore has concerns that the Maltese scheme may lead to distortions of competition in the EU internal market by potentially attracting companies and vessels from other Member States. The Commission will now investigate in depth to find out whether these concerns are confirmed or not.

Joaquín Almunia, Commission Vice-President in charge of competition policy further explained that: "The Commission acknowledges the contribution of the maritime transport sector to the EU economy. Given the high exposure to competition from third countries offering favourable tax treatment to their shipping companies, the EU allowed the possibility to reduce taxes for maritime transport activities. In the Maltese case, the support measures apply to yachts, bankers, ship lessors, amongst other beneficiaries. This seems neither justified from a competition perspective, nor appropriate in times of high budgetary constraints." 

On September 25, 2012, the Commission announced an invitation to submit comments on Malta’s tonnage tax regime and other state measures, but it remains to be seen whether the European Commission’s investigation will ultimately lead to changes in Malta’s tonnage tax regime. If the Commission decides to challenge aspects of the tax regime, it is possible that the Maltese government will contest them through the European Courts, a process which could extend to several years.

 

Tags: Malta | tax | tonnage tax | Europe | legislation | standards | law | United States | regulation | European Commission | United Kingdom | agreements | fees | environment | China | construction | compliance | Germany | budget | Russia

 

 

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