Maltese Tonnage Tax Scheme Approved By EU

by Jason Gorringe, Tax-News.com, London

20 December 2017

Malta's tonnage tax scheme has been conditionally approved for a period of 10 years by the European Commission under EU state aid rules.

Under the scheme, Malta is allowed to tax shipping companies on a notional profit or the tonnage they operate, instead of taxing these companies under the normal corporate tax system. Shipping companies can only benefit from the scheme if they have a significant part of their fleet flying the flag of a European Economic Area (EEA) member state. In addition, any new entrant to the scheme must have at least 25 percent of its fleet subject to tonnage tax with an EEA flag.

Competition Commissioner Margrethe Vestager said: "Tonnage tax systems are meant to promote the competitiveness of the EU shipping industry in a global market without unduly distorting competition. I am pleased that Malta committed to adapt its tonnage tax system to achieve this. Moreover, by encouraging the registration of ships in the EU, the scheme will enable the European shipping industry to keep up its high social and environmental standards."

Malta has been in discussions with the Commission on its tonnage tax scheme and other tax measures since October 2011. In 2012, the European Commission opened an in-depth investigation into the scheme to examine its compatibility with EU state aid rules.

The Commission's investigation found certain features of the original scheme, such as tax exemptions applied to Maltese residents, and the broad scope of the scheme extending to vessels not carrying out maritime transport activities, to be in breach of EU state aid rules.

As a result, Malta committed to introduce a number of changes to its scheme to prevent any discrimination between shipping companies, and to avoid undue competition distortions. In particular, Malta agreed to restrict the scope of the scheme to maritime transport and to remove those tax exemptions for shareholders which constitute state aid.

Malta's Minister for Transport, Infrastructure, and Capital Projects, Ian Borg, welcomed the EU decision as "...an important milestone in Malta's flourishing shipping sector," adding that it gives "...legal certainty ... to operators in the industry in our country, a fact which is also very relevant to attracting more investors to this area."

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