Malta Aircraft Registration Tax Incentives

Malta Aircraft Registration Tax Incentives. Malta Aviation – setting new highs.

In recent years, Malta has managed to put in place a well-defined strategy to become a reputable aviation centre by attracting and making available comprehensive airline services, comprising of aircraft and engine maintenance, repairs, overhaul, aircraft management, aircraft maintenance training and other ancillary support services.  Subsequently this has been attracting enterprises involved within the industry to set up base in Malta with the Malta Aviation Registry registering continuous growth. As of September 2016, the aviation registry boasted the registration of 232 aircrafts, an increase of 13 aircrafts in just 5 months.

The attracting factors contributing to the aforesaid growth is Malta’s status as an EU Member State,  an appealing corporate tax regime, the adoption of the provisions of the Cape Town Convention on International Interests in Mobile Equipment and its Aircraft Protocol (“the Convention”) into the Maltese legislation.  The latter also maximises flexibility, integrating important provisions such as the adoption of the Recognition of Fractional Ownership (allowing an aircraft to be owned my multiple persons in specified fractions or percentages, with each part allowed to be consequently given as a security), the possibility of registering aircrafts under construction, the specific tax treatment for finance leases, no withholding tax on lease payments to non-tax resident lessor and reasonable depreciation period on aircraft/engine.

Registration of an aircraft in Malta is restricted to “qualified persons” which can be an individual or a company resident in any part of the world, meeting the criteria set.

In terms of taxation, a company incorporated outside Malta and managed and controlled in Malta deriving income from the ownership, leasing or operation of aircraft or aircraft engines is deemed as resident in Malta for tax purposes.

Income derived from the ownership, leasing or operation of aircraft or aircraft engines engaged in the international transport of passengers or goods is deemed to arise outside Malta for Maltese income tax purposes, irrespective of the country of registration of the aircraft/engines and whether the aircraft calls at or operates from Malta.

In terms of Malta’s remittance basis of taxation, foreign source income is not taxable in Malta unless it is remitted to Malta. The remittance basis of taxation applies to persons (individuals or incorporated entities) which are either resident or domiciled but not both.

Moreover other jurisdictions would not be able to tax such income since in terms of the double tax treaties signed by Malta, based on the OECD Model Convention, profits derived from the operation of an aircraft in international traffic are taxable only in the Contracting State in which the place of effective management of the enterprise is situated. Thus if the effective management of the company is situated in Malta, such profits are in terms of the tax treaty only subject to tax in Malta, which in any case would be exempt from tax unless received in Malta.