Aircraft Registration in Malta and Related Fiscal Incentives

Contributed by 3a Accountants [www.3a.com.mt]

Recently, Malta implemented a new aircraft registration regime, structured in a manner to accommodate efficient registration of smaller aircrafts, in particular business jets. The regime is governed by The Aircraft Registration Act, Chapter 503 of the Laws of Malta which will serve as the framework for the registration of aircrafts in Malta. In recent years Malta has been actively positioning itself as a favourable aviation base in the EU. Malta has so far attracted several international carriers to operate from Malta and more importantly, the successful establishment of aircraft maintenance facilities such as those of SR Technics and Lufthansa Technik.

The Aircraft Registration Act addresses several important issues such as different types of registrants, the concept of fractional ownership and the protection of creditors and special privileges which may exist on the aircraft. Aircraft registration is administered by the Authority for Transport in Malta.

An aircraft may be registered by the owner, operator or its buyer under a conditional sale. Only qualified persons are entitled to register an aircraft in Malta. Qualified person/s should be beneficially owned at least to the extent of 50% by individuals who are citizen of the European Union, EEA or Switzerland. Qualification for registration is more flexible when it comes to the registration of private jets. An aircraft which is not used for ‘air services’ may be registered by any undertaking established in an OECD Member State. Registration caters for issues of confidentiality in the sense that it is possible for the aircraft to be registered by a trustee. Foreign undertakings registering an aircraft in Malta are obliged to appoint a Maltese resident agent.

Maltese registration allows the possibility for separate registration of the aircraft and its engines. An aircraft which is still under construction may also be registered in Malta. The notion of fractional ownership is fully recognised by Maltese law allowing that the ownership of an aircraft to be split into one or more shares. Details recorded on the public register include the physical details of the aircraft, physical details of its engines, name and address of the registrant/s, details of any registered mortgage/s and details on any irrevocable de-registration and export request authorisation.

Maltese law allows the aircraft to act as a security for a debt or other obligation. A mortgage on an aircraft may be registered and as such all registered mortgages including any special privileges are not affected by the bankruptcy or insolvency of its owner. Furthermore, the law protects the judicial sale of the aircraft (instituted by the registered mortgagee) from being interrupted by curator in the bankruptcy proceedings of the owner. A mortgage may be transferred or amended according to the relevant preferences and circumstances of the creditor. Special privileges are granted in respect in respect of certain judicial costs, fees owed to the Malta Transport Authority, wages payable to the aircraft’s crew, debts owed in relation to the repair and preservation of the aircraft and if applicable, to wages and expenses in relation to salvage. Interpretation of the provision of the governing legislation has been consolidated and facilitated by Malta’s ratification of the Cape Town Convention.

The regime has also been supported by attractive fiscal incentives. These are expected to render Malta a more attractive jurisdiction from where to conduct such operations. The following is a description of some of these incentives:

Aircraft Operations
A fundamental provision has been introduced in relation to income derived from aircraft which may have operated from any airport in Malta such as this income derived from the ownership, leasing or operation of aircraft or aircraft engines shall be deemed to arise outside Malta for Maltese Income tax purposes. Such income is deemed to arise outside Malta irrespective of:

• The country of registration of the aircraft/engines;
• Whether the aircraft calls at or operates from Malta.

Under Malta’s remittance basis of taxation, income deemed to arise outside Malta will be exempt from Maltese tax. Therefore this allows for the shifting of tax residence of an aircraft company to Malta in order to profit benefit from such an incentive. This benefit, combined with the benefits on the operation of aircraft in international traffic contained in Malta’s double taxation agreements, presents attractive tax planning opportunities for airline and aviation operators setting up their residence in Malta.

Depreciation of Aircraft
The Deduction for Wear and Tear of Plant and Machinery (Amendment) Rules, 2010 provide for new depreciation periods for wear and tear of aircraft or aircraft equipment. These have been reduced providing a bigger benefit since the deductible amounts against taxable income can be taken much faster. In fact, prior to such changes, the minimum period for aircraft depreciation was 12 years, whilst with these amendments, depreciation of aircraft and parts thereof will be as follows:

• Aircraft airframe - 6 years
• Engine - 6 years
• Engine or aircraft overhaul - 6 years
• Interiors and other parts - 4 years

New Exemption from Fringe Benefits
L.N. 292 of 2010, namely Fringe Benefits (Amendment) Rules 2010, creates a new exemption from fringe benefits rules which applies to an employee or officer of an employer as well as corporate entities, whose business activities include the ownership, leasing, or operation of any one or more aircraft or aircraft engine which is used for or employed in the international transport of passengers or goods.

Aircraft Finance Leasing in Malta
The Maltese Tax Authorities have published guidelines on the tax treatment of finance leasing of aircraft. The guidelines relate to aircraft finance leasing arrangements not exceeding 4 years. Arrangements of 4 years or more are governed by different rules. The new guidelines clarify the position pertinent to the level of taxable income in the hands of the lessor and the type of deductions that the lessee is entitled to claim. The lessor is charged to tax on the annual finance charge, namely the difference between the total lease payments less the capital element divided by the number of years of the lease. On the other hand the lessee is allowed a deduction in respect of a number of items which include finance charges, maintenance and repair costs and insurance cover.

The lessee is allowed capital allowances in respect of the aircraft and the parties may not opt to shift the burden of wear and tear onto the lessor. Where the lessee exercises an option to purchase the aircraft on the termination of the finance lease, and the lessor is not trading in the purchase and sale of aircraft, the purchase price received by the lessor shall be considered to be of a capital nature and no tax thereon shall be payable by the lessor.

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