Malta owes much of its historical development to its strategic location in the centre of the Mediterranean, its natural harbours and its extensive range of maritime services including specialized ship repair, excellent freeport facilities, bunkering services, ship supplies and towage services.
Today, the Maltese flag has earned the confidence of several reputable ship owners, ship financiers and ship management companies as attested by the increasing registered tonnage. As at end of June 2008, the total number of Malta-flagged vessels was nearing the 5,000 mark with a total gross tonnage of over 32 million tonnes and an average age of 16.72 years. The current registered tonnage makes Malta the eighth largest maritime flag in the world and the second largest in Europe.
The Maltese Merchant Shipping Act (the “Act”) largely based on its English counterpart, principally governs the registration and operation of vessels. The Merchant Shipping Directorate of Transport Malta (TM), commonly referred to as the Malta Ship registry, is responsible for the registration of vessels under the Malta flag and the provision of all aspects of the on-going administration of Malta-flagged vessels.
In its constant efforts towards promoting the Maltese flag as a flag of choice, the MSD has undertaken several initiatives to ensure the reputation of the Maltese maritime flag, and it has appointed inspectors worldwide to conduct ship safety inspections onboard Maltese registered vessels on a regular basis, ensuring full and rigorous compliance with all applicable Maltese regulations and international treaties. Indeed, Malta is a party to most major IMO and International Labour Organisation conventions.
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Tax and Financial Benefits
Exemption from Income Tax
Maltese law affords a number of fiscal benefits to ship owners or bareboat charterers operating “tonnage tax ships”. Tonnage tax ships are vessels of at least 1,000 net tonnes registered under the Maltese flag and owned, chartered, managed or administered by a Shipping Organisation1 - a status automatically conferred on a company, partnership, trust or foundation having as its activities the owning, operating, administration or management of vessels2 Vessels not satisfying the 1,000 net tonne threshold could also be granted the status of “tonnage tax ships” by specific Ministerial approval.
Shipping Organisations operating tonnage tax ships are exempt from Malta tax in respect of:
- all income derived from their shipping activities; and
- any gain arising on the liquidation, redemption, cancellation, or any other disposal of shares, securities or any other interest, including goodwill, held in any shipping organisation owning, operating, administering or managing a tonnage tax ship3
Besides, an exemption of Malta tax is also granted in favour of financiers in respect of interest or other income payable in relation to any financing of the operations of a Shipping Organisation or the financing of any tonnage tax ship. Persons being resident in Malta may not avail themselves of this exemption unless they qualify as appropriately licenced banks or credit or financial institutions.
Exemption from Duty on Documents and Transfers (Stamp Duties)
The registration of a tonnage tax ship, any sale or other transfer of such ship, the issue or allotment of any equity or other interest in a shipping organisation and the registration, transfer or assignment of any security or interest in a shipping organisation or any vessel are specifically exempt from transfer duty in virtue of the provisions of the Merchant Shipping Act.
This exemption is of particular relevance in view of the fact that a 2.6% duty would otherwise be payable on the transfer of a ship or 2% on the transfer of shares of a ship-owning company in terms of the general rules laid down in the Duty on Documents and Transfers Act4
Exemption from Exchange Control Restrictions
Although licensed shipping organisations are exempt from the provisions of the External Transactions Act5 on any transaction connected with the ownership, operation, administration, management, purchase or financing of a tonnage tax ship, this exemption has little relevance today since Malta is fully compliant with the principle of free movement of capital and payments as one of the basic freedoms of the European Union.
Flexibility of Ownership Structures
Besides companies, partnerships, trusts or foundations which may be licensed as Shipping Organisations as explained above, individuals being European Union citizens are also qualified to own Maltese ships in their own personal capacity. In doing so, however, the individual concerned is not entitled to avail himself of the tax exemptions referred to above due to the specific wording of the law, since individuals are excluded from the definition of a “shipping organisation” thereby placing individuals outside of the scope of the applicable tax exemptions. Whether or not this anomaly is a deliberate exclusion on the part of the legislator, it is submitted that its removal should be the subject of a legislative amendment to place individuals on equal footing with licensed shipping organisations in their eligibility to benefit from the applicable tax incentives.
The registration of a vessel on the Maltese Register no longer necessitates the incorporation of a Maltese company. On the 1st May 2004, the date of Malta’s accession into the European Union, regulations permitting foreign bodies to be registered as owners of Malta-flagged vessels were introduced. The formalities that must be satisfied relate to the company’s existence, management and ownership and structure. An international owner is required to appoint a Resident Agent in Malta to liaise with the MSD and act as agent of the international owner in respect of all matters pertaining to the upkeep of the vessel’s register and to act as the owner’s judicial representative in Malta. It is precisely this framework which makes it possible for foundations, trusts and other bodies corporate registered or domiciled in jurisdictions outside Malta to be licensed as shipping organisations and register tonnage tax ships under the Maltese maritime flag.
Hulls under construction and vessels not strictly considered as ships, such as oilrigs, platforms and barges, may also be registered under the Maltese flag. The registration of hulls under construction under the Malta flag (with a “non-operational” certificate) has proven to be an effective solution to enable financers to register a mortgage over the hull to secure any advance/s made in the course of the vessel’s construction.
The Maltese flag does not impose any restrictions on the nationality of the shareholders, directors or officers of ship-owning entities. Neither are there any conditions imposed in respect of the nature of trading carried out by Malta-flagged vessels or the nationality of the master, officers and crew serving on such vessels. This flexibility allows vessel managers a high level of freedom in organising the manning and operation of Malta-flagged vessels.
Pre- or post- registration inspections are of relevance for vessels which have been in operation for 15 years or more. Vessels between 15 and 20 years old are subject to an inspection within one month after their provisional registration under the Malta flag. Vessels which are between 20 and 25 years old, on the other hand, require a pre-registration inspection by an MSD-appointed inspector who must be fully satisfied with the condition of the vessel before it is recommended for registration under the Malta flag
2 Merchant Shipping (Taxation and other matters relating to Shipping Organisations) Regulations, 2004, LN. 224 of 2004.
3 This exemption is conditional upon (i) the settlement of all relevant registration fees and tonnage taxes due in respect of the vessel and (ii) separate accounts are kept by the shipping organisation clearly distinguishing the receipts and payments in respect of shipping activities and those in respect of any other business. In practice this requirement (ii) is of little effect as shipping companies are established with the very specific and limited purpose contemplated by this concession.
4 Chapter 264 of the Laws of Malta
5 Chapter 233 of the Laws of Malta