Malta Tonnage Tax System
Full Tax Exemption
Malta – A Flag of Choice
Malta’s tonnage tax system contributes to Malta being ranked as one of the leading shipping registries in the world. Malta is located of the heart of the Mediterranean and its geographical location has for centuries been a natural port of choice for the maritime sector.
As a leading maritime service provider, Malta has become a flag of choice for shipping and maritime companies seeking a reputable and tax efficient jurisdiction that protects both assets and the rights of ship owners. Offering one of the most competitive shipping registry fees and income taxation regime across the globe – dependent on the tonnage and age of the vessel – the Malta registry provides registration for ships, bare boat charters as well as mortgagees and since EU membership in 2004 offers ship owners the opportunity of an EU flag, with global advantages.
Full Tax Exemption on Income from Shipping Activities
Income derived from shipping activities are fully exempt from Malta tax. Known as the tonnage tax system, shipping companies that pay tonnage tax in Malta do not suffer any further tax liability. The Malta tonnage tax system is applicable to all organisations, which owns, charters or operates a tonnage tax ship.
Income derived from shipping activities also benefit from a number of VAT exemptions.
Full Malta Tax Exemption on Sale / Transfer of Ownership of Shipping Vessels
Income, profits or gains derived from the:
- sale or other transfer of a tonnage tax ship, or
- disposal of any rights to acquire a ship which when delivered or completed would qualify as a tonnage tax ship
are exempt from Malta tax.
The total exemption from Malta tax also applies to entities that trade in the acquisition and disposal of tonnage tax ships.
Income that Qualifies for Full Malta Tax Exemption
The Malta tax exemption applies to income arising from ‘shipping activities’ defined as:
‘the international carriage of goods or passengers by sea or the provision of other services to or by a ship as may be ancillary thereto or associated therewith including the ownership, chartering or any other operation of a ship engaged in all or any of the above activities or as otherwise may be prescribed’.
Conditions to Qualify for Full Malta Tax Exemption
To qualify for full Malta tax exemption, the following conditions must be met:
The shipping company qualifies as a ‘shipping organisation’ and has obtained such a license from the Government of Malta
The ship must qualify as a ‘tonnage tax ship’ – there is no need for the ship to be registered under the Malta Flag, only that a ship of not less than 1,000 net tonnage should qualify as a ‘tonnage tax ship’ if:
- it is registered under the Maltese Merchant Shipping Act; or
- it is registered in another EU/EEA State and has paid the applicable Maltese tonnage tax;
- the Minister declares a third country ship to be a tonnage tax ship provided certain conditions, the same as those set out in the EU Guidelines are satisfied.
Flag of Choice
Malta is a flag of choice for international shipping companies, other advantages including:
- Ships may be registered in the name of legally constituted corporate bodies or entities irrespective of nationality, or by European Union citizens
- Low company formation, ship registration and tonnage tax costs; progressive reduction in registration and tonnage tax costs for younger ships
- Attractive incentives to owners, registered charterers and financiers of Maltese ships of over 1,000 net tonnage; these incentives may also be extended to smaller ships
- No restrictions on the nationality of the master, officers and crew
- No restrictions on the sale or transfer of shares of a company owning Maltese ships
- No restrictions on the sale and mortgaging of Maltese ships
- No trading restrictions and, preferential treatment to Maltese ships in certain ports.
The Flag of Confidence
Our shipping lawyers can provide you with all the necessary legal advice and administrative support for your maritime activities from inception to final registration of your vessel. The sector is regulated by the Merchant Shipping Act of 1973 and supplemental regulations.#
A strong regulatory framework coupled with a sound reputation of the islands ship registry offers vessel owners peace of mind when choosing Malta, including:
- Serious and efficient maritime administration
- Flag state inspectorate to ensure adherence to international standards
- Twenty-four hours, seven days a week service in respect of urgent matters
- Sound multilateral and bilateral relations
- Active participation in international shipping for a
- Extensive double taxation treaty network
Benefits Extended to Non-Malta Flagged Ships
Non – EU Flagged Ships
The benefits of the Malta tonnage tax system are also applicable in certain instances to non-Malta Flagged ships. To qualify, any tonnage ships not registered in Malta must pay, in full, all relevant registration fees/tonnage taxes applicable to the vessel rates, which are calculated as if the ship were registered in Malta.
EU Flagged Ships
The benefits also extend to EU registered ships. In this case if registration fees/tonnage tax were paid in respect of that ship in another Member State/EEA State, relief may be provided against the Maltese registration fees/tonnage taxes, subject to a minimum payment equivalent to 25% of Maltese registration fees/tonnage tax.
Shipping Management Companies
No Malta income tax or stamp duty is payable on the disposal of shares in a licensed shipping organisation that owns / charters / operates / administers, or manages a tonnage tax ship.
Income derived by a ship manager from ship management activities is treated as income derived from shipping activities and are exempt from tax.
- No grouping provisions requirements meaning that the benefits are still available to shipping management companies even if not all shipping companies are registered in Malta
- Licensed shipping organisations having no income other than income from shipping activities can submit a declaration in lieu of a tax return
- Distribution of profits derived from shipping activities are usually exempt from tax in Malta in the hands of the shareholders.
- Ship management activities are defined as referring to those activities consisting in, but not limited to, the entire crewing of a tonnage tax ship and/or the provision of technical management thereto. A Ship manager must be a licensed shipping organisation, established in the EU, and has assumed responsibility for either or both of the technical or crew management of a ship and complies with international standards.
Conditions to qualify for Tax Exemption:
- To obtain the income tax exemption in respect of profits derived by a “ship manager” from ship management activities the following conditions are required to be satisfied:
- The ship manager must have settled all applicable registration fees and tonnage taxes; and
- Maintain separate accounts distinguishing receipts and payments relating to ship management activities from those relating to any other business at least 2/3rds of the tonnage of the ships to which the ship manager provides ship management activities is managed from the territory of the EU;
- The tonnage of the ships in respect of which the ship manager provides ship management activities meets one of a number of conditions (I.e. at least 60% of the managed tonnage is registered under a EU flag, and that the ship manager does not decrease or provides a commitment to increase the tonnage of EU managed ships over a specific period);
- make at least 10% profit on the transaction.
Upon the lessee exercising the purchase option on the lease agreement, a certificate is issued by the Malta VAT department declaring that VAT has been fully paid in Malta (EU).
The VAT is payable over a period of between one and three years.
As the leasing profit (suggested minimum of 1%) is considered trading income, due to the tax refund system, the Malta company would end up paying only 5% tax on its profits.