SUMMARY ON THE NEW LAW ON TONNAGE TAX
On Friday 13th April, 2018 Legal Notices 127 and 128 were published amending Malta’s tonnage tax system in order to comply with the European Commission’s decision which was published at the end of last year. The new law will come into force on the 1st of May.
Legal Notice 128 seeks to clarify certain provisions relating to the applicability of Malta’s tonnage tax system and in particular it lists the type of vessels to which tonnage tax shall apply as well as those which are excluded. New provisions have also been included in relation to the treatment of tonnage tax benefits to (i) bareboat chartering; (ii) tugs; and (iii) dredgers.
A revised list of registration fees and tonnage tax payments have also been issued by Legal Notice 127 whereby a distinction has been made between the two and the possibility for non-Maltese companies owning vessels registered in Malta to opt to pay tonnage tax in Malta.
MORE DETAILED UPDATE
The European Commission on the 19th December, 2017 conditionally endorsed the Maltese tonnage tax system. Following such endorsement Legal Notices 127 and 128 have been published, which amend the current tonnage tax system. The new law will come into force on the 1st of May, 2018.
The salient features of the new law include the following:
- Ships excluded from the Tonnage Tax Regime
As will be highlighted later on, the Malta Tonnage Tax System, in line with EU Guidelines, will apply to ships which are involved in the international carriage of goods or passengers by sea. Therefore, in line with this reasoning the following vessels are excluded from benefiting from the Malta Tonnage Tax System:
(i) Fishing Vessels;
(ii) Private Yachts;
(iii) Fixed offshore installations and floating storage units;
(iv) Non-ocean going tug boats and dredgers;
(v) Ships whose main purpose is to provide goods or services normally provided on land;
(vi) Stationary ships employed for hotel and/or catering operations;
(vii) Ships employed mainly as gambling and/or casinos;
(viii) Non-propelled barges.
- Shipping Activities and Tonnage Tax
In order to qualify as a tonnage tax ship and thus benefit from the Malta tonnage tax system, the vessel has to be declared a tonnage tax ship by the Minister. Therefore, the Shipping Organisation which will own the vessel will need to show that the vessel is a sea-going vessel engaged in the international carriage of goods and/or passengers by sea. A number of documents would need to be provided to the Registrar-General in order for the vessel to be declared a tonnage tax ship.
Should the vessel qualify as a tonnage tax ship then the Shipping Organisation would not be liable to pay any income tax to the extent such income is derived from shipping activities. Furthermore, no income tax or capital gains will be paid on proceeds derived from the sale of a vessel which is declared a tonnage tax ship.
It is important that separate accounts are kept for the income derived from shipping activities and any other income derived from non-shipping activities. A simplified income tax return can be filed by the Malta Shipping Organisation for income derived from shipping activities. On the other hand, if the Shipping Organisation also derives income from non-shipping activities then the full income tax return would need to be filed.
The new law also seeks to clarify a number of grey areas in relation to Tugs and Dredgers. In order for these type of vessels to benefit from tonnage tax, they would need to be registered under an EU or EEA flag and spent at least 50% or more or their time in activity which constitutes maritime transport.
As regards to bareboat chartering, Shipping Organisations who derive income from chartering out vessels on a bareboat basis will benefit from the tonnage tax system if (i) the amount of the vessels bareboated out does not exceed 50% of the shipping companies’ fleet; (ii) the term of the bareboat is limited to a maximum period of 3 years; (iii) it is shown to the satisfaction of the Registrar General that the ship was bareboat chartered due to short term over capacity.
Furthermore, the new law provides for a list of vessels which to the extent that they are involved in the international carriage of goods or passengers by sea in accordance with the EU Maritime State Aid Guidelines and provided that they satisfy the criteria set out in the regulations, may also benefit from the tonnage tax system. These vessels include:
(i) Cable laying ships;
(ii) Pipe laying ships;
(iii) Crane vessels;
(iv) Research vessels; and
(v) Multi-purpose, break-bulk and other types of support vessels.
Specified provisions have also been included in relation to tonnage tax ships which are owned by the Malta Shipping Organisation which however are not flagged in Malta. If such ships are flagged under an EU or EEA flag, then there is the option to pay the equivalent of 25% of the tonnage tax if the vessels had been registered in Malta to the relevant authority and such vessel would be entitled to benefit from the Malta tonnage tax system.
If however, the vessels are flagged under a non-EU flag, then it would be possible for such vessel to qualify for the Malta tonnage tax system if it is shown that the strategic / commercial management of all ships by such shipping organization is actually carried out from the EU and it is proved that the shipping organization owns, manages or operates at least 60% of its total tonnage under an EU flag or percentage of the tonnage owned, managed or operated by the shipping organisation is Union-flagged and that the percentage of Union-flagged tonnage that is owned, managed, administered or otherwise operated by shipping organisations established in Malta has not decreased on average over a period of three years. The law further provides that at least 25% of the applicable tonnage tax on such vessels is paid to the relevant authority in Malta.
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