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19 November 2014
Income derived from aircraft used for international transport
Taxation of distributed profits
Leases not regulated under finance leasing rules
Fringe benefits – private use of aircrafts
The 2010 enactment of the Aircraft Registration Act:
This update outlines the fiscal advantages afforded to the aviation sector under Maltese law.
Any income that derives or otherwise arises from owning, operating or leasing an aircraft or aircraft engine used to transport goods and passengers internationally is deemed to arise outside of Malta, irrespective of the aircraft's or engine's country of registration or whether the aircraft calls at or operates from a Maltese airport.
Companies incorporated in Malta are considered to be both resident and domiciled in Malta; thus, such companies are taxable on a worldwide basis at a corporate rate of 35%. However, companies that are resident (by virtue of their management and control being effectively exercised in Malta) but not domiciled in Malta (or vice versa) are taxable only on:
This creates interesting tax-planning opportunities, which can be availed of by using entities that are resident but not domiciled in Malta (ie, foreign incorporated entities) to ensure that income derived by non-residents from leasing aircraft or aircraft engines to Maltese-resident lessees is not subject to Maltese income tax.
Malta operates a full imputation system which ensures that no dividend paid by a Maltese company to a shareholder (taxed at 35%) is taxed twice. Shareholders can deduct the amount of tax paid by the Maltese company from the amount of tax that they paid on the gross dividend received. The profits of a Maltese company are therefore taxed only once and no further tax is payable by shareholders on distributions.
Depending on the business activity from which the profit is derived, shareholders may be eligible to claim refunds of two-thirds, five-sevenths or six-sevenths of the corporate tax paid by Maltese companies on distribution of certain profits.
Malta also has a participation exemption regime that applies to income and gains derived by a Maltese company from participating holdings held in foreign entities.
According to the Finance Leasing Rules, leases of assets for four-year periods or longer are considered finance leases if the lessee agrees to pay the lessor the full (or nearly the full) cost of the asset over the lease period, together with a return on the finance provided by the lessor. Further, the lessee must assume all risks and rewards normally associated with ownership of the asset, other than the legal title thereto. The tax treatment of income derived from such leases is as follows:
Guidelines have been issued in respect of aircraft leasing arrangements that are not regulated under the Finance Leasing Rules. The following tax treatment is to be adopted for each year of the lease period:
Malta is actively seeking to bolster its aviation industry by investing in related and ancillary activities, such as maintenance, repair and overhaul operations. The extent of the credits offered depends on certain factors, including:
The fiscal incentives have also been complemented by investments in infrastructure to accommodate key players in the aviation sector – for example, the €17 million Safi Aviation Park, a 200,000 square metre facility opened at the end of 2012.
The Fringe Benefits Rules have also been amended. They now provide that the private use of an aircraft by a non-resident who is an employee of an entity whose business activities include owning, leasing or operating aircraft or aircraft engines used to transport passengers or goods internationally will not be considered a fringe benefit and is therefore not taxable as a fringe benefit.
For tax purposes, annual deductions for wear and tear of an aircraft are now more competitive:
The goal of the amendments referred to above was to put Malta at the forefront of the aviation industry. In addition, Maltese law has other benefits, such as:
For further information on this topic please contact Donald Vella at Camilleri Preziosi by telephone (+356 21 23 89 89), fax (+356 21 22 30 48) or email (firstname.lastname@example.org). The Camilleri Preziosi website can be accessed at www.camilleripreziosi.com.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
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