Taxation of Ship Management Companies in Malta, by Dr. Larry J. Gauci LL.M. (IMLI), LL.D. of Hugh Peralta & Associates – Advocates

Last Updated on 20 July 2010

Summary:

 For a ship management company to qualify for the fiscal benefits under the new tonnage tax regime as amended, the company has to operate from Malta.  Therefore the company must have an office in Malta manned with qualified personnel.

 Basically, qualifying ship management companies will not pay any income tax on profits arising in Malta, provided they pay 25% of the annual tonnage tax for each vessel under their management.  This applies both to ship management companies providing technical management and, also, to crew management companies. 

 This tax advantage is attractive for jurisdictions like Norway, Denmark and UK where the cost of operations are much higher than Malta's.

 Article:

Following the publication of the EU Commission’s Communication providing guidance on State aid to ship management companies (2009/C132/06) last year, Malta has amended the fiscal benefits available under Malta’s tonnage tax regime with a view to extend the tonnage tax benefits to other qualifying persons, including, ship management companies. The link to the Malta flag is no longer a sine qua non requirement, and it is now possible for a Maltese shipping organization (private, limited liability) to own a vessel registered in a Shipping Register of another Member State, provided certain conditions are met.

 The amendment tonnage tax regulations cater for 3 new scenarios, which are the following:

            A Maltese shipping organization owning a vessel registered under another EU flag.

1. A Maltese shipping organization owning, chartering, managing, administering or otherwise operating a vessel outside the EU; and
2. A Maltese shipping organization whose objects are the carrying out of ship management activities.

1. 1.       Vessel registered under another EU flag, owned / bareboat chartered by a Maltese shipping organization;

The new regulations have extended the fiscal benefits granted pursuant to the tonnage tax regime to vessels which qualify as “Community ship’.  A vessel shall only qualify as a “Community ship” if the shipping organization has paid in Malta 25% of the annual tonnage tax that would be payable had the ship been flagged in Malta.

1. 2.       A vessel not being a “Community ship” as described in 1) above which is owned, chartered, managed, administered or otherwise operated by a Maltese shipping organization;

In order for a Non-Community ship to be eligible under this category, a number a conditions have to be fulfilled:

1. the strategic and commercial management of all ships is actually carried out by the shipping organization from the Community; AND

1. at least 60% of the total tonnage of the shipping organization is owned, managed or operated under a Community flag; OR

1. its total percentage of Community-flagged tonnage is, on the date when the shipping organization starts operating the ship, not less than the percentage of the shipping organization’s Community-flagged tonnage on either the date on which the company was established or on the 17^th January, 2004; OR

1. the shipping organization’s percentage of Community-flagged tonnage that it owns entirely, charters, manages, administers or otherwise operates has not decreased over a period of 3 years or for such shorter period during which the shipping organization was in existence (if the company has been established for a period of less than 3 years).

 The last 2 conditions (iii) and (iv) are deemed to have been satisfied if, in the discretion of the Registrar-General, there is a commitment by the shipping organization to increase or at least to maintain the share of tonnage under the flag of 1 of the Member States.

Moreover, 25% of the tonnage tax that would be payable had the ship been flagged in Malta, will have to be paid in respect of such vessel.

 Income Tax exemptions to ship management companies:

A ship management company is a shipping organization which is established in the Community, which has assumed responsibility for either or both of the technical or crew management of a vessel and in respect of which the ship management company has paid 25% of the annual tonnage tax payable in respect of the particular vessel.  Furthermore, the ship management company has to comply with international standards and fulfils requirements established under EU and Maltese law. 

The ship management activities in respect of which the tax exemption applies are those activities carried out by a ship manager and consisting in, but not limited to, the entire crewing of a ship, and, or the provision of technical management thereto.  In other words, the income of a ship management company is exempt from tax in Malta, provided the following conditions are met;

1. payment of 25% of the annual tonnage tax in respect of each vessel; and
2. at least 2/3^rd to the fleet managed by the ship manager is managed from the Community; and
3. the tonnage managed by the ship manager must satisfy 1 of the following conditions;
   1. at least 60% of the tonnage is Community-flagged; or
   2. the percentage of Community-flagged tonnage immediately after it begins to operate an additional ship is not less than that obtaining as on the 11^th June 2009 or 1 year after the ship manager began to operate, whichever is the later; or
   3. the percentage of Community-flagged tonnage has not decreased over a period of 3 years or for such lesser period during which the ship manager has been established.

Again, the last 2 conditions are deemed to have been satisfied, if in the discretion of the Registrar-General, there is a commitment to increase or at least maintain the share of Community tonnage, in respect of which ship management activities were being provided by it on the 11^th June 2009 or 1 year from when the ship manager began to operate.

For further information, kindly contact 77 Great Estates on (00356) 2125 2455; (00356) 9944 7444; skype: info.77GreatEstates or info@77GreatEstates.com.

Posted in: Shipping in Malta