With its location in the heart of
the Mediterranean Sea, a centuries old maritime tradition and a
respected and favourable regulatory and tax regime for shipping, it is
no surprise that Malta has developed one of the world's largest ship
registers in modern times, and in the face of stiff competition from
other prominent maritime nations.
Vessel registration under the
Malta flag and the operation of the Maltese ships is regulated by the
Merchant Shipping Act, a law based in the main on United Kingdom
legislation, subsequently revised and amended in 1986, 1988, 1990, 2000
and 2010. The main legislation is also supplemented by a comprehensive
set of rules and regulations. Malta is additionally a party to most of
the major International Maritime Conventions and Malta-flagged ships
are obliged to strictly adhere to the provisions of these international
conventions. By the end of 2011, a total of 5,830 ships were registered
under the Maltese Merchant Shipping Act, for a total of 46.6m tonnes.
There were also 300 super yachts registered in Malta at the end of
2011, representing 19% growth over 2010.
In January, 2006, Malta
was one of only four flag states that attained the highest quality
ranking following the Paris Memorandum on Port State Control's annual
inspections. The Paris MoU “White List” represents quality flags with a
consistently low detention record. By the end of 2011, the White List
included 43 flag states.
In order to register a ship in Malta, it
must be owned by a company incorporated in the jurisdiction. All types
of vessels from pleasure craft to oil rigs may be registered provided
that they are wholly-owned by legally constituted corporate bodies, or
by European Union citizens. There are no nationality requirements for
shareholders or directors of Maltese companies, and neither are there
any nationality restrictions on officers and crew employed on
Maltese-flagged ships.
A yacht is first registered provisionally
under the Malta flag for six months (extensible under certain
circumstances) during which period all documentation needs to be
finalized. This includes, in particular, evidence of ownership and of
cancellation of former registry. Authority to operate still remains
linked to conformity with the relative manning, safety and pollution
prevention international standards. Once a vessel is provisionally
registered, registration, transfer and discharge of mortgages may be
effected immediately on presentation of the relative documents to the
Registrar. The 1986, 1988, 1990 and 2000 amendments introduced
important safeguards in respect of registered mortgages, making
financing of Maltese ships more attractive.
Generally, boats
that are more than 25 years old are not accepted for registration by
the Maltese Registry, and ships which are older than 20 years will be
required to undergo a Flag State inspection prior to provisional
registration. Maltese law provides for both bareboat charter
registration of foreign ships under the Malta flag and also for the
bareboat charter registration of Maltese ships under a foreign flag.
Ships that are bareboat charter-registered in Malta enjoy the same
legal privileges, and have the same legal obligations, as any other
ship registered in Malta. Maltese law also allows for the registration
of ships that are under construction.
Yachts which do not carry
cargo or more than 12 passengers may be registered as commercial yachts
under Malta's Commercial Yacht Code 2006, which sets out standards on
safety and pollution. The Commercial Yacht Code was developed in line
with international regulations and other industry standards and caters
for both small yachts and super-yachts above 24 metres and up to 3,000
gross tons. The Code has been proving successful with major yacht and
super-yacht builders alike, with the number of commercial yachts
certified in compliance with the Malta Code increasing considerably
during the past years. The registration procedure for yachts is similar
to that of other vessels, and a six month provisional registration is
usually granted allowing time for the appropriate documents to be
submitted and the registration finalized.
Malta applies a tonnage
tax system to boats on its register. This varies from EUR1,000 for
ships not exceeding 2,500 net tons, up to EUR7,180 for vessels
exceeding 50,000 net tons (plus 5 cents for every net ton above this
threshold). However, the amount of tax due can be lower or higher
depending on the age of the ship: there is a 30% reduction in annual
tonnage tax for ships which are less than 5 years old; and a 15%
reduction for ships which are not less than five years old and not more
than 10 years old. Vessels which are no less than 15 years old and no
more than 20 years old pay an additional 5% in tonnage tax, rising to
50% for ships which are equal to or exceed 30 years of age. Commercial
yachts pay an annual tonnage tax of EUR175 provided they are less than
24 metres in length. Commercial yachts of 24 metres or more in length
pay tonnage tax on the same schedule as other ships.
Unusually
for a low tax jurisdiction, Malta has entered into more than 50 double
tax treaties, and a reciprocal agreement between Malta and the United
States exempts shipping and air operations from income tax. This
agreement makes it possible for Maltese companies owning or operating
ships calling at US ports to claim an exemption from the 4% gross
transportation tax levied on transportation income attributable to
transport which begins or ends in the United States. Malta has also
concluded two maritime agreements with the People's Republic of China
and the Russian Federation; similar treaties with several other
countries are in the process of negotiation.
In June 2012, it
seemed that Malta’s position as the EU’s maritime jurisdiction of
choice was further endorsed when reports emerged from Germany that the
operator of the German cruise liner the MS Deutschland - the last
cruise liner to operate under the German flag - had decided to re-flag
the vessel in Malta. This was partly due to the German government’s
refusal to offer concessions that, according to the cruise line,
“offset the significant cost disadvantages” of operating under the
German flag. However, it was said that, with the move to Malta,
Deilmann is seeking a more predictable operational environment with the
same advantages enjoyed by competitors. It has been estimated that the
decision may cut the liner's costs by more than EUR250,000
(USD315,000), as flagging under the Maltese register will provide
Deilmann with a number of tax exemptions, including on profits, and
competitive annual fees. Malta also provides additional benefits such
as eased administrative procedures.
However, in July 2012, the
European Commission opened an in-depth investigation to examine whether
the Maltese tonnage tax scheme is compatible with EU state aid rules.
The Commission has concerns that the favourable tax treatment allowed
by the EU Guidelines on state aid to maritime transport for the
transport of passengers and freight by sea may have been extended to
other categories of beneficiaries that are not suffering from the same
handicaps and are therefore not entitled to lower taxes. The Guidelines
on state aid to sea transport allow member states to reduce taxes
for maritime transport of passengers or freight under certain
conditions. However, according to the Commission, the scope of the
Maltese tonnage tax may be too wide as it includes fishing boats,
yachts, oil rigs and ship-owners without any shipping activity of their
own.
“Given the multitude of exemptions and reductions available,
it appears that in a number of cases the level of tax burden for a
given tonnage is lower in Malta than in other Member States,” the
Commission stated at the time. “This could potentially make the Maltese
tonnage tax system more attractive than the ones applied in the rest of
the EU. Moreover, no sufficient safeguards are established to ensure
that benefits available under the tonnage tax do not spill over to
non-shipping activities of the beneficiaries. The Commission therefore
has concerns that the Maltese scheme may lead to distortions of
competition in the EU internal market by potentially attracting
companies and vessels from other Member States. The Commission will now
investigate in-depth to find out whether these concerns are confirmed
or not.
Joaquín Almunia, Commission Vice-President in charge of
competition policy further explained that: "The Commission acknowledges
the contribution of the maritime transport sector to the EU economy.
Given the high exposure to competition from third countries offering
favourable tax treatment to their shipping companies, the EU allowed
the possibility to reduce taxes for maritime transport activities. In
the Maltese case, the support measures apply to yachts, bankers, ship
lessors, amongst other beneficiaries. This seems neither justified from
a competition perspective, nor appropriate in times of high budgetary
constraints."
On September 25, 2012, the Commission announced an
invitation to submit comments on Malta’s tonnage tax regime and other
state measures, but it remains to be seen whether the European
Commission’s investigation will ultimately lead to changes in Malta’s
tonnage tax regime. If the Commission decides to challenge aspects of
the tax regime, it is possible that the Maltese government will contest
them through the European Courts, a process which could extend to
several years.
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