Opportunities inaviation from Malta

Malta is an attractive jurisdiction for the registration of commercial and private aircraft whilst offering highly efficient tax

planning opportunities. The aviation industry in Malta has been prompted, amongst others, through the face-lift of the

aircraft legislation in Malta in 2010 relating to aircraft registration (the ‘Aircraft Registration Act’) and the implementation

of the Cape Town Convention on International Interests in Mobile Equipment and its Aircraft Protocol (the ‘Cape Town

Convention’), ratified in February 2011.

The main legislative measures introduced in 2010 which establishes Malta as an attractive jurisdiction for aviation business

may be summed up as follows:

• transparency of all rights and interests in aircraft;

• broad registration possibilities for all aircraft, whether used for private or commercial air transport;

• facilitation of enforcement of mortgages and other security interests;

• no withholding tax on lease payments where the lessor is not a tax resident of Malta;

• competitive minimum depreciation periods for aircraft;

• applicability of the Cape Town Convention provides financiers with a higher degree of protection and more effective

enforcement remedies whilst allowing lower borrowing costs;

• availability of a wide range of airline services (aircraft and engine maintenance, repair and overhaul, aircraft

management, aircraft maintenance training and other ancillary support services); and

• private use is not a taxable fringe benefit.

To these we can add existing attractive features of the Maltese system:

• business and legal language in Malta is English, a recognised aviation language;

• tax refunds to shareholders on distribution of profits;

• Malta has around 60 Air Service Agreements that facilitate air traffic between various countries; and

• extensive network of double taxation treaties.

Enhanced by the benefits from membership of the European Union and the Eurozone, together with efficient tax planning

opportunities, Malta attracted a number of airlines, aircraft/aircraft engine owners and other aircraft operators to carry

out and organise their aviation activities in Malta including, but not limited to, aircraft financing; leasing and management

of aircraft; insurance; brokerage; aircraft maintenance; classification and surveying. The prosperity and solid reputation

achieved by Malta in the maritime register, complemented with the success in its development as an International Financial

Centre of repute over the last two decades, guarantees the commitment of Malta to enhance its profile in the aviation

industry and continue growing and supporting this industry.

© 2015 Nexia International Limited. All rights reserved.

Nexia International is a leading worldwide network of independent accounting and consulting firms, providing a comprehensive portfolio of audit, accountancy, tax and advisory services. Nexia International is the trading name of Nexia International Limited, a company registered in the Isle of Man. Company registration number: 53513C. Registered office: 1st floor, Sixty Circular Road, Douglas,

Isle of Man, IM1 1SA. The trademarks NEXIA INTERNATIONAL, NEXIA and the NEXIA logo are owned by Nexia International Limited. Nexia International and its member firms are not part of a worldwide partnership. Member firms of Nexia International are independently owned and operated. Nexia International does not accept any responsibility for the commission of any act, or omission to act

by, or the liabilities of, any of its members.

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TAX PLANNING OPPORTUNITIES

General - Malta’s Fiscal RegimeThrough the application of Malta’s taxation system, together with the specific fiscal incentives introduced in the legal reforms to the aviation industry of 2010, Malta is a competitive jurisdiction to attract a cluster of diverse aviation services. The Malta’s taxation system, applicable to all Maltese companies and branches of foreign entities, grants the shareholder of a Malta Company, under the imputation system, the right to be credited with the tax suffered by Malta Company on the distributed profits. A set of tax refunds, are available to the shareholder upon declaration of dividends by the Malta Com-pany in respect to income generated from aviation services. Under Malta tax rules, the worldwide profits of a company incorporated and resident in Malta generated from aircraft leasing and other income derived from international air trans-port operations would be subject to tax at 35% and the respective shareholder/s would be typically entitled to a tax refund of 6/7th of Malta tax suffered at the level of the Malta Company, subject to satisfying the statutory conditions.

Specific Fiscal Incentives to the Aviation IndustryIn terms of Malta fiscal rules any income derived from the ownership, leasing or operation of aircraft or aircraft engines used in the international transport of passengers or goods is deemed to be arising outside Malta and therefore not tax-able in Malta. This measure is of particular relevance to foreign companies that are resident in Malta (i.e. management and control are exercised in Malta) but not domiciled (i.e. not registered or incorporated in Malta). The provision also ensures that the leasing of aircraft/aircraft engines by non-residents to Maltese-residents lessees should not be subject to Malta income tax.

The applicable rules to the operation of aircraft in international traffic contained in the Double Taxation Agreements currently in force in Malta, together with the aforementioned measure, could present interesting tax planning opportunities for airline and aviation operators establishing themselves in Malta.

Furthermore, a number of other interesting tax provisions apply in respect to taxation on income derived from aviation business including: a. no withholding taxes would be levied on the lease payments to the lessor (irrespective of the country of residence of

the lessor, but provided that the lessor does not have a permanent establishment in Malta);b. no withholding taxes on interest payments made by Maltese lessees to non-resident financial lessors;c. in case of operating leases, the lessor is taxable on the profits derived from such leasing income. Provided the lease is

an operating lease, the lessee, may generally claim:• full deduction for lease payments against its income; and

• capital allowances, if burden of wear and tear falls on him/her over a minimum number of years as follows: Aircraft airframe, engine or aircraft overhaul (equates to a rate of 16.7%): 6 years Interiors and other parts (equates to a rate of 25%): 4 years

d. in finance leases, the lessor is chargeable to tax solely on the interest element of the lease, with no deduction being available for capital allowances. Lessees may deduct the interest element of the lease, repairs and maintenance, insurance and capital allowances. The private use of aircraft by an individual who is not resident in Malta, and is an employee/officer of an employer/company/partnership whose business activities include the ownership/leasing/operation of aircraft used for international transport, does not constitute a taxable fringe benefit;

e. investment tax credits are available for the aviation industry, which are calculated as a percentage of either (i) qualifying expenditure or (ii) wage costs for jobs directly created by the project. Unutilised investment tax credits may be carried forward against tax due in subsequent years;

f. supply of aircraft for use by airline operators for reward, mainly for international transport of passengers/goods, is exempt from VAT. The same principles apply for intra-community acquisitions/importation of aircraft. There is no exemption in the case of aircraft acquired for non-business purposes; and

g. interesting planning opportunities may arise regarding re-domiciliation to Malta of foreign companies conducting international aviation operations.

AIRCRAFT REGISTRATION IN MALTA

GeneralThe Maltese Register caters for private aircraft, corporate jets and commercial aircraft. The Register operates under a well-regulated air safety and airworthiness regime complying with European Air Safety Agency (EASA) standards, and rec-ognised with a Category 1 rating by the United States FAA. As from January 1st, 2010 a single regulator has taken on the monitoring of the Transport sector including the aviation sector with a view to ensuring, amongst others, comprehensive and efficient management of the aircraft register.

The Act, which came into form on 1st October 2010, regulates the registration of aircraft, the registration and enforce-ment of aircraft mortgages and the implementation of the Cape Town Convention and its interface with Maltese law. Novel concepts allowing plurality of ownership, such as the recognition of fractional ownership of aircraft and the registration of aircraft under the terms of a beneficial trust have been introduced in the same Act.

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Registration : eligibilityApplicants who may register aircraft include an owner of aircraft; an operator of the aircraft under a temporary title such as the lessee; a buyer under a conditional sale or title reservation agreement authorised to operate the aircraft; and a trustee for the benefit of beneficiaries. Moreover, it is now possible to register an aircraft under construction as soon as the aircraft is “uniquely identifiable”. Aircraft engines, or any replacement engines, may also be noted in the register when an aircraft is registered, thus rendering scope for engine financing opportunities.

Registration : qualifying registrantAs per the Act, the following persons are qualified to register any aircraft (providing air service or otherwise):• the government of Malta;• a citizen of Malta, or a citizen of EU, EEA or Switzerland;• an undertaking set up in Malta, in EU or EEA (provided registered office, central administration and principal place of

business is within Malta, EU or EEA) whereof not less than 50% of the undertaking is owned and effectively controlled by govt. of Malta or EU member state; or Maltese citizen; or citizen of EU, EEA or Switzerland; and

• trustees for such interests (the beneficiaries of the trust would be considered to determine eligibility to register).

Broader rules apply for private aircraft (aircraft not used to provide air service), where a registrant (a natural person/under-taking) is not a ‘qualified person’, he/she may still become eligible to register the aircraft provided that:• it has legal capacity to own/operate an aircraft in terms of law;• a resident agent is appointed (the resident agent shall be appointed for the duration of the registry in Malta and has

defined statutory functions and powers); and• it compiles with applicable regulations/guidelines.

Security The Aircraft Registration Act provides for increased visibility through the annotation of more details, if requested to do so, by registrant or other person with the consent of the registrant. The Act grants the possibility to register irrevocable powers of attorney relating to aircraft when granted as security. The Aircraft Registration Act provides that all registered mortgages, to which a Maltese-registered aircraft may be subject, are not affected by the bankruptcy or insolvency of its mortgagor/owner occurring after the date on which the mortgage was created. The Act further enhances the protection for the mortgagee who are empowered under the Act, without any prejudice to other remedies available at law, that in case of default (i) take possession of the aircraft or sell the aircraft; (ii) lease the aircraft and receive the lease income; (iii) receive any payment of the price, lease payments and any other income generated from the management of the aircraft. Further-more, through the ratification and transposition of the Cape Town Convention, owners and operators of aircraft involved in cross border secured financing and aviation leasing transactions have access to the international registry for the registra-tion of mortgages and other security interests over Malta-registered aircraft and their engines. Subject to special privi-leges, the general rule is that an international interest ranks prior to national security interests. In any event, international security interests may be entered in the National Aircraft Registry.

TECHNICAL ASPECTS OF REGISTRATION BY OPERATOR OF AIRCRAFT IN MALTA

All operators of aircraft engaged in Commercial Air Transport activity must be in possession of An Air Operator Certificate (AOC), and an Operating Licence.

Air Operator Certificate (AOC)An AOC is issued on the basis of Annex III to Regulation (EC) 3922/1991, as amended: EU-OPS for airplanes and JAR-OPS 3 for helicopters. The certification process takes approximately 600 working hours however the time schedule may vary depending on the quality of submitted manuals and the resources available at the Civil Aviation Department (CAD)

Certification is accomplished in two distinct steps:• a check is first made to determine whether or not the applicant for the AOC complies with the requirements; and• the second step is the legal finding, which is the grant (or refusal) of an AOC. The legal finding confers or denies the

CAD’s recognition.

1. Pre Application PhaseThis includes the initial enquiry or request concerning AOC certification where an applicant will obtain information con-cerning appropriate legislation; advisory material; and will be required to complete a pre-assessment statement. The CAD will arrange and conduct a pre-application meeting with the applicant. Through this meeting, the CAD will verify the infor-mation on the pre-assessment statement, ensure the applicant understands the requirements and certification process; and will advise the applicant to submit a formal AOC application with all the required attachments as far as possible in advance of the date of intended operations.

2. Formal Application PhaseThe applicant submits the formal AOC application, manuals, qualifications, compliance schedule and the appropriate fee. With reference to the preparation of the Operations Manual, it should be understood that the manual must be fully relevantto the type of operation being proposed. The CAD performs a cursory review of formal submissions and, if accepted, ar-ranges and conducts a formal application meeting to review all of the applicant’s submissions; resolve any ambiguity; or open questions; and review the certification process with emphasis on the schedule of events.

3. Document Evaluation PhaseDuring this phase, the CAD will review the applicant’s documents for compliance and acceptance or approval. The CAD will perform a detailed review of the application, required manuals, compliance schedule, qualifications, training, leasing/con-tract agreements etc. and request corrective action by the applicant if appropriate.

4. Demonstration and Inspection PhaseThe CAD will evaluate the effectiveness of applicant’s management, training, maintenance, records, flight operations. and inspect station facilities and accommodation.

5. Certification PhaseThe CAD will prepare and issue the AOC and the associated Operations Specifications. The assigned inspector will estab-lish a post-certification surveillance plan. The issue of an Operating Licence by the Malta CAD to an undertaking is regu-lated by the provisions of Regulation (EC) No 1008/2008 on common rules for the operation of air services in the Commu-nity. In particular Article 4 of the same regulation sets out the conditions that need to be met for an operating licence to be issued by the CAD.

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www.nexiabt.com© 2015 Nexia International Limited. All rights reserved.

Nexia International is a leading worldwide network of independent accounting and consulting firms, providing a comprehensive portfolio of audit, accountancy, tax and advisory services. Nexia International is the trading name of Nexia International Limited, a company registered in the Isle of Man. Company registration number: 53513C. Registered office: 1st floor, Sixty Circular Road, Douglas,

Isle of Man, IM1 1SA. The trademarks NEXIA INTERNATIONAL, NEXIA and the NEXIA logo are owned by Nexia International Limited. Nexia International and its member firms are not part of a worldwide partnership. Member firms of Nexia International are independently owned and operated. Nexia International does not accept any responsibility for the commission of any act, or omission to

act by, or the liabilities of, any of its members.

WHY NEXIA BT?

Nexia BT provides a wide range of services ranging from basic company incorporation and

compliance, to specialised advisory services, audit, tax and accounting, for particular sectors

such as: financial services; international trade; remote gaming; investment funds; shipping and

aviation. We offer international support including back office operations and advisory services,

in a responsive, proficient and professional manner.

Nexia BT can provide assistance to a portfolio of services in connection with the aviation

industry including: tax structuring; incorporation of the appropriate corporate structures; and

liaison with legal and operations experts for the registration of aircraft and aircraft mortgages,

co-ordination of aircraft financing transactions and administration; and acting as the resident

agent in Malta on behalf of aircraft owners and operators.

CONTACTSFor further information please contact:

karl.cini@nexiabt.com

www.nexiabt.com

T: +356 21637778 F: +356 21634383

The material has been prepared by professionals in the firm of Nexia BT. It is intended as a general guide only, and its application to specific situations will depend on the particular circumstances involved. Accordingly, we recommend the readers seek appropriate professional advice regarding any particular problems that they encounter. The information should not be relied upon as a substitute for such advice. While all reasonable attempts have been made to ensure that the information contained herein is accurate, Nexia BT accepts no responsibility for any errors or omissions it may contain, whether caused by negligence or otherwise, or for any losses, however caused, sustained by any person that relies upon it.

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