The Merchant Shipping (Taxation and Other Matters Relating to Shipping Organisations) Regulations 2018 have come into effect by virtue of Legal Notice 128 of 2018.
1. Income Tax Benefits
The Legal Notice confirms the previous benefits applicable to qualifying shipping activities as explained in further detail below:
Income tax benefits applicable to shipping organisations and ship managers
Where all relevant tonnage taxes are paid by the shipping organisation or ship manager, as applicable, the following income tax benefits would be applicable:
- Any income of a shipping organisation or ship manager derived from shipping activities is exempt from tax
- Exemption from tax on any gains, income or profits derived by a shipping organisation from the sale or transfer of a tonnage tax ship which had been acquired and sold whilst qualifying under the tonnage tax system, including the disposal of any acquisition rights thereof
- Any profits derived from the above mentioned activities shall be exempt from tax in the hands of the shareholders
- Where the shipping organisation or shipping manager has no income whatsoever, or has solely income generated from shipping activities, a return in the prescribed form may be submitted by a person holding the warrant of a certified public accountant/auditor or an advocate in lieu of the tax return
For the above benefits to be applicable, separate accounts must be kept by the shipping organisation and ship manager clearly distinguishing between shipping activities and any other business.
Income tax benefits applicable to towage and dredging activities
The provision of ocean towage or dredging services would also qualify for an exemption from income tax with respect to income derived from maritime transport services, provided the conditions below are satisfied:
- With respect to ocean towage services, the tug must be a Union ship and 50% of the towage activity must constitute maritime transport. Any towage activities carried out in ports or to assist a self-propelled vessel to reach port would not constitute maritime transport.
- With respect to dredging services, the ship providing the services must be a Union self-propelled ship and at least 50% of the yearly operational time must be in maritime transport.
For the purposes of the Legal Notice and the Merchant Shipping Act, a ship, a tonnage tax ship, shipping activities and related activities shall be defined as per below:
A ship consists of any vessel used in navigation, whether self-propelled or not, and include barges, pontoons, floating establishments, installations or structures, oil rigs and other similar vessels.
Provided that where a ship is involved in the international carriage of goods or passengers by sea in accordance with the EU Maritime State Aid Guidelines and satisfy the criteria specified in these regulations, the definition of a ship would also include the following vessels:
- cable laying ships
- pipe laying ships
- crane vessels
- research vessels
- multi-purpose, break-bulk and other types of support vessels.
The following ships below are excluded for the purposes of these regulations:
- fishing and fish factory ships
- private yachts and ships used primarily for sport or recreation
- fixed offshore installations and floating storage units
- non-ocean going tug boats and dredgers
- ships whose main purpose is to provide goods or services normally provided on land
- stationary ships employed for hotel and or catering operations (floating hotels or restaurants)
- ships employed mainly as gambling and/or casinos (floating or cruising casinos)
- non-propelled barges
- any other description of ship which may be determined, from time to time, by the Registrar-General, as not being engaged in the international carriage of goods or passengers by sea.
2. Shipping activities
Shipping activities consist of the following activities:
- the international carriage of goods or passengers by sea in terms of the EU Maritime State Aid Guidelines and such other activities that have been approved or considered as eligible for tonnage tax purposes by the European Commission;
- activities that are integral or directly linked to the business of operating tonnage tax ships, when carried out in conjunction with the activities in (a) above
- ancillary activities, where such activities do not exceed 50% of the gross revenues generated from shipping activities on a ship-by-ship basis and comprise the activities listed under regulation 7 and the accompanying schedule.
3. Shipping organisation
An organisation shall qualify as a shipping organisation is its principal objects consist of one or more of the activities (mainly relating to shipping) listed under Article 84Z of the Merchant Shipping Act and provided that the said organisation obtains and maintains a licence from the Registrar-General to carry out such activities.
4. Ship manager
A ship manager is a shipping organisation established in the European Union (EU) or the European Economic Area (EEA) that has assumed responsibility for either or both of the technical or crew management of a ship; complies with the international standards and requirements of the EU; includes specifically such activities in its objects; and registers with the Registrar-General accordingly.
5. Tonnage tax ship
Any ship of any net tonnage which is engaged in shipping activities can be declared by the Minister to be a tonnage tax ship by means of an application to the Registrar-General by the shipping organisation owning, managing or operating the ship.
Any ship registered in the EU or the EEA (Union ships) or non-Union ships can also qualify as a tonnage tax ship provided that an amount equivalent to the Malta tonnage tax is paid. Relief would be provided against the Malta tonnage tax payable in respect to any tonnage tax suffered outside Malta, but such relief would be limited to a minimum amount of 25% of the annual tonnage tax due that would have been payable in Malta.
In order for non-Union ships to be declared as tonnage tax ship, the following conditions would also need to be met:
- the strategic and commercial management of all ships owned, managed or operated by the shipping organisation is carried out in the EU or EEA; AND
- (i) the shipping organisation owns, manages or operates at least 60% of its total tonnage under an EU or EEA flag (Union flag); OR
- (ii) a percentage of the tonnage owned, managed or operated by the shipping organisation is Union-flagged and provided that the said percentage of Union-flagged tonnage operated by Maltese shipping organisations has not decreased on average over a period of 3 years.
Upon first-time application, the Registrar-General may accept applications where the above thresholds are not less than 25%.
6. Bareboat charter
A shipping organisation would not qualify as the operator of a tonnage tax ship where such a ship is chartered out on bareboat charter terms unless the conditions below are satisfied:
- The ship is bareboat chartered to another shipping organisation forming part of the same group, i.e. are either owned by the same parent or else are controlled, directly or indirectly as to more than 50% by the same persons
- The shipping organisation has assumed the risks and responsibilities related to the operation of a tonnage tax ship or to the carrying out of shipping activities, was bareboat chartered due to short-term over-capacity, and the term of the charter does not exceed 3 years. Moreover the percentage of net tonnage operated by the group on bareboat charter must be below 50% of the net tonnage operated by the group.
7. Ship management activities
Ship management activities would also benefit from the tonnage tax measures provided that the following conditions are met:
- The ship manager has paid an annual tonnage tax on all ships, whether registered as tonnage tax ships or not, equal to 25% of the annual tonnage tax payable
- At least 2/3rds of the tonnage of the ships which the ship manager is providing ship management activities is managed in the EU and EEA
- In respect of non-Union ships the conditions applicable to tonnage tax ships as above is satisfied
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