Malta Flag Archives

Is State aid essential to the shipping industry?

September 4, 2018 Leave a Comment

The recent long-awaited European Commission decision on the Maltese Tonnage Tax System has been welcomed by the shipping community, both locally as well as from other member states.

The European Commission rightly concluded that Malta was not abusing the European State Aid guidelines for shipping in an attempt to grow its registered fleet and hence was satisfied that Malta was not taking an unjust competitive advantage with respect to the other member states.

Furthermore, the Maltese Tonnage Tax System was endorsed by the Commission for a period of 10 years – this will create certainty and stability for owners intending to use the flag, giving them the confidence to properly plan ahead.

This article is not intended to be an analysis of Tonnage Tax Rules or how Malta has transposed them into its system. Rather, it addresses a question that has been posed to me a number of times by both colleagues and friends who are not versed in maritime law: Why should the shipping industry be afforded special tax treatment on the income it generates? And why is shipping treated differently than most other industries?

In a nutshell, State aid is granted to the shipping industry in the form of fiscal incentives that are offered to eligible owners and operators of vessels flying the flag of a European member state or operating from an EU jurisdiction. The scope behind this benefit is to attract owners to register, operate and manage their vessels within the European Union and also has the objective of increasing the tonnage registered in the EU.

In 1989, the European Commission published its first set of guidelines on the use of State aid for shipping. The primary objective of this was to create guidance and standard adherence by member states to the rules. The guidelines were also introduced on account of the fact that many owners were flagging out of the EU to jurisdictions which at the time were offering more attractive fiscal incentives and friendly environments to operate from. This legal development did not prove to be successful and there was an ever-growing trend of ship owners who opted for non-EU flags to register their vessels in, as well as non-EU jurisdictions to operate from. This led to the 1997 Communication defining new guidelines on state aid to maritime transport, followed by the 2004 commission communication which was issued, in part, to cater for further ship registries, including the Malta ship registry, which through the accession of such States in the union, were going to increase European tonnage considerably.

These two communications proved to be helpful for those member states wishing to attract shipping to their jurisdiction and were successful in enabling European member states to attract tonnage back to Europe. Historically, Greece was the first to adopt its tonnage tax rules, and others such as the Netherlands, Denmark, France and Spain followed suit.

Managing to attract and keep ship owners within the EU is important for a number of reasons, including that EU standards can be imposed on ships registered in European member states – this ensures, among other things, safer and cleaner seas and better conditions applicable to the seafarers’ rights, giving added value to the owners or operators of vessels, which are seen to confirm and adhere to the best maritime standards. Moreover, more leverage is acquired by member states with substantial tonnage to influence non-EU international players, encouraging them to adopt international conventions putting higher standards into practice. Also, as a consequence, ship management activities could employ a number of skilled and well-paid workers, ensuring the industry generates a substantial amount of income.

Non-EU jurisdictions have proved to be quite successful in attracting tonnage to their shores

Shipping is not like any other industry. Ships and their owners have, to a large degree, no real necessity to operate or flag their vessels in a particular jurisdiction. There are a number of non-EU registries having white list status, meaning that they are flags that enjoy a good reputation. Historically, these non-EU jurisdictions have proved to be quite successful in attracting tonnage to their shores and thus negatively impacting European fleet numbers.

The European Union has recognised this phenomenon and has, through the adaptation of the guidelines and its recent fine-tuning as to how such guidelines should be implemented by EU states, created much needed clarity within the industry. Issues of transparency and checks and balances have also strengthened the system and are intended to reduce any potential abuse.

In principle, aid should be given for income that is generated from pure shipping activities as defined in the guidelines and should not be afforded without some level of scrutiny. In order for the scheme to be effective, each member state adopting it must ensure that abuses are minimised and that the objectives of growth are being achieved.

The European Commission needs to monitor the behaviour of each member state offering this assistance to their shipping industry in order to ensure that there is a level playing field between EU countries and that no member state is gaining unjust competitive advantage on others. It does, however, also need to sensitise itself to the competition that its own member states are facing from third countries. In this respect, one cannot but criticise the undue delay by the Commission in providing its decision on the Maltese tonnage tax rules – a staggering five years.

The European Union and the so-called European Fleet need to be able to compete and attract more owners to their shores. This is critical not only from an economic perspective, but also because a larger fleet can exert more leverage and influence on the manner in which this industry is regulated. This, in turn, will benefit the maritime environment generally. Higher environmental standards, better working conditions and safer vessels are the bi-product of attracting more tonnage towards European shores. Ship owners who have not experienced the EU flag for a while, need to be re-introduced accordingly and understand the many benefits of operating within a European member state or flying the flag of such member state.

The ability of member states to offer State aid to the shipping industry needs to be regarded as an essential tool afforded to it by the European Union which should be exploited and utilised in order to achieve the goals and aspirations set out by the Commission. It is imperative that member states, including Malta, which boasts of being the largest register in Europe, work towards a common objective – the continued growth and influence of the European fleet and the European shipping industry.

by Matthew Attard, Vice-President of the Malta Maritime Law Association and maritime lawyer within the shipping practice at Ganado Advocates.

Souce: Times of Malta

Malta introduces measures aimed at attracting Ship & Yacht Management Companies to Malta

June 19, 2018 Leave a Comment

The Maltese Government has recently confirmed its commitment towards the Shipping and Maritime cluster through the recently introduced Legal Notice 140 of 2018 aimed at attracting Ship and Yacht Management activities to Malta.

Ship management activities represent the operational side of the shipping industry. Maltese authorities, conscious of the scarce presence of third party managers on our shores, together with industry stakeholders, analysed the deficiencies in our current legal framework and have, for this reason, decided to take action in a consistent manner concurrently with the recently revamping of its tonnage tax rules.

The intention of Maltese Authorities is clearly that of attracting players on Maltese shores in order to strengthen the already robust ship registration and financing offering. These rules, together with the recently revamped tonnage tax regime, the sound corporate tax measures and the attractive social security policies are set to make Malta as the perfect home port for ship management activities.

Legal Notice 140/2018 in a nutshell

The Qualifying Employment in Maritime Activities and the Servicing of Offshore Oil and Gas Industry Activities (Personal Tax) Rules, 2018 introduced a favourable Tax Rate of 15% chargeable on employment income derived by individuals with respect to work or duties carried out in Malta (or in respect of any period spent outside Malta in connection with such work or duties).

The employers need to be:

1. Undertakings holding either a Document of Compliance (DOC) issued in terms of the International Safety Management Code or a Seafarer Recruitment and Placements Services Licence issued in the terms of the Maritime Labour Convention; or

2. Any undertaking involved in works on board of ships, with the exclusion of ships involved in regular ferry services on board of ro-ro and fast ferry ships; or

3. Any undertaking providing services to offshore oil and gas and ancillary services industry.

The beneficiaries from such exemption could be:

1. Chief Executive Officer;

2. Chief Operations Officer;

3. Managing Director;

4. Chief Financial Officer;

5. General Manager;

6. Crewing Manager;

7. Technical Manager;

8. Technical Ship Superintendent;

9. Designated Person Ashore;

10. Master;

11. Chief Mate;

12. Second Officer;

13. Chief Engineer;

14. Second Engineer;

15. Chef;

Servicing of the Offshore Oil and Gas and Ancillary Services Industry Activities

1. Chief Executive Officer;

2. Chief Operating Officer; and

3. Head of Training Academy (which Academy must be certified by an international accreditation institution).

In order to benefit from this favourable tax treatment, the employee must:

1. be employed to fill one of the above mentioned senior categories and be in possession of professional qualifications or acceptable professional experience;

2. be entitled to remuneration of at least €65,000 (exclusive of the annual value of any fringe benefits);

3. be in receipt of stable and regular resources which are sufficient to maintain him/herself and his/her family members without recourse to the Maltese social assistance system;

4. reside in accommodation regarded as normal for a comparable family in Malta;

5. not be domiciled in Malta;

6. be in possession of a valid travel document;

7. be in possession of adequate sickness insurance in respect of all risks normally covered for Maltese Nationals for himself/herself and the members of his/her family;

8. be protected as an employee under applicable Maltese laws.

In order for an eligible person to benefit from the reduced 15% rate he/she would be required to apply to the Authority for Transport in Malta (“TM”) for a formal determination confirming eligibility to the favorable tax rate. The eligible person would then need to submit a prescribed form endorsed by Transport Malta to the local tax authorities together with his/her tax return.

The eligible person must be a citizen of the EEA or a Third Country Nation and can avail of this tax benefit for a period of 5 years (4 in the case of third country nationals) with the possibility to extend such period for a similar period of time 5 years up to a maximum period of 10 years (9 in case of third country nationals) of assessment.

Ship Manager’s treatment under Tonnage Tax Rules

In addition to the above and as an alternative to the ordinary corporate tax on income, Ship Managers may be eligible to benefit from the tonnage tax exemptions with respect to the income derived from the management of vessels.

The conditions to be fulfilled in order to benefit from the tonnage tax exemption are the following:

1. Provision of technical and/or crew management services. Commercial management is excluded from the exemption.

2. Ship management companies must be set-up as Shipping Organisations in accordance with the provisions of the Merchant Shipping Act (Cap. 234 Laws of Malta) and duly approved as such by the Authority for Transport in Malta;

3. Must be established in the European Union (EU) or in the European Economic Area (EEA);

4. Maintaining of separate accounts clearly distinguishing the payments and receipts by the ship manager with respect to ship management activities from those not connected to such activity; and

5. At least two-thirds of the tonnage of the ships to which the ship manager provides ship management activities is managed from the territory of the European Union or EEA;

6. The tonnage in respect of which the ship manager provides ship management activities satisfies the flag-link requirement.

by Stephan Piazza member of the MMLA Executive Committee and Manager Transport & Leisure – Shipping, Aviation & Infrastructure at KPMG in Malta

Source: Lexologie

Malta Yachting Industry challenges Notice by EU Commissioner

March 20, 2018 Leave a Comment

The Malta Maritime Law Association, the Malta Maritime Forum, the Yachting Services Trade Section within the Malta Chamber of Commerce, Enterprise and Industry, the Institute of Financial Services Practitioners and the Super Yacht Industry Network Malta denounce the recent Notice sent to Malta by the EU Commissioner in connection with the Maltese VAT rules for pleasure yachts.

In light of the fact that the Maltese system is fully in line with EU law and no similar notice was sent to Member States which apply the same principle under the EU’s VAT Directive the Maltese yachting industry questions why such a notice has been sent at all and why this discriminatory approach is being adopted by the Commissioner.

It is noted that the manner in which Malta has applied the option granted by Article 59a of the European Union’s VAT Directive is exactly the same as that adopted by Italy. Indeed, Malta’s rules on effective use and enjoyment of pleasure yachts within and outside EU territorial waters mirror those adopted by Italy through Circular No 49 of 7 June, 2002 issued by the Agenzia delle Entrate (Italian Revenue authorities).

The actual percentages of deemed use of yachts within EU territorial waters adopted by Malta are identical to those which Italy had drafted in the said Circular. Malta has certainly not re-invented the wheel, but has rather based itself on a similar interpretation given by Italy which the Italian tax authorities confirmed most recently in October 2010 through a “Vademecum del Leasing Nautico” issued with the collaboration of the Italian tax authorities.

Furthermore it is highlighted that France has been recognising since 2005 that it is difficult for lessors of yachts to establish how much a leased yacht is used within EU waters. Article 13 of the Administrative Instruction 3 A-1-05 published by the French tax authorities in Bulletin Officiel des Imports on 24 January, 2005 recognises such difficulty, and then allows yacht lessors to apply a 50% reduction on the total lease amount, irrespective of the category of the yacht. In practice, this means that only 50% of French VAT would be payable as a result of this French rule.

Malta’s system does not exempt yachts from payment of VAT but rather provides guidelines (as allowed for by the EU Directive) regarding deemed use outside and within EU territorial waters such that yachts using such guidelines will always pay VAT at varying degrees.

We believe that both the Italian and French systems do not infringe the EU vat laws. Therefore we cannot understand why Malta’s system should be singled out.

We appeal to the President of the European Commission, Mr Jean Claude Juncker, to intervene in this matter so as to ensure that there is no discrimination against smaller EU States like Malta.

It is also the belief of the local Yachting Industry that it is in the European Union’s collective interest that the Commission protects the European yachting sector in line with the EU’s Integrated Maritime Policy thereby ensuring that Europe does not lose out to competition in the maritime sector by non-EU countries.

Finally, we appeal to all political parties and stakeholders in Malta in a situation where the Maltese system reflects a legitimate application of a principle of EU law which is supported by other EU Member States, to act as a united front in protecting Malta’s yachting industry.

European Commission approves the Maltese tonnage tax system

December 19, 2017 Leave a Comment

The European Commission has conditionally approved under EU State aid rules the Maltese tonnage tax scheme for a period of 10 years. The scheme will ensure a level playing field between Maltese and other European shipping companies, and will encourage ship registration in Europe.

Commissioner Margrethe Vestager, in charge of competition policy, said “Tonnage tax systems are meant to promote the competitiveness of the EU shipping industry in a global market without unduly distorting competition. I am pleased that Malta committed to adapt its tonnage tax system to achieve this. Moreover, by encouraging the registration of ships in the EU, the scheme will enable the European shipping industry to keep up its high social and environmental standards”.

In 2012, the European Commission opened an in-depth investigation into the Maltese tonnage tax scheme to examine its compatibility with EU State aid rules. With today’s decision, the Commission endorses the Maltese scheme, subject to the amendments introduced by Malta.

The Commission’s in-depth investigation found certain features of the original scheme, such as tax exemptions applied to Maltese residents and the broad scope of the scheme extending to vessels not carrying out maritime transport activities, to be in breach of EU State aid rules.

As a result, Malta has committed to introduce a number of changes to its scheme to prevent any discrimination between shipping companies and to avoid undue competition distortions. In particular, Malta agreed to restrict the scope of the scheme to maritime transport and to remove those tax exemptions for shareholders which constitute State aid.

Under the Maltese scheme, a shipping company is taxed on the basis of ship net tonnage (i.e. based on its volume) rather than the actual profits of the company. In particular, tonnage taxation is applied to a shipping company’s:

core revenues from shipping activities, such as cargo and passenger transport; 
certain ancillary revenues that are closely connected to shipping activities (which are, however, capped at a maximum of 50% of a ship’s operating revenues); and 
revenues from towage and dredging subject to certain conditions.

If a shipping company wants to benefit from the scheme, a significant part of its fleet must fly the flag of an European Economic Area (EEA) Member State. In addition, any new entrant to the scheme must have at least 25% of its fleet subject to tonnage tax with an EEA flag.

The Commission assessed the amended measures under EU State aid rules, in particular its Guidelines on State aid to maritime transport. It concluded that the amended Maltese scheme is in line with EU State aid rules, as the tax relief granted is an appropriate instrument to address global competition and will provide the right incentives to maintain maritime jobs within the EU, whilst preserving competition within the EU Single Market.

Background
To address the risk of flagging out and relocating of shipping companies to low-tax countries outside of the EU, the Commission’s 2004 Guidelines on State aid to maritime transport allow Member States to adopt measures that improve the fiscal climate for shipping companies. One of the most important measures is tonnage tax, whereby shipping companies can apply to be taxed based on a notional profit or the tonnage they operate, instead of being taxed under the normal corporate tax system. Only companies that are active in maritime transport are eligible for such measures under the Maritime Guidelines. Shareholders in shipping companies are excluded from preferential tax treatment.

Since 2004, the Commission’s decision-making practice under the Maritime Guidelines has further clarified the eligible transport activities and compatibility conditions to ensure that the main objectives of the Maritime Guidelines are met. The Commission has to ensure that there are no spill-over of the favourable tax treatment of shipping companies into other sectors unrelated to maritime transport and there is no discrimination of other EEA State registries and flags.

The non-confidential version of the decision will be made available under the case number SA.33829 in the State Aid Register on the DG Competition website once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News

Source: European Commission

New Guidelines on Private yacht carriage capacity

April 12, 2017 Leave a Comment

At the start of 2017 Transport Malta, the authority responsible for the administration of the Malta flag, introduced new guidelines that allow more than 12 persons on board privately registered yachts.

Since their launch, these guidelines have been welcomed by the industry, not least since they represent the consolidation of a flexible approach towards authorisation for the carriage of additional guests on board and a departure from the previously strict requirement for yachts to be built in accordance with the International Convention for the Safety of Life at Sea or the Passenger Yacht Code and registered with a red ensign flag.

These guidelines apply to yachts both above and below 500 gross tonnes and will be applied on a case-by-case basis at the discretion of the authority. Further, pleasure yachts falling within the ambit of the guidelines will be prohibited from navigating more than 150 miles from a safe haven while carrying more than 12 persons.

Requirements

Yachts falling under the guidelines must:

hold a valid class certificate (a requirement applicable for yachts over 500 gross tonnes);
comply with the requirements of the Commercial Yacht Code;
possess an approved stability booklet, which covers the loading conditions relative to the total number of persons being requested on board;
install and carry the appropriate safety equipment, depending on the expected number of persons on board;
have a 100% life raft capacity;
carry a compliment crew in line with the Commercial Yacht Code;
have been issued a safety radio statement of compliance (applicable to yachts over 300 gross tonnes) or a safety radio certificate (for yachts over 500 gross tonnes); and
comply with the International Convention for the Prevention of Pollution from Ships requirements, as detailed in the Commercial Yacht Code.

The guidelines also require an intermediate survey to be effected every two-and-a-half-years, starting from the date on which the vessel is allowed to carry more than 12 persons. The aim of this survey is to verify the continued compliance with the minimum requirements.

Comment

The Malta flag has increasingly garnered a solid reputation as being one of the leading European flags and is favoured by owners, financiers and operators of private and commercial yachts. Speaking at the Fifth Opportunities in Superyachts Conference organised in Malta on the February 23 2017, Minister for Transport and Infrastructure Joe Mizzi noted a record increase of over 14% in the registration of superyachts over 24 metres under the Malta flag over the past year. He attributed this success to the high level of service offered by both the public and private sectors and the “various initiatives and strategies in favour of the industry offering a holistic package”.

The new guidelines stem both from a recognition by the Maltese administration that there is a gap in the superyacht market and the administration’s continued effort to remain at the forefront as a leading yachting flag, which is conscious of the need to meet the industry’s frequently changing requirements while maintaining the highest possible technical standards.

Contributed by Alison Vassallo, Fenech & Fenech Advocates

Source: ILO 12 April 2017

Member of the Comité Maritime International

Is State aid essential to the shipping industry?

Malta introduces measures aimed at attracting Ship & Yacht Management Companies to Malta

Malta Yachting Industry challenges Notice by EU Commissioner

European Commission approves the Maltese tonnage tax system

New Guidelines on Private yacht carriage capacity

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