Taxation Archives - Malta Maritime Law Association

Changes to the Existing Tonnage Regulations

November 12, 2021 Leave a Comment

In recent months, the Tonnage Regulations (Subsidiary Legislation 234.19) underwent minor developments through the Tonnage (Amendment) Regulations (Legal Notice 165 of 2021), which primarily introduced new definitions for ‘Hull Length’ and ‘Length Overall’ (‘LOA’). This has significantly altered the way in which vessels and yachts are measured for the purpose of obtaining the applicable Tonnage Certificate. Supplementing the new amendments, Transport Malta also published comprehensive guidelines on the measurement of different types of yachts and vessels.

The LOA is still defined as the length from the foreside of the foremost fixed permanent structure to the after side of the aftermost fixed permanent structure. However, the exclusion of functional arrangements from the definition of fixed permanent structures is now not an absolute rule. Hull Length of a ship is now defined in accordance with the ‘harmonised standard’ under EU law. The relevant harmonised standards are currently established in EU Regulation 2017/1130 for fishing vessels and in ISO 8666 for other vessels.

Corresponding elements within the Tonnage Certificates were also modified. This includes the required information within a Certificate of Survey (Tonnage Measurement) for Maltese Ships under 24 Metres Length, other than Fishing Vessels with overall length equal or greater than 15m. As of the 1^st of September 2021, one needs to include information on the type of ship in addition to its means of propulsion, the ship’s hull length, its Hull Identification Number or Craft Identification Number, the ship’s model and serial numbers as well as particulars of the propelling engine irrespective of it being fitted inboard or outboard. One other important change in respect of certification is that a fishing vessel of 15 metres length is not categorized within the same certification criteria as ships under 24 metres in length anymore, but will now require the same Tonnage Certificate as fishing vessels of more than 15 metres but under 24 metres length.

The amended regime will not apply retroactively to Malta flagged vessels and yachts already in possession of such Certificates before the amendments’ entry into force. Nonetheless, remeasurement in terms of the new measurement rules is required where a vessel or yacht undergoes modifications changing its dimension or type.

Merchant Shipping Notice 174 may be found here.

by GVZH Advocates

Source: Lexology

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

Joint Communiqué

November 20, 2017 Leave a Comment

The Malta Maritime Law Association, Malta Maritime Forum, The Yachting Trade Section within the Malta Chamber of Commerce and Super Yacht Industry Network Malta have issued a communiqué in reaction to the articles reported in the press on a communication sent by the French Commissioner Pierre Mascovici to Minister Scicluna regarding the application of rules on VAT relative to yachts.

Read the full text

Authorities launch guidelines on tax treatment of charters

August 21, 2013 Leave a Comment

Contributed by Fenech & Fenech Advocates
ILO – August 21 2013

Following similar announcements recently made by France and Italy, on July 29 2013 the Maltese authorities published the Guidelines for the Value Added Tax (VAT) Treatment of Short-Term Yacht Chartering. The guidelines address situations in which a short-term charter of a yacht with a crew (or on a bareboat charter basis) is entered into between the owner or operator and the charterer for a consideration.

In terms of Article 56(1) of EC Directive 2006/112 on the common system of VAT, the place of short-term hiring of a means of transport is deemed to be the place where the means of transport is actually put at the disposal of the customer. Article 56(2) provides that in the case of vessels, ‘short-term’ shall mean the continuous possession or use of the means of transport throughout a period of not more than 90 days.

The short-term charter of a yacht to be used for leisure purposes is a supply of a service that is taxable at the standard rate of VAT at the place where the yacht is placed at the disposal of the customer. Therefore, where the yacht is placed at the disposal of the customer in Malta, the charter would be subject to VAT at the standard rate of 18% on the hire that is paid by the charterer to the owner by way of consideration.

Under these guidelines, subject to a number of conditions stipulated by the guidelines themselves and any further conditions that may be imposed, this supply may be taxed according to the portion of the yacht’s use within the territorial waters of the European Union. This is based on Article 59a of EC Directive 2006/112, which provides that member states may consider the place of supply of yachts capable of international travel as being situated
outside the Community if the effective use and enjoyment of the services or part thereof takes place outside the Community.

Since it is difficult to determine the physical movement of a yacht in order to establish the period that the yacht spends within the territorial waters of the European Union and that it spends outside territorial waters of the European Union, the guidelines provide that an acceptable measure would be the length of the yacht and its method of propulsion. The guidelines then establish the estimated percentage proportion of the charter, based on the time
that the yacht is used within the territorial waters of the European Union. The standard rate of VAT at 18% is applied to the established percentage of the charter deemed to relate to its use within EU territorial waters. By way of example, sailing or motor yachts over 24 metres in length would be susceptible to taxation on 30% of the hire that is paid on the charter.

Following the submission of a number of documents to the VAT department – which include, but are not limited to, evidence that the owner or operator of the yacht is registered to VAT in Malta, details of the yacht and a copy of the charterparty – and provided that the conditions established in the guidelines and any other further requirements stipulated by the director general of VAT are met to the latter’s satisfaction, the applicant would be informed in writing of the applicable proportion of the charter fee that would be subject to VAT. Prior approval must be sought in writing from the VAT department and each application will be considered on a case-by-case basis.

The subject of yacht charters sees a coupling of Malta’s steadily increasing reputation as a yachting hub on a legislative front with the attractiveness that it may offer those seeking an alternative cruising ground in the Mediterranean. While the concentration of yacht charters has traditionally and will remain scattered along the French Riviera, as a result of its unique location and proximity to Sicily and Tunisia, Malta undeniably offers a fascinating option as the starting point to a charter holiday in the Mediterranean.

For further information on this topic please contact Alison Vassallo at Fenech & Fenech
Advocates by telephone (+356 2124 1232), fax (+356 2599 0645) or email alison.vassallo@fenlex.com.

Member of the Comité Maritime International

Changes to the Existing Tonnage Regulations

Malta Yachting Industry challenges Notice by EU Commissioner

European Commission approves the Maltese tonnage tax system

Joint Communiqué

Authorities launch guidelines on tax treatment of charters

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