Malta Aviation

Aviation is an emerging sector in Malta. In 2010 the civil aviation authority was subsumed into Transport Malta which is the body responsible for Malta’s maritime sector. Malta has long enjoyed a dominant position in the maritime sector (it has the largest registry in Europe and the eighth largest in the world) and now seeks to use its expertise in this area to establish a world class aviation industry.

Aircraft Registration
Aircrafts, aircrafts under construction and engines may be registered by their owners, their operators and purchasers holding conditional title (for example by sale or title reservation agreement). This simple and flexible system of registration ensures legal certainty over the ownership of the aircraft and engines and provides a good framework for mortgage financing. The registration of aircrafts and their engines is straightforward and requires the submission of an application form, bill of sale, and lease agreement, deregistration certificate (if previously registered elsewhere), building certificate and details of any mortgages which may be relevant.

Commercial Aircrafts
Commercial aircrafts need to obtain a Maltese operating licence.

Private Aircrafts
Private aircrafts do not need to obtain a Maltese operating licence and can be registered to an organization in any OECD country.

Fractional Ownership
Fractional ownership is a new concept in aviation. It can be likened to timeshare ownership in that they both afford the owner a certain amount of usage of the asset (which is agreed in advance) but unlike timeshare fractional ownership gives the owner a proprietary interest in the aircraft as a registered owner. Fractional ownership is an increasingly popular means of ownership which makes the ownership and operation of aircraft viable for both individuals and commercial operators where the outright of aircraft purchase of an aircraft would not make economic sense.

Co-ownership of aircrafts behind trusts is expressly authorised by statute. Whilst we do not generally recommend the use of Maltese trusts (please see our main article on Trusts in Malta) in this case the registrar will determine eligibility for registration based on the identity of the beneficiaries of the trust (rather than the trustee). This means that the registrar recognises the interests of the beneficiaries under the trust and this negates many of the concerns which might otherwise surround the use of a trust in Malta. The advantage of this approach is that it affords a far greater flexibility of ownership than would be possible with direct registration and provides privacy and confidentiality to the beneficial owners since the details shown on the public registry will be those of the trustee (who must be a regulated Maltese entity) rather than the beneficiaries behind the trust.


Income Tax
As a starting point income derived from the international operation of aircraft in passenger or goods transport is not taxable in Malta (even if the aircraft is registered in Malta). It is likely that the income will be taxed elsewhere and accordingly there is often a strong tax incentive for the registration of a Maltese company as the owner of an aircraft registered in Malta. Maltese trading companies pay an effective rate of 5% corporation tax (the lowest in Europe) and foreign companies registered in Malta are taxable only on income arising in or remitted to Malta (at the same rate of 5%). For more information on the particulars of Maltese companies and their taxation please see our main article on Maltese Private Companies.

Allowable Deductions
A generous depreciation regime means that aircrafts and engines may be written off for tax purposes in a minimum of six years (and interiors in a minimum of four years). This depreciation is tax deductible in Malta. Other allowable deductions may include financing costs, capital allowances, wear and tear, interest, repairs and maintenance costs and insurance costs.

Fringe Benefits
Under Maltese law the private use of an aircraft is not taxable as a fringe benefit (provided that the aircrafts purpose is the international transport of goods or passengers).

Withholding Tax
Malta does not impose withholding tax of any sort.

Tax Incentives
Malta offers incentives in the form of tax credits to qualifying companies engaged in the Maintenance, Repair or Overhaul (MRO) of aircraft.

Capital Gains
Malta does not charge capital gains (except in cases concerning Maltese nationals or Maltese real estate).

Value Added Tax (VAT)
The supply/importation of aircraft for the international transport of passengers or goods is exempt from VAT and therefore VAT is not a consideration in the case of commercial aircraft. For the VAT position on non-commercial aircrafts please see below.

Leasing Schemes for the avoidance of VAT on pleasure aircraft
In the case of non-commercial aircraft built in, imported to, or operating within the EU VAT is a cost. The rate in Malta is 18% and although this is the lowest in Europe it still represents a substantial premium on the purchase price. Malta has for a long time operated a scheme for reducing the VAT cost of the purchase of pleasure vessels (please see our article on the maritime sector in Malta for more details). This scheme allows for the reduction of the effective rate of VAT on a sliding scale to a minimum effective rate of 5.4% and is now available for the aircraft also. The scheme must receive prior approval from the VAT office. The scheme works by transforming the nature of the purchase (which is subject to VAT) to a lease with option to buy. In the case of the lease portion of the agreement (which is 99% of the aircraft’s value) the applicable rate of VAT will be adjusted by the deemed operation of the aircraft outside the EU under the EU effective use and enjoyment provisions. What portion of the lease is deemed to take place outside the EU (and therefore outside the scope of VAT) is calculated based on the aircrafts size and operational potential (regardless of the actual operation of the aircraft). The lease operates for not fewer than 12 and not more than 36 months after which a VAT paid certificate is provided. This scheme, whilst being highly artificial, has governmental approval and whilst being newly introduced for aircraft has been in operation for many years for vessels.

Mortgaging and The Cape Town Convention
Malta along with the rest of the European Union is party to the the Cape Town Convention on mobile property which sets an international standard relating to the leasing and financing of aircrafts and aircraft engines including self-help remedies allowing recovery of mortgaged equipment and aircraft in the event of default as well as garnishment over income. Entry on a register of aviation mortgages (which is possible both locally and internationally under the Convention) means that securities over aircraft rank as a protected creditor (provided they are properly registered). Aircraft mortgages will therefore take priority in the event of insolvency of the owner. Additionally this public register allows for the prohibition of the registration of further borrowing against the same asset without the agreement of the principal creditor (assuming this is a term of the mortgage). This effect of the above is to create a stable environment for the financing and operation of aircraft. This favourable environment is designed to encourage lending at lower rates (the so-called “Cape Town Discount”).