EU approves Maltese Tonnage Tax Scheme

Maltese-Shipping-Flag22 December, 2017 - In 2004, the European Commission (EC) addressed the risk of flagging out by issuing Guidelines on state aid to maritime transport which allowed member states to adopt measures to improve the fiscal climate for shipping companies. The EC now has to ensure that the favourable tax treatment towards shipping companies does not affect other sectors unrelated to maritime transport.

Under the Maltese scheme, a shipping company is taxed on the ship’s net tonnage and not the profits of the company and in particular, tonnage taxation is applied to a shipping company’s core revenue from shipping activities, ancillary revenue closely related to shipping activities (capped at 50% of a ship’s operating revenues) and revenue from towage and dredging.

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

The EC started an investigation in 2012 which focused on certain features of the scheme such as the tax exemptions applied to Maltese residents, and the broad scope of the scheme which could be extended to vessels not carrying out maritime transport activities.

The EC conditionally approved the Maltese tonnage tax scheme in a decision published on the 19th of December 2017 after Malta committed itself to introducing a number of changes to this scheme including restricting the scope of the scheme strictly to maritime transport and removing the tax exemptions which constitute state aid in order to minimize competition distortions. The EC concluded that the amended Maltese scheme would be in line with EU state aid rules as the tax relief granted is an appropriate instrument to address global competition.

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