Tax Planning & Compliance

An integral part of the management of any venture is the proper planning and computation of the future tax applicable. Gonzi & Associates, Advocates represents both individual and commercial entities as clients in matters having tax implications, instructing them on identifying key tax issues both locally and internationally and structuring their tax to minimize costs. In order to take full advantage of the business opportunities, the importance of expert long-term tax planning cannot be understated especially when taking into account the continuously changing nature of tax legislation.

By the setting up of Maltese trading and holding companies, it is possible to set up ownership and tax structures that would take advantage of the benefits offered by the Maltese jurisdiction increasing profits otherwise lost in other jurisdictions. Our firm also offers compliance services concerning income tax, VAT and other tax returns.

Maltese Income Tax Law provides an exemption on the profits of non-resident ship-owners if the country to which such non-resident ship-owner belongs extends a similar exemption to ship-owners and charterers who are not resident in that country but are resident in Malta.

The Maltese legal system adopts a full exemption on income arising out of shipping activities exercised by a licensed shipping organisation that owns, charters or operates a ship. Instead Malta charges an annual tonnage tax in the form of a lump sum.

The annual tonnage tax is set by fixed rates established according to different net tonnage brackets and then adjusted depending on the age of the ship with the standard rate applying to ships between 10 and 15 years old. Newer ships benefit from a reduced rate and older ships are subject to a surcharge.

The exemption of tax is extended to:

• income, profits or gains of a shipping organisation derived from the sale or other transfer of a tonnage tax ship; and
• income derived from ship management activities by a ship manager.

The law doesn’t stipulate a minimum net tonnage which the vessel must satisfy in order to be able to benefit from this exemption.

Shipping activities are defined under Regulation 2 of the Merchant Shipping (Taxation and Other Matters relating to Shipping Organisations) Regulations as:

• the international carriage of goods or passengers by sea in line with EU Maritime State Aid Guidelines or such other activities that have been approved or considered as eligible for tonnage tax purposes by the EU Commission;
• activities that are integral or directly linked to the business of operating tonnage tax ships, when carried out in conjunction with the activities described in (a) above;
• ancillary activities in terms of Regulation 7 of the Regulations when carried out in conjunction with the activities described in (a) above.

The ancillary activities mentioned above include, the embarkation and disembarkation of passengers on a tonnage tax ship operated by a shipping organisation, the sales and facilities which are normally provided to customers by seagoing passenger ships, including the provision of food or drink for immediate consumption and entertainment for which no additional fee is charged, but not betting or gambling.

On the other hand, ship management activities means those activities carried out by a ship manager and consisting in, but not limited to, the provision of competent personnel to supervise the management and general efficiency of a ship (entire crewing of a ship) and/or the provision of other technical management services usually performed by the ship manager.

The Regulations also provide a non-exhaustive list of ships which, if involved in the international carriage of goods or passengers by sea, benefit from the tonnage tax regime. These include:

• cable laying ships;
• pipe laying ships;
• crane vessels;
• research vessels; and
• multi-purpose, break-bulk and other types of support vessels.

Moreover, the following are specifically excluded from benefitting from this taxation regime:

• 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); and
• non-propelled barges.

Any income, profits or gains of a shipping organisation which are derived from the sale or other transfer of a tonnage tax ship which had been acquired and sold whilst under the tonnage tax system or from the disposal of any rights to acquire a ship which when delivered or completed would qualify as a tonnage tax ship shall not be subject to tax on capital gains and stamp duty in Malta.

The distribution of profits derived from shipping activities shall be exempt from income tax in the hands of the shareholders, including the ultimate individual shareholders.

Additionally, the disposal of shares, securities or any other interest, including goodwill, held in a licenced shipping organisation that owns, charters, administers or manages a tonnage tax ship is exempt from tax on capital gains and stamp duty in Malta.

In any case, shipping companies may renounce to the abovementioned benefits and exemptions and opt to be taxed at the standard corporate rate of 35%. In this case however, the shareholders of such companies are able to benefit from the Maltese Tax Refund System where upon the distribution of dividends, they will be able to claim a refund of 6/7ths of the tax paid by the Maltese company. This would in all likelihood still result in an efficient tax regime notwithstanding not opting to be exempt in terms of the tonnage tax regulations since, the refund of 6/7ths would result in a net effective tax leakage to the shareholder be only that of 5%.

Certain individuals who are engaged within the shipping industry as outlined in the Qualifying Employment in Maritime Activities and the Servicing of Offshore Oil and Gas Industry Activities (Personal Tax) Rules are eligible to qualify for a personal flat tax rate of 15% on all income derived from their employment in Malta. Just to name a few examples of offices which are considered eligible are the office of: Chief Executive Officer, Chief Operations Officer, Crewing Manager and Master amongst others. A number of other criteria must be satisfied in order for said individual to qualify for this reduced income tax rate as has been explained here.