Fiscal Incentives

The implementation of the Aircraft Registration Act (‘the Act’) in 2010 revamped Maltese legislation on aviation particularly by introducing a number of tax incentives and other beneficial measures aimed at accompanying the Act and increasing the competitiveness of Malta in the aviation industry.

Malta’s full imputation tax system

A company incorporated and resident in Malta is taxable in Malta on its worldwide income at the standard corporate tax rate of 35%. In many jurisdictions, the profits derived by a company are first subject to a corporate tax, and when the company distributes the profits by way of dividends to its shareholders, those taxed profits are once again taxed in the hands of the individuals receiving the dividend.

However, Malta operates a full imputation tax system meaning that dividends paid by the company to the shareholders should not be taxed twice since such profits had already been subject to the standard corporate tax rate.

Thus, Malta offers a very attractive fiscal regime whereby corporate profits are only taxed once at the flat rate of 35% in the hands of the company but when dividends are distributed out of the taxed profits, such dividends carry an imputation credit of the tax paid by the company on the profits so distributed.

As a result, shareholders of a Maltese registered company are entitled to be credited in full or in part, bringing the effective tax rate to 0% to 5%-11.7%, depending on the nature of the taxed profits and whether any double taxation relief has been claimed.

In addition, Maltese law stipulates that there shall be no tax withheld on dividends paid to non-dividends paid to non-residents provided that certain straightforward conditions are satisfied.

Malta also boasts an extensive double tax treaty network with over 60 double tax treaties currently in force. In addition to this, unilateral relief is also available should there be no applicable double tax treaty. Both the treaty relief and the unilateral relief operate on the basis of the credit method and are applied on a source-by-source basis.

Incentives particular to the Aviation Industry

Apart from Malta’s full imputation tax system, a number of incentives particular to the aviation industry are also available including:

• A reduced income tax rate of 15% for highly-qualified persons in the aviation sector;
• VAT exemption for the supply of and any intra-community acquisitions or importation of aircraft for use by airline operators chiefly for international transport of passengers and, or goods for reward with the right to claim credit for any VAT incurred for the purpose of its economic activity;
• Favourable treatment for both finance leases and operating leases;
• Accelerated tax depreciation rates;
• No duty on documents on transfers of assets;
• No capital gains on disposal of assets;
• No wealth taxes;
• Provisions for allowing re-domiciliation of companies, with no exit or entry taxes.

The Aviation Department at DF Advocates consists of a multi-disciplinary team of legal advisors specialized in different areas of the aviation industry. Having broad knowledge of the peculiarities this industry, we do not simply focus on the legal and regulatory aspects but are fully committed to providing results driven and practical counsel to our clients.

For further information, you can contact us on info@dfadvocates.com.