Malta Maritime

Malta has a long naval tradition due to its location in the centre of the Mediterranean, half way between Gibraltar and the Suez canal. Malta has the largest vessel registry in Europe and the eighth largest in the world. Vessel registration in Malta is straightforward, costly and has numerous benefits. Income from Maltese vessels will generally be exempt from all taxes except a small fixed tonnage tax. Malta imposes no restrictions on the ownership, sale or mortgaging of Maltese registered vessels, vessels under construction and other structures (such as oil rigs, moving docks etc) and there are no restrictions on crew nationality. Malta’s benefits as a Maritime country of choice also include its membership of the EU, its conformity to international standards on safety and security and its effective and straightforward mortgage registration system.

Vessel Registration
Any legal or natural person can be registered as the owner of a Maltese vessel however if the owner is not Maltese it will be necessary to appoint a Maltese registered agent. This is a formality and all service providers will be able to provide a suitable person. Any vessel, vessel under construction or maritime structure (e.g. oil rig, floating dock etc) can be registered in Malta. Vessels over fifteen years old require an inspection before or within one month of provisional registration, those over twenty years must have this inspection before registration (in all cases this can be provided in another country) and those over twenty-five years require express permission to apply for provisional registration. Registration of vessels in Malta can happen in two ways: firstly, provisional registration leading to permanent registration; and, secondly, registration of a bareboat charter (the difference is explained below).

Use of a Limited Company
Companies in general and Maltese companies in particular are popular choice for the holding of Maltese vessels for the following reasons: 1) they are exempt from all taxes and only pay a nominal fee each year (see below); 2) Maltese companies remove the requirement for a registered agent and the associated costs; 3) they are legally separate from the beneficial owner in case he is sued the vessel would not be forfeit; 4) they can be used to conceal the connection to the beneficial owner (see below our section on fiduciaries); and, 5) they receive gains made by the underlying vessel (which are not subject to tax in Malta) rather than those gains arising in the hands of the beneficial owner (where the tax rate is likely to be much higher). The many advantages of companies in the holding of assets is explained and considered in greater detail in our main section on private limited companies in the products section. Maltese vessels can be held either by companies formed under the Companies Act or under the Merchant Shipping Act and the difference in taxation is explained below.

Use of Fiduciaries
Nominee owners can be appointed to conceal the identity of the beneficial owner of a Maltese registered vessel. For more information on the use of nominees please see our main article on nominee services in Malta.

Provisional Registration
Provisional registration of Maltese vessels lasts for six months and in most cases affords all the benefits of full registration. The only circumstance where this is not true is in the case of non-operative provisional registration which would be granted in circumstances where the usual documents which allow the Maltese registrar to assess that the vessel conforms to relevant safety standards or construction standards are not provided. It is assumed below that documents on the construction of the vessel are provided and that provisional registration is obtained on that basis. Within the six month period of provisional registration the vessel can proceed to full registration by either being commissioned (in the case of a vessel under construction) or by providing evidence of cancellation of foreign registration (in the case of a vessel being transferred here from a foreign registry). If the vessel does not succeed in procuring permanent registration within the prescribed six month period this can be extended to one year with the approval of the registrar. The process of provisional registration should take 1-2 days if all documents are provided correctly.

Documents Required for Provisional Registration
The following documents are required for provisional registration: builders’ certificate, all bills of sale sufficient to identify a clean line of ownership, for registered vessels an extract from their current registry, completed application form, the tonnage and load line certificates (relevant to vessels over 24m only) and due diligence on owner and registered agent. In addition to the above registration fees must be paid at this point.

Permanent Registration
Permanent registration comes after provisional registration subject to the following requirements. The process of permanent registration should take 1-2 days if all documents are provided correctly.

Documents Required Within one Month of Provisional Registration
If the vessel is registered elsewhere it must present its certificate of cancellation from the foreign registry only within one month of provisional registration. This certificate will also state that the vessel is unencumbered (that it is free from vessel mortgages) which would in any case be a requirement of the outgoing registry to release the vessel from its registry. The above provision is not applicable to newly built vessels.

Documents Required Within six Months of Provisional Registration
The following documents are required within six months of provisional registration (and this period is extendable to one year with permission of the registrar): tonnage certificate, survey certificate from a local surveyor, evidence of correct markings under new registration, CE certificate, crew list, radio licences (if applicable) and any other evidence necessary for the registrar to ensure conformity with international standards.

Taxation
The tax treatment of income from the maritime industry varies depending on the status of the company receiving income. Please see below for a number of scenarios.

Foreign Companies
Foreign companies are only eligible to pay tax on income arising in or remitted to Malta. In most cases no tax will be due where a foreign company holds a Maltese vessel.

Maltese Companies
Regarding the ownership of vessels there are two types of Maltese companies: Companies Act companies; and, Merchant Shipping Act Companies. The latter are exempt from tax in respect of income deriving from Maltese registered ships and these are almost always the appropriate vehicle for vessel holding. If for some reason a Companies Act company is required it pays 35% tax but 6/7ths of tax paid (in respect of trading income) is refunded to their shareholders meaning the effective rate of tax is 5% (please see our main article on private companies in Malta for more detail). In addition numerous deductions are allowable. A generous depreciation regime means that vessels and engines may be written off for tax purposes over ten years and 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.

Merchant Shipping Act Companies
There is also a third type of private company which can be registered in Malta under the Merchant Shipping Act. These companies are exempt from tax if their operation is limited to income from maritime operations relating to a Maltese registered vessel.

Leasing Schemes for the avoidance of VAT on pleasure vessels
In the case of non-commercial vessels built in, imported to, or operating within the EU VAT is a cost (by comparison VAT payable on a commercial craft is recoverable and is not therefore 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. This scheme allows for the reduction of the effective rate of VAT on a sliding scale to a minimum effective rate of 5.4%. 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 (which is only subject to VAT insofar as the lease takes place in the EU). In the case of the lease portion of the agreement (which is 99% of the vessel’s value) the applicable rate of VAT will be adjusted by the deemed operation of the vessel 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 vessels length (and whether it is a sail or a motor vessel). This calculation is based on deemed operation only regardless of the actual operation of the vessel. The calculation is made by assuming the possible movement radius of the vessel and determining what portion of this circle is in EU waters. The lease arrangement operates for not fewer than 12 and not more than 36 months after which a VAT paid certificate is provided and during which time free circulation is permissible. This scheme, whilst being highly artificial, has governmental approval and has been in operation for many years. In all cases where this scheme operates it will be necessary to bring the vessel to Malta. A substantially identical scheme is operated by Cyprus with a lower rate of VAT though Malta remains a more popular choice for many clients given its more convenient location.

Other Taxes
No withholding tax, stamp duty or other taxes are applicable to Maltese companies in foreign ownership.

Bareboat Charter Registration
An alternative route to registration on the Maltese registry is that of bareboat charter registration. In this scenario a vessel registered elsewhere can register its charter on the Maltese registry for a period not exceeding two years (and renewable in two year periods). The rationale is that matters affecting ownership and primary registration such as mortgages can continue to be regulated by the country of registration but all other matters under the lease operate under the Maltese flag. For the duration of the lease subject to the above points concerning ownership and mortgages etc a bareboat chartered vessel enjoys the same rights as any other Malta registered vessel.

Mortgage Registration
Maltese law provides a simple process for the registration and release of vessel mortgages and mortgages over vessels under construction. Local and international mortgages can both be registered. 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). The effect of the above is to create a stable environment for the financing and operation of vessels.

Fees
The following table of fees includes all costs due to Malta authorities in respect of vessel registration and tonnage tax but does not include the fees of professional services which may be engaged to assist with such matters as vessel registration and also does not include any expenses related to the formation and operation of a Maltese company which could be relevant (for more information on these fees please see our main article on Maltese private companies).

Reductions and Increases in Fees Based on Vessel’s Age
Ships five years old or younger receive a 50% discount on registration fees and a 30% reduction on tonnage tax. Ships five to ten years old receive a 25 discount on registration fees and a 15% reduction on tonnage tax. Vessels older than 15 years suffer an increase in their fees up to 50% on annual tonnage tax only (this increase is capped at 1500 EUR).

Ancillary Services
Malta’s maritime infrastructure supports a host of related activities to vessel registration and charter including legal services such as the performance of registry searches, deletion of vessels from the registry, enforcement of vessel mortgages and the arrest of vessels and maritime services such as leasing, crewing and payroll etc.

Deregistration
Deregistration can be effected voluntarily following release of any encumbances or for non-compliance with registry requirements.