Ship management companies and Tonnage Tax Rules
A longstanding maritime legacy and EU accession have been instrumental to Malta consistently improving its status as a leading maritime hub in the Mediterranean and becoming the largest maritime flag in Europe. The Malta flag is often considered a flag of choice for shipowners, charterers and financiers alike, which are attracted by the experience and reliability offered by the Malta Ship Registry, as well as the existence of a robust legal framework. Collectively, these characteristics have increased the international standing of the registry while simultaneously maintaining its whitelisting in the Paris Memorandum of Understanding.
Tonnage Tax Rules
Among the various aspects which make the Malta flag an attractive option are the Tonnage Tax Rules which, as of December 2017, have been confirmed by the European Commission to be in compliance with European State Aid Rules and the Maritime Guidelines issued by the European Commission. The European Commission’s decision has since led to the implementation in Malta of Legal Notices 127/2018 and 128/2018, whereby the legislature introduced legal instruments amending the tonnage tax rules and further clarified the shipping activities that may benefit from tonnage tax.
In addition to clarifying which shipping organisations qualify under the Tonnage Tax Rules, the revised rules, particularly through Legal Notice 128/2018, have also sought to regulate ship management activities which are now equally eligible under the tonnage tax system. Both technical and crew management activities may benefit from tonnage tax under the revised rules. This effectively means that ship managers are permitted to pay tonnage tax equivalent to a percentage of the tonnage tax paid by the owners or charterers of the ship in lieu of the standard corporate tax levied under the Income Tax Act (Chapter 123 of the Laws of Malta). More specifically, the amount of annual tonnage tax due and payable by a qualifying ship management company will be equivalent to 25% of the annual tonnage tax payable in respect of the particular ship on the basis of the tonnage tax rates, as stipulated in the First Schedule to the Merchant Shipping Act, irrespective of whether the vessel is registered in Malta (subject to satisfying the conditions discussed below).
The services provided when offering technical management would, for instance, include ensuring compliance with the International Safety Management and International Ship and Port Facility Security Codes as well as flag state requirements. Other responsibilities would include ensuring regular maintenance of the vessel and general responsibilities concerning logistics.
Meanwhile, crew management services would include:
- the selection and engagement of crew;
- certification control; and
- training and organising the transport of crew.
For technical or crew ship management activities to benefit under the tonnage tax rules, ship managers must satisfy the conditions and requirements set out by the registrar general of shipping in Malta and submit all of the supporting documentation that the registrar general may require.
Principally, a ship manager must:
- be set up as a licensed shipping organisation in the European Union or in the European Economic Area;
- have at least 60% of the tonnage managed registered under an EU or EEA flag; and
- have at least two-thirds of the ships to which the ship manager provides ship management services managed from an EU or EEA territory.
Notwithstanding this, the law contains a proviso whereby the registrar general may accept a manager with EU or EEA-registered tonnage which is less than 60%, subject to a minimum managed tonnage threshold of at least 25%.
The aim behind this legislation is to encourage ship management companies to relocate certain activities to Malta and thereby further supplement the broad range of maritime services offered. Up until the enactment of the revised rules, there was limited benefit for third-party ship managers to relocate their activities to Malta, yet by extending the benefits of tonnage tax to technical and crew management companies, there is now a fiscal benefit in addition to the many ancillary benefits of operating from an established EU maritime centre, in the centre of the Mediterranean.
Legal Notice 128/2018 has significantly contributed to the further enhancement of the Maltese legal framework, and the response by management companies to this new scheme has been positive. By extending tonnage tax benefits to cover such additional shipping activities, the Maltese legislature has created new possibilities to attract management companies to operate from Malta and, as a result, further consolidated the position of the Malta flag and the maritime cluster of services offered in and out of Malta.
Source: By Peter Grima, Fenech & Fenech Advocates