Aircraft Registration Act, 2010

The registration of aircraft under the Malta Register falls to be governed by the “Aircraft Registration Act, 2010” which was enacted in October 2010 pursuant to Legal Notice 446 of the same year. The bill meets the framework of the Cape Town Convention on International Interests in Mobile Equipment and its Aircraft Protocol. This is an autonomous initiative and not an EU Law which is being transposed into Maltese legislation and is flexible in order to be able to react to the dynamism within the industry. The Bill’s versatility positively addresses various types of owners, real rights, guarantees and mortgages such as the ability to register aircraft still under construction, provided that airframe may be uniquely identifiable as well as aircraft engines, opening up possibilities for engine financing. The inclusion of private aircraft to the register and making the system also available to OECD jurisdictions is yet another positive trend.

The Use of Trusts and Fractional Ownership

The Malta Aircraft Registration Act allows the registration of aircraft under terms of a beneficial trust. As part of due diligence procedures, the Director General responsible for Civil Aviation in Malta is to “look through” beyond the trust and to the identity of the underlying beneficiaries. However various procedures are in place to safeguard the confidentiality of the trust arrangement in line with the principles governing trust law. In this manner an obligation is imposed on the Director General to ensure that the disclosure for the purpose of Malta aircraft registration does not compromise the inherent, confidential nature underlying any trust arrangement. At the same time, it ensures that the Malta aircraft register is well regulated and of the highest quality.

The Act also deals with the phenomenon of fractional ownership where a number of owners, regardless if legal or natural, pool their resources to co-own an aircraft. A Trust may be employed to regulate and co-ordinate the beneficiaries’ rights and interests and meet the specific arrangements that may be determined by the contracting parties. The Act ensures that the trust arrangement operates in an efficient manner and provides the beneficiaries with the legal infrastructure to enforce their rights against the trustees, as the registered owners of the aircraft, in case of default, thus protecting the beneficiaries and any other possible stakeholders in this arrangement.

Fiscal Measures

In terms of Maltese income tax law, any income arising outside Malta is exempt from tax in Malta. The income derived from the ownership, leasing or operation of aircraft or aircraft engines is deemed to have arisen outside Malta for Maltese income tax purposes irrespective of the country of registration of the aircraft and whether the aircraft calls to, or operates from, Malta. When combined with specific rules related to the operation of aircraft utilised in international traffic contained in Malta’s double taxation agreements, this rule presents attractive tax planning opportunities for airline and aviation operators who choose to establish themselves in Malta.

The taxation authorities in Malta have also published guidelines on the tax treatment of finance leasing of aircraft. These guidelines relate to those finance leasing arrangements not exceeding four years. Lease arrangements exceeding four years are subject to separate rules. The guidelines clarify the level of taxable income accruing to the lessor and the type of deductions that the lessee is entitled to. The lessor is taxed on the annual finance charge whilst the lessee is allowed a deduction in respect of the finance charge, maintenance and repairs and insurance costs. The lessee is also allowed capital allowances in respect of the aircraft.

Furthermore there is no withholding tax on lease payments where the lessor is not tax resident in Malta. The private use of an aircraft by an individual who is not resident in Malta and is an employee or officer of an employer, company or partnership whose business activity includes the ownership, operation or leasing of aircraft used for international transport does not constitute a fringe benefit and therefore does not create a tax liability in the hands of the individual.