The Merchant Shipping (Taxation and other matters relating to shipping organisations) Regulations

By means of LN 128 of 2018, new regulations have been introduced with effect from the first of May 2018 with the purpose of providing for the taxation and certain other matters relating to shipping organisations. Tonnage Tax Ship and Union Ship Defined For the application of these provisions, the terms Tonnage Tax Ship and […]

Written By Shanice Finch

On May 11, 2020
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By means of LN 128 of 2018, new regulations have been introduced with effect from the first of May 2018 with the purpose of providing for the taxation and certain other matters relating to shipping organisations.

  • Tonnage Tax Ship and Union Ship Defined

For the application of these provisions, the terms Tonnage Tax Ship and Union Ship are fundamental. A tonnage tax ship is a ship of any net tonnage which is engaged in shipping activities. A union ship is one that is registered under the laws of an EU or EEA member state.

The Minister can accept a ship, that is not a Union Ship, to be a tonnage ship if it is owned, chartered, managed, administered or operated by a shipping organization and it is proved that:

  • The strategic and commercial management of all ships owned, managed or operated by the said organization is carried out from the EU/EEA; AND
  • The respective annual tonnage tax is paid; AND
  • The shipping organisation owns and manages at least60% of its total tonnage under a Union flag OR
  • At least 25% of the tonnage owned, managed or operated by the shipping organization is Union flagged and that such percentage which is operated by a shipping organization  established in Malta has not decreased on average over a period of three years. Income derived from Shipping Activities

Provided that the activities and objects of the organization, where applicable, are restricted to shipping and related activities and the relevant tonnage taxes are duly paid:

  • The company shall not pay any further tax under the Income Tax Act on the income as long as the income is derived from shipping activities and
  • No further tax shall be payable on the income, profits or gains derived from the transfer of a tonnage tax ship which had been acquired and sold whilst under the tonnage tax system.

Furthermore, the distribution of profits derived from shipping activities and other allowable activities mentioned above, shall remain exempt in the hands of the shareholders.

To benefit from the above exemption, shipping companies shall keep separate accounts for payment and receipts in respect of the shipping activities and payments and receipts in respect of any other business activities.

  • Income derived from Ship Management

Similarly, any income derived by a Ship Manager from ship management activities shall be considered as income from shipping activities and shall also be exempt from tax under the Income Tax Act provided that:

(i)  separate accounts are kept for ship management activities and other business

(ii) tonnage tax is duly paid

(iii) at least 2/3rds of the tonnage of the ships to which management service is being provided, is managed from the territory of the EU

(iv)at least 60% of the total tonnage is managed under a Union flag OR at least 25% of the tonnage managed is Union flagged and that such percentage which is operated by a shipping organization  established in Malta has not decreased on average over  a period of three years.

Dividends paid from the above-mentioned income shall remain exempt in the hands of the shareholders.

  • Qualifying Ancillary Activities

The provision of ancillary activities linked to the maritime transport may benefit from these regulations subject to several provisions. The first provision is that from the total revenue generated from these ancillary activities, up to 50% will be generated from shipping activities. This threshold shall be applied on a ship-by-ship basis. Furthermore, any profits from the below ancillary activities may also benefit under these regulation

  • The embarkation and disembarkation of passengers on a tonnage tax ship operated by the shipping organisation
  • Sales and facilities which are normally provided by seagoing passenger ships including the provision of food and drink for immediate consumption and entertainment for which no additional fee is charged excluding betting or gambling activities.
  • Activities in relation to a tonnage tax ship operated by another qualifying shipping organization in the same group, which would be shipping activities of the first-mentioned shipping organization if carried on in relation to a tonnage tax ship operated by that shipping organization.
  • Such other activities that in substance are similar in nature to those listed above or have been approved or considered as eligible for tonnage tax purposes by the European Commission.

Any revenues from the sale of goods or services on board ships which are not customarily provided to passengers, may not benefit in terms of these regulations.

  • Qualifying Towage and Dredging Activities
  1. Towage Activities

The provision of ocean towage services may benefit from the provisions of these regulations provided that the tug is a Union Ship and more than fifty percent (50%) of the towage activity constitute maritime transport. Any other towage activities carried out amongst ports or in assisting a self-propelled vessel to reach port, do not constitute maritime transport for this provision

  • Dredging Activities

The provision of dredging services may benefit from the provisions of these regulations provided that:

(i) The ship is self-propelled and is a Union Ship

(ii)The ship spends at least 50%of its yearly operational time in maritime transport including time spent for travelling to the dredging site located at sea and for carriage of the dredged goods to the place of discharge

(iii)The exemptions from income tax only apply in respect of income from maritime transport services.

  • Application of Rules is Optional

Any concessions, exemptions, privileges and other benefits granted under these regulations are only granted at the option of the shipping organisation benefitting therefrom and any such shipping organization may opt out from these benefits which will be irrevocably waived.

How can we help?  

For further information, please contact one of the firm’s tax partners, Stephen Balzan on [email protected] or Elaine Camilleri [email protected]. ACT can help you understand the changes to the tax rules and how these can impact your business.  

Apart from its offices in St. Julian’s Malta, ACT operates from a second office in Gozo, which is situated in the capital city of Victoria.  For an appointment in our Gozo office, please call on 00356 21378672 or send us an email on [email protected]. 

Disclaimer: This article contains general information only and is not intended to address the circumstances of any particular individual or entity. ACT, by means of this article is not rendering any accounting, business, financial, investment, legal, tax, or other professional advice or service. This article is not a substitute for such professional advice, nor should it be used as a basis for any decision or action that may affect your finances or your business. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. Before making any decisions or before taking any action that may affect your finances or your business, you should consult a qualified professional adviser. ACT shall not be responsible for any loss whatsoever sustained by any person who relies on this article.