Malta, an EU country, has implemented generous tax and fiscal polices to attract the aviation sector.

1. Malta
Significant Tax Benefits
for the Aviation Industry

2. Government of Malta wants to attract, significant low
tax rules have been implemented following the coming
into law of Aircraft Registration Act” (ARA), which
follows the Cape Town Convention on International
Interests in Mobile Equipment and its Aircraft Protocol.
Malta’s aviation laws and applicable tax rules are
aimed at reducing tax and costs and thereby making
Malta a particularly attractive jurisdiction for the
registration of aircraft and aircraft mortgages, as well as
asset based financing and the ability of secured
creditors to enforce their interests in the aircraft.
Income - Ownership, Leasing or Operation;
Aircraft or Aircraft engines
In order to benefit from Malta’s significant tax benefits
for the aviation industry, the main rule in respect of
income arising from the ownership, leasing or operation
of aircraft or aircraft engines, is that they must be ‘used
or employed in the international transport of passengers
and goods’.
The Remittance Rule
Due to a special provision in the Malta Income tax act,
companies that are resident but not domiciled in Malta
for tax purposes, and any income derived from the
ownership, leasing or operation of aircraft or engines
used internationally, will be taxable in Malta only to the
extent that such income is remitted or received in
Malta.
Income that arises outside of Malta – irrespective of
both the aircraft’s country of registration and whether it
calls in or operates from Malta – will not be taxed in
Malta.
This remittance rule combined with the additional
benefits in respect of the operation of aircraft in
international travel as set out in Malta’s double tax
treaties allows for significant tax planning possibilities.
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In addition, the remittance rule ensures that non-resident
aircraft owners or operators are not subject to
withholding tax in Malta due to the entering into any
leasing, financing, charges, rents or other payments
made in favour of non-resident aircraft owners. Meaning
– when payments such as finance charges or rents are
made to a non-resident lessor no withholding tax is
levied.
Finance leases
Finance leases – where the aircraft are eventually
purchased from the seller – are subject to the rules set
out in the Malta Finance Leasing Rules 2005.
To qualify a lease for Malta tax purposes, the lessee must
substantially be responsible for all risks and rewards
associated with the ownership of the asset, other than
the legal title. In addition, the period of the lease
agreement must exceed four years. The resulting
benefits are:
 lessor is chargeable to tax on the annual lease
payments
 lessor is responsible for the burden of wear and tear
– allows lessor to claim capital allowances on the
leased asset
 lessee can deduct the full amount of the lease
payments from chargeable income, as well as other
relevant deductions
If lessor transfers ownership of the asset the lessee with
the lessor making a payment exceeding the total
annual lease cost, this payment is chargeable to tax in
the hands of the lessor.
The Malta Inland Revenue Department has also issued
guidelines in relation to aircraft leasing arrangements,
which do not fall under the Finance Leasing Rules and
which arrangements ought not to be longer than four
years in duration.
 Unique 0% Source Tax Rule for Non – Resident
Vehicles
 VAT Exemption
 Tax Exemption for Private Use Aircraft
 Extended Capital Allowances Deductions
 High Earners 15% Income Tax Rate

3. In such cases, the Guidelines clarify that the Malta tax
treatment should be as follows:
 lessor is charged tax on the annual finance charge –
represents the difference between the total lease
payments less the capital element, divided by the
number of years
 lessee is allowed deductions in respect of the
following expenses:
 the finance charge;
 any maintenance costs;
 any repair costs; and
 any insurance expenses;
 the lessee is the party entitled to deduct capital
allowances in respect of the aircraft; and
 at the end of the lease, if the lessee exercises an
option to purchase the aircraft, the payment
received by the lessor is considered a capital
payment and no tax is charged to the lessor.
Operating Leases
Sale/Leaseback: where operating lessors order aircraft
from manufacturers or buy them from airlines and leases
the aircraft back to the airline (lessee), can be
structured in a number of ways and over variable
periods of time.
Wet leases: occur whereby airlines can also lease crew
and pilots with the aircraft.
Tax Deprecation
In respect of operating leases the lessor is subject to
Malta tax on the full amount of the lease income and,
subject to it maintaining the burden of wear and tear,
the lessor can claim tax depreciation on the relevant
asset.
Alternatively, if the lessee maintains the burden of wear
and tear of the asset, the lessee is entitled to deduct the
full amount of the lease payments and to claim tax
depreciation in respect of the asset.
Capital Allowances – Aircraft, Aircraft Engines
& Related Parts
Accelerated depreciation allows for increased portions
of the depreciation value of an asset to be claimed
earlier in the depreciation cycle and thereby larger
deductions to be enjoyed in a much shorter
depreciation period. This allows a company to much
more capital and income release to start up and grow,
by allowing companies to defer a portion of their tax
liability.
Due to Malta’s Deduction for Wear and Tear of Plant
and Machinery (Amendment) Rules, 2010, the minimum
periods for tax depreciation of aircraft have been
reduced to the following timeframes:
Aircraft 6 years
Aircraft engine or airframe overhaul 6 years
Aircraft engines 6 years
Aircraft interiors and other parts 4 years
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Fringe Benefits Exemption
The Fringe Benefits (Amendment) Rules, 2010 also
introduce an outright exemption from Malta tax
attributable to the taxation of fringe benefits. This
exemption applies to the private use of an aircraft by
non-resident employees or officers, companies or
partnerships whose business activities include the
ownership, leasing or operation of aircraft or aircraft
engine used in the international transport of passengers
or goods.
Investment Tax Credits
Entities that carry on a trade or business consisting of the
repair, overhaul or maintenance of aircraft, engines or
equipment incorporated or used in such aircraft can
benefit from investment tax credits, which are
calculated either as a percentage of:
Size of Undertaking % of Qualifying
Small 50%
Medium 40%
Large 30%
Aircraft for Private Use
As private aircraft are by their nature used for private
purposes, no income is generated and therefore no
Malta tax obligations arise.
Sales of Aircraft – Tax Free Payments For Foreign Sellers
Payments made to a Malta company in respect of the
transfer of legal title of an aircraft, would only be
taxable in Malta if the seller does so as part of its
trading activity. In contrast, payments made to a
foreign seller would only be taxable in Malta if the seller
(i) is in the business of selling aircraft and (ii) is carrying
on a trading activity in Malta.
Not only is the Malta tax credit is applied as against the
tax due in Malta, but also unutilised investment tax
credits may be carried forward against tax due in
subsequent years.
MALTA
A Legitimate, Low Tax EU Jurisdiction
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