Registering a ship under the Maltese Flag State offers numerous advantages, one of the most notable being the Tonnage Tax regime. Unlike standard corporate entities, ships registered in Malta and engaged in shipping activities benefit from this specialized taxation system. This benefit would apply, irrespective of whether the vessel is registered in the name of an individual or a corporate entity.
Malta's standard corporate tax rate stands at 35%, one of the highest in the European Union. This rate generally applies to profits earned by companies registered in Malta. However, exceptions exist, and one of the most significant is the Tonnage Tax regime, designed exclusively for vessel conducting shipping activities.
On December 17, 2017, the European Commission approved Malta's Tonnage Tax rules for a period of ten years, conditional on the implementation of certain amendments to the existing framework. Under this regime, ships eligible for tonnage tax pay tax based on their net tonnage rather than on actual profits. Net tonnage refers to the volume of the ship used for shipping activities.
The tonnage tax is calculated based on the net tonnage of the ship, which refers to the volume of the vessel used for shipping activities. The net tonnage is determined by a formula that considers the ship's size and capacity, taking into account the space available for cargo, passengers, and other operational needs. The European Commission has established specific guidelines to calculate the tonnage tax, with varying tax rates depending on the vessel's tonnage.
Larger ships with greater capacity may benefit from lower tax rates per ton, which incentivizes the operation of larger, more efficient vessels. The calculation is designed to ensure that tax liability is directly proportional to the vessel's capacity and commercial use, rather than its actual profits, making it a predictable and fair system for shipping companies.
Eligible ships also enjoy exemptions from other tax obligations, including corporate and income tax. This makes the Tonnage Tax regime a highly beneficial option for shipping organizations.
To qualify for the Tonnage Tax regime, vessels must declare their tonnage tax and be engaged in shipping activities as defined by the EU Maritime State Aid Guidelines. Shipping activities include the international carriage of goods or passengers by sea, along with other activities approved by the European Commission. Certain vessels, however, are excluded from the regime, including fishing and fish factory ships, private yachts, and ships primarily used for sport or recreation; fixed offshore installations and floating storage units; non-ocean-going tugboats and dredgers; ships primarily used to provide goods or services typically offered on land; floating hotels, restaurants, or casinos; and non-propelled barges.
The Maltese Tonnage Tax regime offers several notable advantages. Income derived from shipping activities is exempt from taxation under the Income Tax Act. Transfers of shares in shipping organizations are exempt from capital gains tax and stamp duty. Additionally, profits from shipping activities distributed to shareholders are tax-exempt in their hands. However, they may still be subject to taxation in the shareholder’s country of residence.
To maintain eligibility, shipping organizations must keep separate accounting records for receipts and payments related to shipping and non-shipping activities. Tax returns and related documentation must clearly distinguish between eligible and non-eligible income.
Malta’s Tonnage Tax regime enhances the country’s maritime reputation, making it one of the most attractive jurisdictions for ship registration globally. Exemption from the standard 35% corporate tax rate allows shareholders to retain more profits, further boosting the financial appeal of this regime.
However, compliance is critical. The annual tonnage tax must be paid alongside the registration fee to avoid penalties for late registration. Additionally, failure to comply may result in the vessel being unable to operate without a valid Certificate of Registry.
For information or assistance, please contact us at info@gtg.com.mt
Author: Sarah M. Vella