Malta tonnage tax scheme EU approved

Chetcuti Cauchi co-authored with Wojciech Gadzala | Published on 25 Dec 2017

Malta tonnage tax scheme EU approved

The 19th of December 2017 finally saw the Malta tonnage tax scheme EU approved. This news came as the  European Commission announced that it conditionally approved the Malta tonnage tax scheme for a period of 10 years. Upon this approval, the Malta tonnage scheme was deemed to be compliant with the EU State aid rules.

The Commission’s investigation regarding the compatibility of the Malta tonnage tax scheme with EU state aid rules was opened in 2012. In the course of its investigations, the Commission questioned some characteristics of the Malta tonnage tax scheme which, in its view, could lead to undue competition distortions. In response, Malta committed to introducing a number of changes to the scheme, i.e. to restrict the scope of the scheme to maritime transport and to remove tax exemptions for shareholders which are deemed to constitute State Aid. Upon amendments being made to Malta Merchant Shipping Act through Legal Notices 127 and 128 of 2018 (in force since May 2018), Malta has indeed honoured this commitment.

Margrethe Vestager, Commissioner in charge of competition policy commented that "by encouraging the registration of ships in the EU, the scheme will enable the European shipping industry to keep up its high social and environmental standards”.



As the Malta Tonnage Tax Scheme EU approved stands today, vessels engaged in shipping activities are eligible to benefit from the tonnage tax regime. This entails that income derived from cargo ships, cruise ships, and yachts registered as commercial yachts are exempt from Maltese income tax. Moreover, interest from the working capital of Malta shipping companies, dividend distributions from Malta shipping companies, as well as capital gains from the sale of tonnage ships engaged in shipping activities, are also exempt from Maltese income tax. Instead of income tax, the relevant entity is subject to the payment of a pre-agreed tonnage tax amount.

Finally, in order for these entities to benefit from the Malta Tonnage Tax Scheme EU approved, a significant part of their fleet must fly the flag of a European Economic Area Member State. New applicants of the scheme must have at least 25% of their fleet subject to tonnage tax within an EEA State.

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