Over the years, Malta has witnessed growth in its aviation industry, attracting globally renowned entities to set up operations on the archipelago. During the last decade, Malta has built a strong regulatory infrastructure to help to establish itself as an international aviation centre par excellence.
The aviation industry in Malta has more recently been encouraged following the revision of the Maltese aircraft legislation in 2010 relating to aircraft registration (the ‘Aircraft Registration Act’) and the implementation of the Cape Town Convention on International Interests in Mobile Equipment and its Aircraft Protocol (the ‘Cape Town Convention’), ratified in February 2011. Through the Aircraft Registration Act, Malta offers the possibility of registration of an aircraft on the National Aircraft Register, both for the provision of air services or private use.
As part of its economic development strategy, Malta is supporting various sectors in the aviation industry including maintenance, repair and overhaul (MRO) operations, back-office setups, R&D and the production of aircraft components.
The applicable overall effective tax rate may be reduced further by virtue of accelerated depreciation rates under domestic law. Depending on the type of lease and who maintains the burden of wear and tear, a deduction for tax depreciation may be allowable. The absence of withholding tax on outbound payment of dividends and interest additionally helps in minimising the tax burden.
All income derived from the ownership, lease and operation of an aircraft engine used for the international transport of goods or passengers to arise outside Malta; and tax refunds to shareholders on the distribution of profits.
Where the lessor is not a tax resident of Malta, no withholding tax on lease payments is applicable.
Malta has an extensive network of double taxation treaties, under which income derived from the operation of aircraft in international traffic should generally be the only taxable in the country where the effective management of the company is situated.
Applicability of the Cape Town Convention provides financiers with a higher degree of protection and more effective enforcement remedies whilst allowing lower borrowing costs.
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