Following the decision of the European Commission endorsing Malta's tonnage tax system and the subsequent enactment of Legal Notice 128 of 2018, Malta's revised laws on tonnage tax have now been in force for just over two years. During this initial period, advisors have been in constant contact with their respective clients and with the team at the Merchant Shipping Directorate exploring novel opportunities the law has to offer as well as ensuring their clients' qualifying status and compliance with the reporting obligations provided for in the law.
Back in June 2018, I wrote an article entitled "Ship Management: Recent Legal Developments" in which I provided a brief overview on the application of the tonnage tax laws to the operations of third party ship managers, specifically those managers providing technical and/or crew management services. One of the objects of the amended law was, and still is, to attract ship managers to our shores by creating an attractive fiscal environment, supported by all Malta has to offer as a maritime hub. I am pleased to report that this objective has started to gain traction and there now appears to be an increased level of interest from ship managers involved in both technical and crew management.
Focus shall here be made on crew managers, meaning those managers offering a host of crew management services to shipowners. These services include the selection and engagement of a vessel's crew, payroll arrangements and pension administration, compliance with mandatory manning levels and crews' qualification, crew training, transportation of crew to and from the employing vessel, conducting seafarer union negotiations and in some instances, handling the crews' insurances.
Some crew managers have taken the plunge and are now benefiting from Malta's tonnage tax system. Once a crew manager is duly recognised by the Registrar-General and has paid the appropriate tonnage tax due on the managed vessel , no further tax under the Income Tax Act (Cap.123 of the Laws of Malta) is charged on the income of the crew manager generated from the provision of crew management services. Dividends distributed from profits derived from crew management activities are also exempt from tax under the Income Tax Act, in the hands of the shareholders of the crew manager.
Any crew manager wishing to enter Malta's tonnage tax system, must be set up as a licensed 'shipping organisation' in terms of the Merchant Shipping Act (Cap. 234 Laws of Malta) and must be established in the European Union (EU) or in the European Economic Area (EEA).
The objectives or purpose of the crew manager to provide crew management services must be clearly identified and specified in the objects clause of the manager's memorandum of association or other constitutive document.
From an operational standpoint, at least two-thirds of the managed net tonnage must be managed from offices based and operating in the EU or the EEA.
Additionally, the majority of the vessels to which crew management services are provided must be flagged within the EU or the EEA – the general rule here is that at least 60% of the net tonnage managed must be EU or EEA flagged. However, the law allows the Registrar-General to consider a crew manager whose managed EU or EEA registered tonnage is less than 60%, subject to a minimum managed EU/EEA flagged tonnage of at least 25%.
A crew manager must also apply with the Registrar-General of Shipping in Malta and is obliged to submit supporting documentation as may be requested by the Registrar-General. These documents include a copy of the 'Certificate of Authorisation for Seafarer Recruitment and Placement Services' in terms of the Maritime Labour Convention issued by a "Recognised Organisation" and a copy of the duly executed crew management agreements entered into by a crew manager and its client shipowner/operator. These management agreements usually consist of standard industry forms such as the BIMCO SHIPMAN and CREWMAN contracts. Certificates issued in favour of the managed vessel such as a copy of the certificate of registry, transcript of registry and international tonnage certificate must also be submitted.
Once the authorities have reviewed and approved a crew manager's application, they then proceed with calculating the tonnage tax due. The amount of annual tonnage tax payable by a qualifying crew manager is equivalent to 25% of the annual tonnage tax payable in respect of the particular ship managed on the basis of the tonnage tax rates contained in the First Schedule to the Merchant Shipping Act. These rates apply irrespective of whether the managed vessel is registered in Malta or not.
The annual obligations of a registered crew manager go beyond the payment of annual tonnage tax fees. In accordance with Legal Notice 128 of 2018 and MS Notice 150 of the 1 April 2019, a crew manager is to submit an annual declaration to the Commissioner of Revenue as well as a 'Tonnage Tax Return' to the Registrar-General. The latter document is not limited to financial information and extends to the technical and operational details of the vessels managed, the place from where the crew management services are carried out and the type of crew management services provided.
It is still far too early to analyse the effect and the subsequent results of the introduction of the revised tonnage tax laws against the ultimate aim of making Malta a ship management centre. The realisation of this goal will take time and is not solely dependent on the presence of a comprehensive, stable and advantageous set of laws. Modern infrastructure, a trained workforce, political stability and suitable connectivity to the rest of the world are just some of the factors which crew managers shall assess in deciding whether to establish a presence in Malta or not. Additionally, Malta is competing with some mature ship management centres based in Europe such as Cyprus and the Netherlands. Despite the challenges, the initial signs are positive and promising.
Originally published by maritime & shipping supplement of the Times of Malta, 7 October 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.