Introduction to the Maltese Aircraft Register

As an EU member state and a leading financial services jurisdiction, Malta has established a clear strategic political vision supporting the aviation industry. Following its worldwide success in the maritime sector, Malta is now working towards building the same strength and growth of its aircraft register.

The Malta Aircraft Registration Act, 2010 (the “Act”) came into force on 1st October 2010 and its main aim is to regulate the registration of aircraft, the registration and enforcement of aircraft mortgages and the implementation of the Cape Town Convention and the aircraft protocol and its interface with Maltese law.

The Maltese Aircraft Register – Main Advantages

1. An attractive corporate tax system;
2. Recognition of fractional ownership of aircraft so that title may be divided between co-owners in specified fractions or percentages which may each be financed by a different creditor taking security over the particular fractional interest for which finance has been provided;
3. Broad registration possibilities for aircraft not used in commercial air transport;
4. Robust legislative framework and extensive network of double taxation treaties;
5. Transparency of rights and interests in aircraft;
6. Encouragement of the development of finance and operating leases of aircraft and provides clear rules on the tax treatment of the finance charge, available tax deductions to finance lessors and capital allowances for lessees;
7. No withholding tax on lease payments where the lessor is not a tax resident of Malta;
8. The private use of an aircraft by an individual who is not resident in Malta and is an employee/officer of an employer/company/partnership whose business activities include the ownership/leasing/operation of aircraft used for international transport does not constitute a taxable fringe benefit;
9. Competitive minimum depreciation periods for aircraft;
10. Implements the provisions of the Cape Town Convention on International Interests in Mobile Equipment and its Aircraft Protocol thereby granting secured lenders a higher degree of protection and more effective remedies whilst allowing lower borrowing costs;
11. Possibility of registering aircraft under construction once uniquely identifiable with airworthiness surveys suspended until the completion of the aircraft;
12. Possibility of recording various details pertaining to the aircraft, its ownership or any other relevant interest;
13. Local availability of a wide range of airline services (aircraft and engine maintenance, repair and overhaul, aircraft management, aircraft maintenance training and other ancillary support services); and
14. High standards of safety and security.

Who is qualified to register aircraft in Malta?

The qualifying registrants vary depending on whether the aircraft is used in commercial air services or for private purposes.

A. In the case of commercial aircraft the qualifying registrants are the following:

1. The Government of Malta;
2. A citizen of Malta or a citizen of a Member State of the EU or of an EEA State, or Switzerland, having a place of residence or business in Malta, the EU, the EEA, or Switzerland, including a person sharing in the ownership of such aircraft by virtue of the community of acquests subsisting between such person and a citizen as described above in whose name the aircraft is registered;
3. An undertaking formed and existing in accordance with the laws of Malta, of a Member State of the EU, of an EEA State, or of Switzerland and having its registered office, central administration and principal place of business within Malta, or the EU, or the EEA, or Switzerland, whereof not less than 50% of the undertaking is owned and effectively controlled by the Government of Malta, or by any Member State of the EU or by persons referred to above, whether directly or indirectly through one or more intermediate undertakings.

All operators of aircraft engaged in commercial air transport activity are required to be in possession of an Air Operator Certificate (AOC) and an Operating Licence.  The Civil Aviation Directorate at the Authority for Transport in Malta has the capacity to certify operators of aircraft in accordance with Annex III to Regulation (EC) 3922/1991, as amended (EU-OPS 1)

B. In the case of private aircraft  the qualifying registrants are the following:

A natural person who is a citizen of, or an undertaking established in a member country of the Organisation for Economic Co-operation and Development and any other country approved by the Minister by notice for the purposes of the Act (termed “International Registrant” in the Act), provided it:

1. has legal capacity to own/operate and aircraft in terms of law;
2. appoint a local resident agent to represent the owner in Malta for matters concerning the registration of the aircraft;
3. complies with applicable regulations/guidelines.

Who is eligible to register an aircraft?

Qualifying registrants may register aircraft in Malta in any one of the following capacities:

1. An owner operating an aircraft;
2. An owner of an aircraft under construction or temporarily not being operated or managed;
3. An operator of an aircraft under a temporary title;
4. A buyer of an aircraft under a conditional sale or title reservation agreement authorised to operate the aircraft;
5. A trustee for the benefit of beneficiaries.

What information must be entered into the National Aircraft Register?

The Act distinguishes between the entries in the register which are mandatory and others which though not mandatory are nevertheless permissible.

Mandatory entries

1. The physical details of the aircraft and the engines attached to the aircraft and any replacement engines owned by the registrant to the extent that they are designated for use on the aircraft;
2. The name and address of the registrant and in what capacity the registrant has registered the aircraft;
3. The details of any mortgages registered over the aircraft;
4. The details of any irrevocable de-registration power of attorney, or other power of attorney granted by way of security to the mortgagee, or to a third party, granting powers to exercise rights relating to the aircraft, or to the closure of the register on behalf of the registrant.

Permitted entries

1. The ownership rights in the aircraft or an engine including when such rights are held by a trustee, by one or more owners, divided into fractional shares, or held under an agreement with reservation of ownership rights or under conditions affecting title;
2. The lessee/lessor rights in relation to the aircraft or an engine;
3. The details of the resident agent where the registrant is an international registrant;
4. Information on any international interest registered in the International Registry, and the debtor thereof;
5. Any charge or reservation of ownership rights or lessee rights prior to the registration of a mortgage.

Malta Tax Considerations- Commercial Malta Aviation Business

A company incorporated in Malta is chargeable to tax in Malta on a worldwide basis at the flat rate of 35%.

On the other hand, a company incorporated outside Malta but which is controlled and managed in/from Malta would be treated as resident in Malta for tax purposes and would, accordingly, be subject to tax in Malta (only) on:

1. chargeable income arising in Malta;
2. chargeable income arising outside Malta to the extent that such income is remitted to Malta (remittance basis);
3. chargeable gains realised in Malta.

Chargeable gains realised outside Malta would not be taxable in Malta even if remitted to Malta.

Income derived by any person who owns, leases or operates any aircraft or aircraft engine which is used or employed in the international transport of passengers or goods, is deemed to arise outside Malta for Malta tax purposes. Such income is deemed to arise outside Malta regardless:

1. of the country of registration of the relevant aircraft or aircraft engine; or
2. as to whether the aircraft may have called at, or operated from, any airport in Malta.

Accordingly, any company incorporated outside Malta but resident in Malta for tax purposes (controlled and managed in or from Malta), and which derives income from the ownership, leasing or operation of aircraft or aircraft engines, would only be chargeable to tax in Malta if and to the extent that such income is remitted to Malta.

Security registered in the National Aircraft Register

1. A mortgage may be registered in the Aircraft Register by way of security for the payment of a debt and in the case of bankruptcy/insolvency of the owner of an aircraft, all actions and claims to which the aircraft may be subject, shall have preference on the aircraft, over all other debts of the owner’s estate;
2. Prior to the registration of a mortgage:
   - any creditor may register his privilege or charge on any part, appurtenance or accessory of an aircraft;
   - a seller reserving ownership rights on an aircraft or on any part thereof, may register his interest in the register of the aircraft
3. A registered mortgage is an executive title where the debt it secures is a debt certain, liquidated and due or where the maximum secured sum is expressly stated in the mortgage instrument and recorded in the register;
4. A foreign mortgage may be recognised as a mortgage with the status and all the rights and powers specified under Maltese law subject to certain conditions.
5. Any security over the aircraft does not extend to any engine attached to the airframe which is not also owned by the airframe owner.

A registered mortgage will entitle the mortgagee in the event of default on the part of the mortgagor, to the following remedies, upon giving notice in writing to the debtor, without the need of the leave of any court:

1. take possession of the aircraft;
2. sell the aircraft or any share in respect of which the mortgage is registered;
3. apply for any extensions, pay fees, receive certificates and generally do all things in the name of the owner in order to maintain the status and validity of the registration of the aircraft;
4. lease the aircraft with a view towards generating income therefrom;
5. receive any payment of the price, lease payments, and any other income which may be generated from the operation and management of the aircraft;
6. procure the de-registration of the aircraft; and
7. procure the export and physical transfer of the aircraft from the territory where it is situated.

Special privileges on Aircraft

The debts listed below enjoy priority and any debts secured by a mortgage shall rank after such debts:

1. Judicial costs incurred in respect of the sale of the aircraft and the distribution of the proceeds thereof pursuant to the enforcement of any mortgage or other executive title;
2. Fees and other charges due to the Director General arising under applicable law of Malta in respect of the aircraft;
3. Wages due to crew in respect of their employment on the aircraft;
4. Any debt due to the holder of a possessory lien for the repair, preservation of the aircraft to the extent of the service performed on and value added to the aircraft;
5. The expenses incurred for the repair, preservation of the aircraft to the extent of the service performed on an value added to the aircraft; and
6. Wages and expenses for salvage in respect of the aircraft.

Security registered in the International Registry of Mobile Assets

Malta is signatory to the Cape Town Convention on International Interests in Mobile Equipment and also to its Aircraft Protocol.  This multilateral international convention provides for a centralised system and procedure for the registration of aircraft ownership, liens, leases and contracts, thereby providing financiers of Malta-registered aircraft with the ability to enforce their registered security rights over such aircraft in each jurisdiction signatory to the Convention. It also establishes the right of owners of aircraft to grant an Irrevocable De-Registration and Export Request Authorization (IDERA) to a secured party.

Aircraft Applicability in terms of the Cape Town Convention

The convention applies to the following aircraft:

1. Airframes that are type certificated to transport either at least 8 persons including crew or goods in excess of 2759 kilograms (6050 pounds);
2. Helicopters that are type certificated to transport at least 5 persons including crew or goods in excess of 450 kilograms (990 pounds);
3. Jet propulsion aircraft engines with at least 1750 pounds of thrust or its equivalent; and
4. Turbine-powered or piston-powered aircraft engines with at least 550 rated take-off horsepower or its equivalent.

International Interests registrable in the International Registry in terms of the Cape Town Convention.

Interests in airframes, helicopters or aircraft engines which are:

1. granted by chargor under a security agreement; or
2. vested in a person who is the conditional seller under a title reservation agreement; or
3. vested in a person who is the lessor under a leasing agreement;

may be registered in the International Registry and shall be regulated by the National Implementing Law contained in the First Schedule to the Aircraft Registration Act.

The general rule is that an international interest takes a prior ranking over national security interests registered in the National Aircraft Register and that such international interest has full legal force and effect in Malta.  Consequently, it is not necessary to re-register in the Maltese National Aircraft Register any registered international security interest . Nonetheless a creditor may choose to have its international interest recorded in the National Aircraft Register subject to the rule that the international interest shall be enforceable on its own merits and shall always prevail over the security registrations in the National Aircraft Register in case of any conflict or discrepancy.  Furthermore once an international interest has been registered in the International Registry, it is possible for a prohibitory notice to be filed in the National Aircraft Register which effectively prohibits the registration of security interests in the national register without the express consent of the creditor in question.

Registrable Privileges

Registrable privileges are privileges which, once registered in the International Registry, enjoy preference and status of such right in relation to the aircraft only if the claim is created by the owner of the aircraft or a person authorised by him. These privileges are the following:

1. Taxes, duties and/or levies due to the Government of Malta in respect of the aircraft; and
2. Wages and expenses for assistance or recovery in respect of the aircraft.

Should you require any guidance on or assistance with any aviation-related matters, please contact us on aviation [at] zammit-law [dot] com