Emulating the success of its shipping register, which has grown into the eight largest world-wide and second largest in Europe, Malta is committed to establishing itself as a leading aircraft register.
Plans were recently announced to reform the local regulatory framework and develop the registration of aircraft into a niche sector with the potential of spearheading the creation of a cluster of aviation services. Government intends to present a new Bill in Parliament by mid-2009 to, possibly, provide for the creation of a new Malta Aviation Authority, codify statutory provisions relating to aircraft registration, mortgages and enforcement of security under one law and ratify the Cape Town Convention.
The global economic crisis is leaving its mark on the aviation industry. Aircraft manufacturers are shedding jobs as passenger volumes decrease, airlines reconsider ambitious fleet expansion programmes and credit from banks is increasingly difficult to secure. The corporate use of business jets in under the spotlight as taxpayers and lawmakers question how you can have government bailouts and Lear Jet expenses on the same cash flow statements.
It is in circumstances such as these that boards of directors and high-net-worth individuals are seeking cost-saving opportunities. Not only will new aircraft owners, lessors, lessees and financiers be more careful about the fiscal and other costs involved in the ownership, leasing, operation and financing structures, but existing set-ups are bound to reassess the pros and cons of the jurisdictions traditionally used for aircraft ownership and finance.
Owners, lessors and financing syndicates are shopping around for jurisdictions, comparing fiscal regimes, the security of mortgages and their enforcement, the efficiency of local aviation authorities and the sophistication of the legal framework.
Chances are you never heard of a place called Aruba unless you are one of the 100 or so business or VVIP jet owners having registered their aircraft in this Caribbean island off the coast of Venezuela, with a land area two-thirds that of Malta, attracted by the prospect of no corporate income tax or dividend withholding tax. And if you are not interested in the white sandy beaches or Dutch colonial architecture you can even save yourself the trip and get your aircraft registered within five to seven working days (or at least so is claimed) by using the privately run representative office of the Aruban aviation authority in Miami.
Bermuda has around 360 aircraft on its register, most of them operating in Russia. Around 150 aircraft are registered in the Cayman Islands, while the Bahamas appear to be somewhat secretive on the number of aircraft on their register. The Aircraft Register of the Isle of Man was only set up in May 2007 and reached 50 registrations in its first year alone.
The aircraft register of Ireland has more than 1,160 registrations. More notably, Ireland is a leading centre for aviation leasing structures with over 3,000 aircraft and aircraft engines under management, worth an estimated €83 billion, and a capital for securitisation structures in aviation finance. The leading international leasing companies have been attracted to Ireland because of the 12.5% corporate tax on profits and experienced services infrastructure.
Malta offers big value, albeit not well known in the international aviation industry. We have an attractive personal and corporate tax regime, a full imputation system of corporate tax under which shareholders can benefit from a 6/7ths tax refund on dividends, an excellent holding regime, VAT exemptions for lessors and operators and a very wide network of double taxation treaties. It is an EU member and is fully compliant with the safety and supervisory standards of the European Aviation Safety Agency, has a central geographical location, a strong legal framework and a pragmatic, but flexible, aviation authority. While there has recently been an encouraging increase in the interest in aircraft registrations in Malta and international lessors and finance parties have been setting up Maltese structures for their operations, the potential of the local aviation sector has remained mostly untapped so far.
With the reform presently underway the local aviation sector will be better poised to truly take off and benefit numerous sectors of our economy. The locally, MCAST-trained workforce employed directly in aviation maintenance has increased to 510, with around another 100 joining Lufthansa Technik Malta by the end of the year at its new wide-body aircraft maintenance facility being inaugurated on the 4th April. Taking inspiration from the Irish experience, numerous synergies can also be created in the financial services sector.
Government recognises that the Department of Civil Aviation requires reorganisation to generate increased capacity without compromising Malta's safety record, airport parking and hangar space is limited and amendments to our laws are necessary to make for a clearer protection of security over aircraft assets registered in Malta, amongst others.
This is the time for Malta to rise to the challenge.
Dr. Joseph Ghio is a senior associate at Fenech & Fenech Advocates practicing in aviation and financial services law.
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.
