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31 January 2023

Listen: The Regulation Of The Maritime Industry In Malta (Podcast)

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Ganado Advocates

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Ganado Advocates is a leading commercial law firm with a particular focus on the corporate, financial services and maritime/aviation sectors, predominantly servicing international clients doing business through Malta. The firm also promotes other areas such as tax, pensions, intellectual property, employment and litigation.
During the political administration lead by former Prime Minister George Borg Olivier, the Attorney General Edgar Mizzi had drafted the Merchant Shipping Act...
Malta Transport
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In the latest episode of the ‘Ganado Meets Strategic Leaders' podcast, Max Ganado meets with Lino Vassallo, former Registrar-General of Shipping and Seamen, for an insightful discussion about the regulation of the maritime industry in Malta since the 1970s.

The Introduction of the Merchant Shipping Act

During the political administration lead by former Prime Minister George Borg Olivier, the Attorney General Edgar Mizzi had drafted the Merchant Shipping Act, which was very much based on the United Kingdom's Merchant Shipping Act of 1894. Vassallo notes that the similarity between both Acts was comforting to the legal minds in Malta at the time, as they were already accustomed to the United Kingdom's Merchant Shipping Act.

The Merchant Shipping Act was then passed by Parliament in 1973, while Dom Mintoff was Prime Minister of Malta. Despite both Ganado and Vassallo acknowledging that this move was not in-line with Mintoff's vision, given his inward-looking view in terms of the economy; Vassallo suspects that this decision could have been due to Mintoff's close relationship with the first president of Cyprus, President Makarios III. Given that Cyprus had already implemented a similar act in their legislation, Vassallo speculates that this could have left a favourable impression on former Prime Minister Dom Mintoff.

Discriminatory tax exemptions in the Merchant Shipping Act

Although the text of the Merchant Shipping Act presented to Parliament was similar to that which was previously drafted, it contained an important difference. The text had previously contained a provision which catered for the possibility of tax exemption for ships which were over 4000 Net Tonnes. However, the Act presented to Parliament expanded the applicability of this provision to ships which were over 1000 Net Tonnes.

As a young lawyer during the time of the Merchant Shipping Act's enactment, Ganado had noted that this exemption would not be applicable to existing Maltese-flagged vessels, as even the larger Maltese-flagged vessels were all under 1000 Net Tonnes, and this was a way to make sure maltese operators do not get tax exemptions. Vassallo notes that despite the inapplicability of the tonnage tax provision to most Maltese-flagged vessels, the Merchant Shipping Act introduced another tax exemption for vessel owners who would employ Maltese seafarers; whereby they would be exempted from paying tax on these seafarers. Conversely, foreign seafarers working on Maltese-flagged vessels were taxed. It is worth noting that although the traditional model of tax exemptions tends to exempt foreigners over locals, this latter exemption acted as an incentive towards locals instead.

The Growth in Maltese-flagged Ships: Strategic Changes

Ganado explains that in 1972, the number of ships registered in Malta was quite small and it was only after 1984 that the Maltese registry started to see a growth in numbers. He attributes this growth to the decision taken by former Prime Minister Karmenu Mifsud Bonnici, to remove the 8% interest rate on loans to ships, as this limitation was acting as an obstacle for ship-owners, who needed bank finance, to register their vessels in Malta. In  the early1990s the country saw another influx of Maltese-flagged vessels. However, due to this sudden increase, various administrative issues started to appear. Both Ganado and Vassallo also acknowledge the early efforts put in by Maltese firms, such as Gauci-Maistre and Sullivan/Sorotto, to attract vessel-owners to Malta.

The Sinking of MV Erika: A Wake-Up Call

There was a time in our shipping history where Malta was accepting ships which may have been too old, or tankers which ran a risk of pollution. Following the sinking of the Maltese-flagged tanker Erika on 12 December 1999, and the resulting oil spill in French waters, the Maltese shipping industry was made aware of the fact that one cannot grow a business without the ability to properly regulate it. It is not enough to legislate for a regulator, but one must also ensure that such regulator has enough resources to manage the risks in his domain. Following the MV Erika incident, both Ganado and Vassallo note that there was a concerted effort to intervene and be more strict with those vessels being registered in Malta.

The Interplay between Maltese Politics and the Merchant Shipping Act: A Product of Cooperation

The Merchant Shipping Act can be described as a success story which was brought about through cooperation amongst various governments and it cannot be attributed to one political party; as ultimately, it was drafted by one political party and brought into the daylight by a different party. Lino Vassallo believes that the Merchant Shipping Act had, both the advantage and blessing, of knowing no political parties.

The ‘Malta Maritime Authority' (MMA) commenced operations on January 1st, 1992, by virtue of the Malta Maritime Authority Act of 1991, in order to give tools to the Merchant Shipping Directorate to be able to function. Ganado and Vassallo acknowledge that the MMA is a prime example of how an authority was created which helped to solve the problem of resources and worked on a strategic vision to deal with the issues facing the maritime industry properly.

When asked if Malta was successful in designing an apolitical strategic group which helps our country in taking decisions without having negative political divisions, Lino Vassallo replied that: “There are 2 major political parties; but we cannot have 2 of everything. We cannot have an expert in something from one party and an expert from another party […] That's why you need to have these apolitical groups, who continually work and recognise each other's work. We have to get rid of this mentality that something which was done by a predecessor is bad.”

The Industry's Future: Is the Industry open to Strategic Changes?

With the increasing transparency requirements, following Malta's greylisting (and subsequent removal) by the FATF, Ganado notes that the concept of allowing international companies to be owners or operators of Maltese-flagged vessels may need to be reviewed.  A contradiction may be developing whereby these international operators are coming from a country which is not up to standard of the FATF.  As a country subscribing to good transparency standards we need to ensure that foreign companies using Malta will not undermine that position as that will continue to damage our reputation.

The article was first published in the Times of Malta (30 January 2023).

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.

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