Ship Management: Recent Legal Developments

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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.
New law introduced with the aim of attracting ship managers to set up in Malta. Legal Notice 128 of 2018 has added substance to the Maltese legal framework on ship management.
Malta Transport
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New law introduced with the aim of attracting ship managers to set up in Malta. Legal Notice 128 of 2018 has added substance to the Maltese legal framework on ship management.

Ship management is a major sector of the shipping industry with ship managers establishing themselves in a number of locations with notable ship management centres present in Cyprus, the Netherlands, Singapore and Hong Kong.

Ship management has been simply described as the function of taking care of a ship. It is generally carried out 'in house', that is by the ship owner or a member of the same ship owning group. However, it is also often undertaken by third party ship managers, which are the focus of this article.

Briefly, third party ship management is performed by professional undertakings which are completely independent from shipowners who wishing to outsource ship management functions. The typical management roles offered by ship managers may be broadly split into three main service areas – technical, crew and commercial management.

The services provided when offering technical management include ensuring compliance with flag state requirements and with the ISM and ISPS Code, making arrangements for and supervising the maintenance of the managed vessel and the supply of same with the stores and spares needed. Crew management services include the selection and engagement of crew, payroll, certification control, training as well as organising the transportation of the crew.

Despite the range of maritime services offered in and from Malta, the presence of third party ship managers in Malta is, so far, practically negligible. In order to attract ship managers to our shores, a comprehensive, stable and functional legal framework on ship management and on the formation, operation, regulation and taxation of ship managers is indispensable.

The news that the European Commission conditionally endorsed the Maltese tonnage tax system was therefore received with great enthusiasm. Following the Commission's decision on the 19th of December 2017, Malta published Legal Notices 127 and 128 of 2018 which amended, supplemented and reinstated its tonnage tax law previously regulated by Legal Notice 83 of 2010. Published on the 13th of April 2018 and effective on the 1st of May 2018, the new law, strives to ensure compatibility between the Maltese tonnage system and the European Union's rules on 'State Aid' and is being regarded as a positive development by the European Commission, Malta and the shipping industry.

As was the case with its predecessor, the scope of Legal Notice 128 of 2018 is not limited to ship owning activities – ship management and ship managers are also addressed. Ship management activities are now included in the tonnage tax system. Effectively this means that going forward, ship managers are permitted to pay a 'tonnage tax' which is equivalent to a percentage of the tonnage tax paid by the owners and/or charterers of the ships managed and this to the exclusion of the standard corporate tax levied under the Income Tax Act (Cap. 123 Laws of Malta).

Ship managers wishing to enter into the Maltese tonnage system must strictly satisfy a number of organisational and operational requirements. Some of these requirements are briefly discussed below.

For a start, it is only those ship managers that provide technical and/or crew management services that may benefit from the new law. Commercial management is not included.

From an organisational perspective, a ship manager 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).

In so far as operational requirements are concerned, at least two-thirds of the managed tonnage must be managed from within the EU or the EEA. Although it is not necessary for the vessels managed to be registered in Malta, the geographical location of the flag state of the managed tonnage is still taken into consideration, with Legal Notice 83 of 2018 requiring that a large part of the tonnage must be registered under an EU or EEA flag.

In order to place themselves within the new tonnage tax system, ship managers must firstly register with the Registrar-General of Shipping in Malta by submitting certain information including details on the managed vessels. Ship managers are further obliged to submit any other documentation requested by the Registrar-General for the purposes of satisfying the requirements of Legal Notice 128 of 2018 and to immediately inform the Registrar of any changes to the information and documentation submitted.

It is safe to say that the new law was introduced with the aim of attracting ship managers to set up in Malta. Legal Notice 128 of 2018 has added substance to the Maltese legal framework on ship management by, amongst others, creating an attractive fiscal regime for third party ship managers.

The success of attracting ship managers to Malta does not only depend upon the presence of a sound legal framework comprising a favourable fiscal system. Other factors including low operational costs, the expenses of relocating to Malta with regard to existing managers, political stability, the presence of a workforce versed in the ship management industry, the availability of related maritime services and an advanced infrastructure are just some of the matters that are likley to be considered by ship managers seeking to set up in Malta. Many strides need to be taken in order to establish Malta as a ship management hub. Nonetheless, the general view is optimistic and with coordinated efforts by local industry stakeholders wishing to build further on Malta's maritime expertise, there is no doubt that Malta has the potential to become an attractive choice for the ship management industry.

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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