MERCHANT SHIPPING (TAXATION AND OTHER MATTERS RELATING TO SHIPPING ORGANISATIONS) REGULATIONS

MATTERS RELATING TO SHIPPING ORGANISATIONS)

SUBSIDIARY LEGISLATION 234.43

MERCHANT SHIPPING (TAXATION AND OTHER

MATTERS RELATING TO SHIPPING

ORGANISATIONS) REGULATIONS

1st May, 2018

LEGAL NOTICE 128 of 2018.

(1)

The title of these regulations is the Merchant

Shipping (Taxation And Other Matters Relating to Shipping

Organisations) Regulations.

(2)

The purpose of these regulations is to provide for the

taxation and certain other matters relating to shipping organisations.

(Regulation 7)

Ancillary Activities

(1)

Ancillary activities for the purposes of regulation 7(1),

shall be determined in accordance with the following

paragraphs.

(2)

Ancillary activities shall mean activities related to a

tonnage tax ship as provided for in paragraphs (3) to (4)

of this Schedule, other than commercial activities which

form part of the operation of a port carried on for profit,

that have a substantial connection with the shipping

organisation’s shipping activities or, where the licensed

shipping organisation is a member of a group, the

shipping activities of another qualifying licensed shipping

organisation in that group.

MATTERS RELATING TO SHIPPING ORGANISATIONS)

(3)

The following ancillary activities benefit, provided that

the gross revenue from those activities is less than fifty

per cent (50%) compared to the gross revenue from the

licensed shipping organisation’s shipping activities,

which threshold shall be applied on a ship-by-ship basis

(a)

the carriage of passengers or cargo otherwise than

on board a tonnage tax ship operated by the

licensed shipping organisation, where -

(i)

there is a single contract with the customer

for a journey which includes a voyage on the

tonnage tax ship, and

(ii)

the transport for the remainder of the journey

is purchased or obtained by the licensed

shipping organisation by provision which

would have been made as between

independent enterprises;

(b)

sales and facilities which are normally provided to

customers by seagoing passenger ships,

including -

(i)

the sale of alcoholic beverages, perfume and

tobacco, but not luxury goods,

(ii)

the exchange of amounts of different

currencies for personal expenditure;

(iii)

health and beauty and spa and wellness

services

(c)

administrative and insurance services which are

directly related to the carriage of passengers or

cargo, including under a contract described in

paragraph (a)(i);

(d)

the provision of holidays, sold to the customer

under a single contract, where -

(i)

part of the holiday is a voyage on a tonnage

tax ship operated by the licensed shipping

organisation, and the remaining part is land-

based (‘the land-based part’),

(ii)

the land-based part is purchased or obtained

by the licensed shipping organisation by

arm’s length provision, and

(iii)

the cost to the licensed shipping organisation

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of the land-based part in accordance with

sub-paragraph (ii) is less than one half of the

contract;

(e)

the loading and unloading of cargo carried on a

tonnage tax ship operated by the licensed shipping

organisation, and the provision by the licensed

shipping organisation of facilities used exclusively

for those purposes;

(f)

the consolidation or breaking of cargo carried on a

tonnage tax ship operated by the licensed shipping

organisation, immediately before or after the

voyage, where the activity is not haulage-related;

(g)

the temporary placement of cargo carried on a

tonnage tax ship operated by the licensed shipping

organisation, on or at the dockside, where the

activity is not part of a long-term storage operation;

(h)

the rental or provision to customers of containers for

goods to be carried on a tonnage tax ship operated

by the licensed shipping organisation;

(i)

the provision of excursions for passengers of a

tonnage tax ship operated by the licensed shipping

organisation, where any cabin for the passenger

remains available for exclusive use;

(j)

advertising and marketing, if these correspond to the

sale of advertising space on board tonnage tax ships.

(4)

The following ancillary activities benefit at the permitted

levels as follows -

(i)

betting or gambling facilities normally

offered to customers by seagoing passenger

ships for entertainment, and

(ii)

the sale to passengers on seagoing ships of

luxury goods of a kind normally offered to

such passengers,

Provided that the turnover from such

activities amounts to less than twenty-five

per cent (25%) of the turnover from the

licensed shipping organisation’s shipping

activities referred to in paragraph 3 of this

Schedule.

By virtue of sub-article (9) of article 84Z of the Act,

articles 85 and 85A of the Act shall cease to have effect.

(1)

For the purposes of these regulations and unless

the context otherwise requires –

"the Act" means the Merchant Shipping Act;

''dividend'' has the same meaning as is assigned to it by article

2 of the Income Tax Act;

"EU Maritime State Aid Guidelines" refers to the Community

Guidelines on State Aid to Maritime Transport as may be in force

from time to time;

"genuine shipping organisation" means a shipping

organisation which, has assumed risks and responsibilities related to

the operation of a tonnage tax ship or to the carrying out of shipping

activities;

"group" shall refer to

(a)

two or more shipping organisations which are

owned and controlled, directly or indirectly, as to

more than fifty per cent by the same persons; or

(b)

two or more shipping organisations which are

controlled directly or indirectly by the same parent;

''operation'' in respect of a tonnage tax ship includes the

operation of such ship in any shipping activities, whether under

charter or under any other commercial arrangement and "operator"

shall be construed accordingly

MATTERS RELATING TO SHIPPING ORGANISATIONS)

Provided that, for the purposes of these regulations, a

shipping organisation shall not qualify as the operator of a tonnage tax

ship where the ship has been chartered out by the said shipping

organisation on bareboat charter terms unless

(a)

the ship is bareboat chartered to a shipping

organisation forming part of the same group as the

aforementioned shipping organisation; or

(b)

the shipping organisation is a genuine shipping

organisation and demonstrates, to the satisfaction of

the Registrar-General, that the ship was bareboat

chartered due to short-term over-capacity and the

term of the charter does not exceed three (3) years.

Provided that, for the purposes of paragraph (b) above,

the percentage of net tonnage operated by the group on a bareboat

charter basis is below fifty per cent (50%) of the net tonnage operated

by the group.

Provided further that, for the purposes of paragraph (b)

above, the term ‘short-term over-capacity’ shall refer solely to ships

acquired (bought or chartered) by the shipping organisation for the

purposes of carrying out its own shipping activities and shall not

include any ships specifically acquired (bought or chartered) for the

purposes of chartering out on a bareboat basis,

"parent" shall refer to

(a)

a ‘parent organisation’ as defined hereunder; or

(b)

an undertaking that meets all of the following

characteristics

-

power over the said shipping organisation,

based on the current ability to direct the relevant activities

which significantly affect returns;

-

exposure, or right, to variable returns from

its involvement with the said shipping organisation; and

-

the ability to use its power over the said

shipping organisation to affect the amount of the person’s

returns.

"parent organisation" shall refer to an organisation which -

(a)

has a majority of the members’ voting rights in

another shipping organisation (a subsidiary

organisation); or

MATTERS RELATING TO SHIPPING ORGANISATIONS)

(b)

has the right to appoint or remove a majority of the

members of the board of directors or persons

entrusted with the administration of another

shipping organisation (a subsidiary organisation)

and is at the same time a member of that shipping

organisation; or

(c)

has the right to exercise a dominant influence on

matters relating to the strategic and/or commercial

management of a shipping organisation (a

subsidiary organisation) of which it is a member,

pursuant to a contract entered into with that

shipping organisation or to a provision in that

shipping organisation’s memorandum or articles of

association; or

(d)

is a member of a shipping organisation and controls

alone pursuant to an agreement with other members

of that shipping organisation (a subsidiary

organisation), a majority of members’ voting rights

in that shipping organisation; or

(e)

holds a participating interest in another shipping

organisation and actually exercises a dominant

influence over the shipping organisation (a

subsidiary organisation) or manages the subsidiary

organisation on a unified basis together with it;

"Registrar-General" shall have the same meaning as assigned

to it in the Act;

"ship" shall have the same meaning as is assigned to it in

article 2(1) of the Act and shall, to the extent that they are involved

in the international carriage of goods or passengers by sea in

accordance with the EU Maritime State Aid Guidelines and

provided that they satisfy the criteria set out in these regulations,

also include the vessels listed hereunder

(a)

cable laying ships;

(b)

pipe laying ships;

(c)

crane vessels;

(d)

research vessels; and

(e)

multi-purpose, break-bulk and other types of

support vessels

Provided that the following ships are excluded for

the purposes of these regulations

MATTERS RELATING TO SHIPPING ORGANISATIONS)

(a)

fishing and fish factory ships;

(b)

private yachts and ships used primarily for sport or

recreation;

(c)

fixed offshore installations and floating storage

units;

(d)

non-ocean going tug boats and dredgers;

(e)

ships whose main purpose is to provide goods or

services normally provided on land;

(f)

stationary ships employed for hotel and or catering

operations (floating hotels or restaurants);

(g)

ships employed mainly as gambling and/or casinos

(floating or cruising casinos);

(h)

non-propelled barges;

(i)

any other description of ship which may be

determined, from time to time, by the Registrar-

General, as not being engaged in the international

carriage of goods or passengers by sea.

''shipping activities'' means

(a)

the international carriage of goods or passengers by

sea in terms of the EU Maritime State Aid

Guidelines and such other activities that have been

approved or considered as eligible for tonnage tax

purposes by the European Commission;

(b)

such activities as are integral or directly linked to

the business of operating tonnage tax ships, when

carried out in conjunction with activities described

in paragraph (a) above;

(c)

ancillary activities qualifying in terms of regulation

7 hereof, when carried out in conjunction with

activities described in paragraph (a) above;

''shipping organisation'' shall have the same meaning assigned

to it in article 84Z(1) of the Act

Provided that for the purposes of these regulations, such

shipping organisation shall be an organisation duly organised and

existing under the laws of a Union State;

''ship manager'' means a shipping organisation which is

MATTERS RELATING TO SHIPPING ORGANISATIONS)

established in the Union that

(a)

has assumed responsibility for either or both of the

technical or crew management of a ship or ships

referred to in regulation 6(1)(b) hereof; and

(b)

complies with international standards and fulfils

requirements established under the law of the

European Union; and

(c)

satisfies such conditions as may be laid down by

the Registrar-General; and

(d)

specifically includes such activities among the

objects contained in its Memorandum of

Association; and

(e)

registers with the Registrar-General by

submitting to him in writing the following

particulars

(i)

the name of the organisation and a unique

identification number;

(ii)

the address of the registered office of the

organisation;

(iii)

the name, unique identification number and

tonnage of the ship or ships for which it has

assumed responsibility as set out above;

(iv) any other documentation that may be

required for the purposes of satisfying

compliance

with

the

respective

requirements of these regulations

Provided that the particular shipping

organisation shall notify the Registrar-General in

writing every time any alterations in such particulars

occurs;

''ship management activities'' means those activities carried

out by a ship manager and consisting in, but not limited to, the

provision of competent personnel to supervise the management and

general efficiency of a ship referred to in regulation 6(1)(b) hereof,

and/or the provision of other technical management services usually

performed by the ship manager as defined by the Baltic and

International Maritime Council (BIMCO) Standard Ship

Management Agreement, in its up-to-date version;

MATTERS RELATING TO SHIPPING ORGANISATIONS)

''tonnage tax ship'' means a ship that is declared to be a

tonnage tax ship by the Minister in terms of regulation 4 hereof;

''Union State'' means a Member State of the European Union

(including, for the avoidance of doubt, Malta) or of the European

Economic Area;

''Union ship'' means a ship registered under the laws of a

Union State and the terms ''Union flag'' and ''Union-flagged'' shall

refer to a ship registered in any such State

Provided that in the case of a ship registered in any

Union State other than Malta, the ship shall only qualify as a ‘Union

ship’ for the purpose of these regulations, if an amount equivalent to

the Malta tonnage tax is paid to the Registrar-General;

Provided further that relief shall be granted for any

tonnage tax imposed under the laws of such Union State in respect of

the said tonnage tax ship operated by the said shipping organisation

subject to an amount of minimum tonnage tax equivalent to twenty-five

per cent (25%) of the annual tonnage tax that would have been payable

had the ship been registered under Part II or IIA of the Act.

(1)

The Minister shall, with the concurrence of the

Minister responsible for finance, and subject to such conditions

deemed appropriate in line with these regulations, declare to be a

tonnage tax ship, a ship of any net tonnage, which is engaged in

shipping activities.

(2)

The Minister shall declare a ship not being a Union ship

that is owned, chartered, managed, administered or otherwise

operated by a shipping organisation to be a tonnage tax ship where

the strategic and commercial management of all ships owned,

managed or operated by the shipping organisation is actually carried

out from the Union and it is proved to the satisfaction of the Minister

that

(a)

the shipping organisation owns, manages or

operates at least sixty per cent (60%) of its total

tonnage under a Union flag; or

(b)

a percentage of the tonnage owned, managed or

operated by the shipping organisation is Union-

flagged and that the percentage of Union-flagged

tonnage that is owned, managed, administered or

otherwise operated by shipping organisations

established in Malta has not decreased on average

over a period of three years

MATTERS RELATING TO SHIPPING ORGANISATIONS)

Provided that, when a shipping organisation submits an

application in terms of sub-regulation (4), the Registrar-General may,

accept applications where the said applicable threshold is not less than

twenty-five per cent (25%)

Provided further that an amount equivalent to the

annual tonnage tax calculated by reference to rates stipulated in the

First Schedule to the Act is paid to the Registrar-General by the

respective shipping organisation in respect of such tonnage tax ship,

with relief being granted for any tonnage tax imposed under the

laws of a territory outside Malta relative to the said tonnage tax ship

operated by the said shipping organisation, subject to an amount of

minimum tonnage tax equivalent to twenty-five per cent (25%) of

the annual tonnage tax that would have been payable had the said

tonnage tax ship been registered under Part II or IIA of the Act.

(3)

For the purposes of sub-regulation (2), the percentage

of a shipping organisation’s total tonnage which is Union-flagged

shall be determined by expressing as a percentage the sum obtained

by dividing the aggregate net tonnage of Union-flagged tonnage tax

ships owned entirely, chartered, managed, administered or otherwise

operated by the shipping organisation at a particular date by the

aggregate net tonnage of all ships that are owned entirely, chartered,

managed, administered or otherwise operated by the shipping

organisation at such date.

(4)

For a declaration pursuant to sub-regulation (1) or sub-

regulation (2), the shipping organisation wishing to own, manage or

operate a tonnage tax ship shall apply to the Registrar-General in the

manner as he may determine, from time to time.

(5)

The Registrar-General shall, when and as often as he

deems necessary, give notice in writing to any person to furnish

him, within a reasonable time, information as may be deemed fit, for

the purposes of these regulations. Without prejudice to the

generality of the foregoing, such information may also include the

requirement to submit on an annual basis, such information relative

to the vessels operated by the shipping organisation as may be

deemed necessary in order to ensure that the particular vessels

qualify as tonnage tax ships.

(1)

Notwithstanding anything contained in the

Income Tax Act, or in any enactment replacing that Act, if the

condition contained in sub-regulation (3) hereof is complied with, and

provided that all relevant tonnage taxes are duly paid by the shipping

organisation as may be prescribed by regulations under the Act,

including, in the case of a ship operated under charter as referred to in

the relevant provisions of the Act, an amount paid to the Registrar by

the shipping organisation equal to the annual tonnage tax for that year

in addition to that paid by the owner

MATTERS RELATING TO SHIPPING ORGANISATIONS)

(a)

no further tax under the Income Tax Act shall be

charged or payable on the income of that shipping

organisation, to the extent that such income is

derived from shipping activities, and

(b)

no further tax under the Income Tax Act shall be

charged or payable on any income, profits or gains

of a shipping organisation derived from the sale or

other transfer of a tonnage tax ship which had been

acquired and sold whilst under the tonnage tax

system or from the disposal of any rights to acquire

a ship which when delivered or completed would

qualify as a tonnage tax ship

Provided that the activities and objects of the

organisation, where applicable, are restricted to such shipping

activities and related activities.

(2)

The distribution of profits derived from shipping

activities or from other transactions referred to in sub-regulation (1)

shall be exempt from tax under the Income Tax Act in the hands of the

shareholders

Provided that where the person in receipt of such dividend

is itself a company (hereinafter referred to as ‘the second company’),

any dividend paid to the members of the second company shall, to the

extent that such dividend is paid out of profits derived from shipping

activities or from other transactions referred to in sub-regulation (1),

not be charged to tax under that Act and where a member of the second

company is again a company, the provisions of this proviso shall,

mutatis mutandis, apply as though references to the shipping

organisation were references to the second company and as though

references therein to the second company were references to that

member, and the principle set out in this proviso shall continue to be

applied for as long as the profits derived from shipping activities are

distributed by way of dividends.

(3)

The condition referred to in sub-regulation (1)is that for

the year in respect of which exemption from tax is applied, separate

accounts were kept clearly distinguishing the payments and receipts by

the shipping organisation concerned in respect of shipping activities,

including the ownership, operation, administration or management of a

tonnage tax ship, and payments and receipts in respect of any other

business.

Furthermore, for the avoidance of doubt, it is hereby

clarified that in determining the chargeable income of any person, the

provisions of the Income Tax Act shall, mutatis mutandis, apply to any

income not falling within paragraph (a) of sub-article (1) including,

but not limited to, that all outgoings and expenses incurred by such

MATTERS RELATING TO SHIPPING ORGANISATIONS)

person during the year preceding the year of assessment shall be

deductable only to the extent to which such outgoings and expenses

were wholly and exclusively incurred in the production of the income

in terms of article 14 of that Act.

(4)

In the case of a shipping organisation whose activities

fall under these regulations, which has no income whatsoever, or

which has no income other than income from shipping activities, a

return shall be submitted to the Commissioner for Revenue and the

Registrar-General in such form set out in the relevant Merchant

Shipping Notice, by a person holding the warrant of a certified public

accountant and auditor under the Accountancy Profession Act, or by a

person holding the warrant of advocate in terms of the Code of

Organization and Civil Procedure in lieu of a tax return required in

terms of the Income Tax Management Act, and the relative provisions

of the Income Tax Management Act shall, for the purpose of these

regulations, be construed accordingly

Provided that where such person has income which is not

income from shipping activities, the provisions of this sub-regulation

shall not apply.

(1)

Any income derived by a ship manager from ship

management activities shall be deemed to be income derived from

shipping activities and shall be exempt from tax under the Income Tax

Act provided that

(a)

the condition contained in sub-regulation 5(3) is

complied with; and

(b)

the ship manager has paid to the Registrar-General

an annual tonnage tax to be determined as follows

(i)

in respect of any tonnage tax ship registered

under Part II or IIA of the Act, an amount

equivalent to twenty-five per cent (25%) of

the annual tonnage tax payable in respect of

the particular ship on the basis of the rates

stipulated in the First Schedule to the Act;

and

(ii)

in respect of any other ship not referred to in

paragraph (i) above, an amount equivalent to

twenty-five per cent (25%) of the annual

tonnage tax calculated by reference to the

rates stipulated in the First Schedule to the

Act which would have been payable had the

ship been registered under Part II or IIA of

the Act;

MATTERS RELATING TO SHIPPING ORGANISATIONS)

(c)

at least two-thirds of the tonnage of the ships to

which the ship manager provides ship management

activities is managed from the territory of the

Union;

(d)

the tonnage in respect of which the ship manager

provides ship management activities satisfies the

flag-link requirement as set out in regulation 4(2)

above; and

(e)

for the purposes of paragraph (d), the percentage of

a ship manager’s total tonnage which is Union-

flagged shall be determined by expressing as a

percentage the sum obtained by dividing the

aggregate net tonnage of Union-flagged ships in

respect of which the ship manager provides the ship

management activities as at a particular date by the

aggregate net tonnage of all ships in respect of

which the ship manager provides the ship

management activities at such date.

(2)

The provisions of sub-regulations 5(2) and 5(4) hereof

shall, mutatis mutandis, apply to a ship manager providing ship

management activities.

The provisions of the Act relating to the manner of payment and

collection of fees and to penalties imposed in case of default shall also

apply mutatis mutandis in respect of the annual tonnage tax payable by

ship managers providing ship management activities in terms of these

regulations.

(1)

The provision of ancillary activities linked to

maritime transport, may benefit under these regulations, as provided in

the Schedule to these regulations

Provided that revenues generated from such activities is

up to fifty per cent (50%) of the gross revenues generated from

shipping activities, which threshold shall be applied on a ship-by-ship

basis.

(2)

Notwithstanding the provisions of sub-regulation (1), any

profits generated from, the following ancillary activities may also

benefit under these regulations -

(a)

the embarkation and disembarkation of passengers

on a tonnage tax ship operated by the shipping

organisation;

(b)

sales and facilities which are normally provided to

customers by seagoing passenger ships, including -

MATTERS RELATING TO SHIPPING ORGANISATIONS)

(i)

the provision of food or drink for immediate

consumption,

(ii)

entertainment for which no additional fee is

charged, but not betting or gambling;

(c)

activities carried on by the shipping organisation in

relation to a tonnage tax ship operated by another

qualifying shipping organisation in the same group,

which would be shipping activities of the first-

mentioned shipping organisation if carried on in

relation to a tonnage tax ship operated by that

shipping organisation;

(d)

such other activities that in substance are similar in

nature to those listed above or have been approved

or considered as eligible for tonnage tax purposes

by the European Commission.

(3)

Revenues derived from the sale of goods or services on

board ships not customarily provided to passengers may not benefit in

terms of these regulations.

(1)

The provision of ocean towage services may

benefit from the provisions of these regulations provided that

(a)

the tug is a Union ship;

(b)

more than fifty per cent (50%) of the towage

activity effectively carried out by the tug

constitutes maritime transport. In this respect,

towage activities which are carried out inter alia in

ports, or which consist in assisting a self-propelled

vessel to reach port do not constitute maritime

transport for the purposes of this provision

Provided further that any waiting time shall be

proportionally assimilated to that part of total activity effectively

carried out by a tug which constitutes maritime transport.

(2)

The provision of dredging services may benefit

from the provisions of these regulations provided

that

(a)

the ship providing such services is self propelled

and is a Union ship;

(b)

the ship spends at least fifty per cent (50%) of its

yearly operational time in maritime transport which

includes time spent for travelling to the dredging

site located at sea and for carriage of the dredged

MATTERS RELATING TO SHIPPING ORGANISATIONS)

goods to the place of discharge; and

(c)

sub-regulation 5(1) above shall only apply in

respect of income derived from maritime transport

services.

The provisions of the External Transactions Act, or any

other enactment replacing that Act, shall not apply to any shipping

organisation, in relation to any transaction connected with the

ownership, operation, administration, management, purchase or

financing of a tonnage tax ship, or any other shipping activity, or

transaction ancillary thereto.

The concessions, exemptions, privileges and other

benefits granted or allowed by these regulations are so granted at the

option of the shipping organisation benefiting therefrom and any such

shipping organisation may, by notice in writing to the Registrar-

General, opt not to be entitled to any such concession, privilege or

benefit, which shall be thereby irrevocably waived.

For the avoidance of doubt it is hereby clarified that no

person shall receive any benefit from these regulations that exceeds

those allowed in terms of the Community Guidelines on State Aid to

maritime transport, including but not limited to Section 11 of the said

Guidelines.