The Firm assists in all aviation law matters, in particular aircraft registration, leasing and finance, and the carriage of goods and passengers by air.
Registration of aircraft is governed by a new law: the Aircraft Registration Act, 2010.
The following persons are eligible to register an aircraft in the Maltese Aircraft Register:
- The Government of Malta;
- A citizen of Malta, or a citizen of an EU or an EEA State, or Switzerland, and having a place of residence or business in Malta, the EU, the EEA or Switzerland;
- An undertaking formed under the laws of Malta, the EU, the EEA or Switzerland and having their registered office, central administration and principal place of business within Malta, the EU, the EEA or Switzerland, whereof not less than 50% of the undertaking is owned and effectively controlled by the Government of Malta, a Member State of the EU, or by persons referred to in (2) above, whether directly or indirectly through one or more intermediate undertakings;
- Where the aircraft sought to be registered in Malta is not engaged in air services, or is still under construction, the following person may also register the aircraft - A natural person who is a citizen of, or an undertaking established in, an approved jurisdiction, other than those mentioned above, provided it appoints a resident agent in Malta for the duration of the registry and (i) enjoys, to the satisfaction of the Director General, legal capacity to own or operate an aircraft in terms of the law under which it has been established or registered; (ii) complies with the requirements established under the Aircraft Registration Act, and any regulations made or guidelines issued pursuant thereto; (iii) satisfies the Director General that it can and will ensure due observance of the laws of Malta relating to civil aviation; and (iv) complies with the requirements applicable to an international registrant in terms of Part III of the Aircraft Registration Act.
An aircraft may be registered by persons acting in any of the following capacities:
(a) An owner of an aircraft who operates the said aircraft;
(b) An owner of an aircraft under construction, or temporarily not being operated, or managed;
(c) An operator of an aircraft under a temporary title;
(d) A buyer of an aircraft under a conditional sale, or title reservation agreement (or similar agreement) and who is authorised thereunder to operate the aircraft; or
(e) A trustee for the benefit of qualified persons.
Where an aircraft is registered by a registrant under article 5 (c) and (d), every person who holds any interest by way of ownership or title in the aircraft or a share therein may make a request in writing to the Director General of Civil Aviation to have his name, address and ownership interests or title noted in the certificate of registration.
With regard to an aircraft which is registered while it is still under construction, the certificate of registration expressly states that the aircraft is not permitted to operate until such time as it complies with the provisions of the applicable law.
The Aircraft Registration Act allows for the registration of aircraft engine, thus rendering scope for engine financing opportunities. Moreover, the Act allows joint or fractional ownership, so long as at least fifty per cent of the owners of the shares in the aircraft are eligible as qualified persons.
Registrants of private aircraft are not subject to the qualifying requirements of aircraft used for “air services”, which need to obtain a Maltese operating licence. In the case of private aircraft the Act provides for registration by international registrants.
“Air service” means a flight or a series of flights carrying passengers, cargo and, or mail for remuneration and, or hire as defined in Article 2(4) of Regulation (EC) No. 1008/2008 of the European Parliament and of the Council of 24 September, 2008, on common rules for the operation of air services in the Community.
Mortgages on Aircraft
Aircraft constitute a particular class of movables which are separate and distinct assets within the estate of their owners for the security of actions and claims to which the aircraft is subject. Moreover, in the case of bankruptcy and/or insolvency of the owner, all actions and claims, to which the aircraft may be subject, have preference on the said aircraft over all the other debts of the estate.
Under the Aircraft registration Act there is an enhanced protection for mortgagees by means of the fact that they are empowered to:
- a)Prohibit the creation of further mortgages, or the transfer of the aircraft, where it is stated in the instrument of the mortgage that it is prohibited to create further mortgages, or to transfer the aircraft, without the prior written consent of the mortgagee.
- b)Appeal to the Administrative Review Tribunal on the basis that the closure of the register by the Director General of Civil Aviation is not justified or that effective action has been taken to remedy the complaint and the Director General of Civil Aviation has failed to withdraw the order to cancel.
- c)In the case of default, (i) lease the aircraft so as to generate income therefrom; (ii) receive any payment of the price, lease payments, and any other income which may be generated from the management of the aircraft, and (iii) take possession of the aircraft or even sell the aircraft.
Accession to the Cape Town Convention
The provisions of the Cape Town Convention on International Interests in Mobile Equipment and its Aircraft Protocol have been implemented in the Aircraft Registration Act. This allows for the registration of international interests in the International Registry, which creates prior ranking of security interests. Thus, for example, an aircraft lessor under a lease agreement may now register an international interest in an airframe, aircraft engine or helicopter, in the International Registry for mobile assets.
Subject to special privileges listed in Articles 42 and 43 of the Aircraft Registration Act, the general rule is that an international interest ranks prior to national security interests.
Moreover, according to Article 30(5) where a creditor has registered an international interest in the International Registry, it is lawful for the debtor (being the registrant and, or the owner of the aircraft) to execute and file a prohibitory notice in favour of one or more creditors, in the form prescribed, which is entered in the Maltese Aircraft Register by the Director General of Civil Aviation
Malta’s ratification of the Cape Town Convention cross border financiers and aircraft lessors with the benefit of certainty of rights and remedies.
Income derived from the ownership, lease or operation of aircraft or aircraft engines used for international transport is considered to arise outside Malta for tax purposes, irrespective of the aircraft’s country of registration or whether the aircraft calls at, or operates from, a Maltese airport.
Moreover, the recent changes in the Maltese aviation legislation facilitated aircraft leasing. No withholding tax is payable on lease payments where the lessor is not a tax resident. Furthermore the Inland Revenue department has issued guidance on the tax treatment of finance leasing arrangements.
Where a finance leasing arrangement of aircraft forms a contract of hire purchase, a lease purchase agreement, an operating lease or similar arrangement, the Inland Revenue Department has decided that in such special case of the finance leasing of aircraft, the following tax treatment is to be adopted for each year for the duration of the finance lease:
- the lessor is charged to tax on the annual finance charge, namely the difference between the total lease payments less the capital element divided by the number of years of the lease;
- the lessee is allowed a deduction in respect of the (i) the finance charge; (ii) maintenance; (iii) repairs; and (iv) insurance;
iii. the lessee is allowed capital allowances in respect of the aircraft and the parties may not opt to shift the burden of wear and tear onto the lessor;
- where the lessee exercises an option to purchase the aircraft on the termination of the finance lease, and the lessor is not trading in the purchase and sale of aircraft, the purchase price received by the lessor shall be considered to be of a capital nature and no tax thereon shall be payable by the lessor.
VAT Treatment of Aircraft Leasing
The supply of aircraft for use by airline operators for reward, mainly for international transport of passengers and/or goods, is exempt (with credit) from Value Added Tax. The same principle applies for intra-community acquisitions and/or importation of aircraft. There is no exemption in the case of aircraft acquired for private that is non-business, purposes. Consequently, in such cases, VAT is deemed to be an unrecoverable cost.
In order to mitigate this, the Maltese VAT Department issued guidelines on the VAT treatment of the private leasing of aircraft. This forms the subject of another paper by Dingli & Dingli Law Firm.
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