The success story of the Maltese Maritime industry has led many to believe that the Aviation sector in Malta has what it takes to follow a similar path. Without a shadow of a doubt, Malta stands a great chance of becoming a top aviation jurisdiction within Europe and the rest of the world. Not only has Malta been an excellent transit destination due to its geographical location in the Mediterranean partially connecting Europe to its African and Middle-Eastern counterparts, but its excellent legal and tax regimes, EU membership and bi-lingual dialect has transformed Malta into a highly attractive jurisdiction for various stakeholders to seriously consider setting up their aviation headquarters and operations in Malta, including Maintenance Repairs & Overhaul Facilities (MROs), back up offices, insurance companies and any other business related to the aviation sphere.  

Apart from the fact that it is very speedy to create a Malta based company, Malta’s corporate tax system is also one of the main reasons that attracts foreign business towards the island. The Maltese tax-refund mechanism works in such a way whereby non-resident shareholders, who are taxed at 35%, will be entitled to a 30% refund which leaves the shareholder paying simply 5% tax on income received from dividends by a Malta tax resident company. For this reason, Malta has seen an exponential increase in the number of Air Operator Certificates being issued to Malta based companies.

The Irish aviation giant ‘Ryanair’, is in the process of setting up shop in Malta with its new subsidiary airline, ‘Malta Air’. Such an announcement may be considered to be a great leap forward for the local aviation industry as it confirms the exponential growth within the sector. Ryanair’s decision to set up base in Malta is by far no coincidence, but rather the result of an excellent legal framework and regulatory regime that Malta has adopted over the years. The implementation of the Aircraft Registration Act (ARA) in 2010 together with the accession and ratification of the ‘Cape Town Convention on International Interests in Mobile Equipment and its Aircraft Protocol’ saw a rapid increase in the amounts of aircrafts being registered in Malta and all for a good reason.

The ARA brought with it a multitude of benefits, some of which include; A) The possibility of having your aircraft registered whether it is under construction, under some form of temporary title or whether it is under a conditional sale or title reservation agreement by the buyers.  B) The concept of fractional ownership meaning that an aircraft may be co-owned by more than one owner. C) The possibility of registering an aircraft under the terms of a beneficial trust. D) The possibility of registering a mortgage over an aircraft whereby the aircraft can act as a security for the debts in a financing transaction. In this regard, Maltese law provides for very powerful rights in favour of creditors who have an aircraft mortgage registered under their name.

On the other hand, Malta’s accession to the Cape Town Convention (which is also reflected through the provisions of our local law) has brought with it a wave of change particularly when it comes to securing creditors rights in various finance transactions. An aircraft lessor under a leasing agreement, a conditional seller under a title reservation agreement or a chargor under a security agreement may register an international interest in an airframe, engine or helicopter in the International Registry for mobile assets. These security interests are of importance as they are given preferential treatment and rank prior to national security interests. The Convention also provides some very important rights of enforcement and self-help re-possession remedies, including taking possession or control of the aircraft or collecting the income or profits arising from the management or use of the aircraft.     

All of this confirms the creditor-friendly approach that our legal and regulatory regime have adopted over the years and which has been of great success. Having such a creditor friendly based jurisdiction mitigates financial risk and in turn lowers the interest rates charged resulting in the reduced financing costs borne by purchasers or operators in Malta. This alone is one of the main features in our law which increases the ‘show of trust’ in Malta’s potential as true aviation hub.

Article written by Dr Sean Xerri de Caro.

For more information on how to set up your aviation business in Malta, kindly contact Dr Robert Tufigno on rtufigno@gtgadvocates.com and Dr Sean Xerri de Caro on sxerridecaro@gtgadvocates.com.

This article is not intended to impart legal advice and readers are asked to seek verification of statements made before acting on them.