Aviation
Allowances and Benefits
Capital Allowances
Accelerated depreciation allows larger portions of the depreciation value to be claimed early in the depreciation cycle, resulting in larger deductions for a shorter depreciation period. Accelerated depreciation can reduce costs during a company’s startup years. The increased deductions created by accelerated depreciation allow companies to defer a portion of their tax liability. To this end, the minimum periods for tax depreciation of aircraft have been reduced via the Deduction for Wear and Tear of Plant and Machinery (Amendment) Rules, 2010.
Prior to the introduction of these rules, the minimum period for aircraft wear and tear was 12 years. With the enforcement of the rules, aircraft depreciation for tax purposes will be reduced to the following timeframes:
Aircraft Airframe
6 years
Aircraft Engine or Airframe Overhaul
6 years
Aircraft Engines
6 years
Aircraft Interiors and Other Parts
4 years
Fringe Benefits Exemption
The Fringe Benefits (Amendment) Rules, 2010 also introduce an outright exemption from Malta tax attributable to the taxation of fringe benefits. This exemption applies to the private use of an aircraft by non-resident employees or officers, companies or partnerships whose business activities include the ownership, leasing or operation of aircraft or aircraft engine used in the international transport of passengers or goods.
Investment Tax Credits
A person that carries on a trade or business consisting of the repair, overhaul or maintenance of aircraft, engines or equipment incorporated or used in such aircraft may benefit from investment tax credits. Such tax credits are calculated either as a percentage of:
- qualifying expenditure; or
- wage costs for jobs directly created by the project.
| Size of Undertaking | % of Qualifying Expenditure / Wage Costs |
|---|---|
| Small | 50% |
| Medium | 40% |
| Large | 30% |
The Malta tax credit is credited against the tax due in Malta. Moreover, unutilised investment tax credits may be carried forward against tax due in subsequent years.
Such incentives led to Maintenance, Repair and Overhaul (MRO) leaders setting up substantial facilities on the island, employing hundreds of technicians and encouraging the relocation of related aviation service companies to Malta.
Aircraft for Private Use
Aircraft used for private purposes, should, by way of general principle, not generate income and hence should give rise to no Malta tax implications.
A payment made to a Maltese vendor for the alienation of aircraft, should only be taxable in Malta if such vendor is carrying on a trading activity. In case of payment made to a foreign vendor, such payment should only be taxable in Malta if vendor is in the business of sale of aircraft and is carrying on a trading activity in Malta.
