The MFSAC Strategy Group, chaired by Joseph Zammit Tabona, has recently been focusing on the Maltese aircraft leasing industry. This industry presents further growth opportunities for the country in line with the Maltese Government’s policy for continued enhancement of the Maltese economy, in particular the financial services sector.
The National Strategy for the Financial Services Sector reflects the need to renew and energise the financial services industry in Malta, building on strong foundations and steady success. This is a complex vision, which requires the input and commitment of the Government and the regulating bodies, as well as the private sector.
An important part of the vision was identifying growth areas, in particular ones where Malta could become a centre of excellence, such as aircraft leasing and Family Offices.
Over the years, Malta has attracted several international players in the aviation industry such as aircraft maintenance and repair/overhaul activities, aircraft registration, aircraft charters, component manufacture and also aircraft leasing activities.
Malta is a ‘tried and tested’ jurisdiction for aviation activities with legislative and accounting frameworks, and commercial and infrastructural systems which are conducive to attracting further investment in the aviation industry.
Can Malta do more to attract further aviation business, including aircraft leasing?
MFSAC analysis on aircraft leasing in Malta
A recent detailed analysis of the Maltese aircraft leasing industry conducted by the MFSAC concluded that Malta has a competitive proposition when one considers the legal, fiscal and accounting frameworks applicable in Malta for this industry.
Naturally, there are other factors which would also have an even more important bearing on Malta’s competitiveness in the aircraft leasing industry, such as availability of financing, availability of qualified personnel specific for an aviation set-up, and space availability, among other things.
Legal, fiscal and accounting rules in Malta remain key to Malta’s efforts to develop further the aircraft leasing business, and of the aviation industry as a whole. However, the MFSAC also believes it is imperative that the country takes a holistic approach and that all stakeholders undertake initiatives in their respective fields to address any current lacunae, and where necessary, to improve Malta’s current aviation industry.
Some salient points raised by the MFSAC on the legal, fiscal and accounting frameworks
Malta’s legal, fiscal and accounting regulations are in general efficient and robust when applied in the context of aircraft leasing.
Legal framework
The MFSAC’s analysis concludes that the Maltese legal set-up is very healthy and strong in the context of the aviation industry.
One of the reasons for this is that Malta is rated as the highest achiever in terms of Cape Town Convention compliance. Indeed, the Maltese Courts have consistently interpreted and upheld the Convention in accordance with its terms, making Malta score very highly when it comes to the stability of interpretation of the Convention and the rights of lessors.
Other positive characteristics of the Maltese legal system include the fact that our company law is modelled on UK company law and hence applies similar principles of interpretation, the possibility to set up cell entities (thus segregating assets while using the same platform), the possibility to redomicile non-EU companies in and out of Malta, for example.
The main financial services sector regulator, the Malta Financial Services Authority, was an innovator when it came to the framework for protected cell legislation and over the years it has built an enviable cohort of experts in this field, which have so far mainly been applied to insurance.
More could be done
Recommendations by the MFSAC for improvements to the Maltese legal infrastructure include the introduction of facilitation measures relating to the enforcement of share pledges in Maltese aviation companies, and further facilitation measures relating to aircraft importation.
From a fiscal perspective, Malta provides certain attributes which may be considered to fit appropriately within the economic reality of aviation businesses. By way of example, there are no withholding taxes on outgoing payments, and there is the possibility for tax depreciation of the aircraft. Some of the fiscal measures apply to group entities: a group of companies may be taxed on a consolidated basis in the hands of the top company within the group.
Despite these numerous advantages, the MFSAC’s analysis identified certain areas in fiscal legislation which may be improved or developed further with possible consequent benefits for the aviation industry. These include the expansion o Malta’s double tax treaty network with key jurisdictions representing potential targets for aircraft leasing business and the possibility of extending Maltese incentive legislation to aircraft leasing companies.
If any such improvement were to materialise, the Maltese government should be able to sustain better the aviation industry in a similar manner to the way it supports manufacturing and other economic sectors that are key to Malta’s development.
Accounting framework
The default accounting framework in Malta is Generally Accepted Principles for Small and Medium Entities (GAPSME) which is modelled on International Financial Reporting Standards (IFRS) for SMEs. However, for entities that exceed certain statutory thresholds or prefer to adopt a more recognised international framework, then ‘IFRS as adopted by the EU’ would apply. This means that Malta’s accounting rules follow international accounting principles, and this in itself assures consistency, comparability, and relevance.
The next steps
While the MFSAC will continue to focus on this important industry and ensure that recommendations reach their final destination, strengthening this sector cannot be solely an isolated effort by the MFSAC.
The country needs to continue bringing stakeholders together to discuss and devise a strong and challenging vision for the aviation industry, to come up with innovative ideas to address challenges, to adjust the vision as things progress and change to swiftly apply propositions that can take the Maltese aviation business to a higher dimension.
This article was first published in The Corporate Times