MALTA Law and Practice Contributed by: Joseph Ghio, Fenech & Fenech Advocates
1. Aircraft and Engine Purchase and Sale 1.1 Sales Agreements 1.1.1 Taxes/Duties Payable Upon Execution of the Sales Agreement VAT According to the Fifth Schedule to the VAT Act, the supply of aircraft destined to be used by airline opera - tors for reward chiefly for international transport of passengers and/or goods is exempt from value-added tax. Stamp Duty An aircraft or any part thereof is not a chargeable asset for the purposes of the Duty on Documents and Trans - fers Act (DDTA) and, accordingly, the transfer of an aircraft or any part thereof falls outside the scope of the DDTA. Conversely, and with reference to the sale of an ownership interest in an entity that owns an air - craft or a part thereof, the DDTA does bring to charge the transfer of marketable securities, as defined at the rate of 2% subject to any available exemptions. Income Tax and Capital Gains Tax An aircraft, or part thereof, does not fall within the list of chargeable assets for capital gains tax purposes and, accordingly, assuming that an aircraft, or a part thereof, is booked as a fixed asset for accounting pur - poses, the transfer of said assets would fall outside the scope of capital gains tax in Malta. Where a Mal - tese entity owns an aircraft or part thereof, which is booked as a current asset for accounting purposes (ie, “stock in trade”), the revenue generated from the transfer of said asset would be deemed as income and would be subject to tax in Malta. The Income Tax Act (ITA) brings to charge an exhaus - tive list of assets that includes the transfer of securi - ties, as defined. For the purposes of the ITA, securities are “shares and stocks, and such like instruments that participate in any way in the profits of the company and whose return is not limited to a fixed rate of return […].” Therefore, the transfer of securities or an interest in a partnership (eg, owning an aircraft or part thereof) would be subject to capital gains tax in Malta, subject to any applicable exemptions.
1.1.2 Enforceability Against Domestic Parties If executed outside Malta and in a language which is neither English nor Maltese, it is advisable for a sale agreement to be translated, certified, notarised or legalised to be enforceable against a domestic party. 1.2 Transfer of Ownership 1.2.1 Transferring Title Under Maltese law, the act that constitutes “trans - ferring title” to an aircraft, engine or other installed parts is the private sale/purchase agreement entered into by the parties, the terms and conditions of which, together with any usages of trade, prevail over the provisions of the Maltese Civil Code. This agreement, which transfers the interest of the seller in the aircraft object to the buyer according to its terms, must: • be in writing; • relate to an aircraft object of which the seller has power to dispose; and • enable the aircraft object to be identified in con - formity with the First Schedule to the Aircraft Registration Act (the “Act”) which substantively reproduces the text of the Convention on Interna - tional Interests in Mobile Equipment (Cape Town, November 2001) (the ”Convention”) and the Proto - col to the Convention on International Interests in Mobile Equipment on Matters Specific to Aircraft Equipment (the “Aircraft Protocol”). The sale/purchase agreement is normally followed by a bill of sale drawn up for the purpose of recording the transaction contemplated by the agreement between the parties. Provided they belong to the same transferring owner, the sale/purchase agreement would extend to include all installed parts, such as an APU, unless otherwise specified in the agreement. The sale of the ownership interest in an entity that owns an aircraft or engine will be recognised for what it is: a change in the shareholders of the company owning the asset and by implication a change in the beneficial ownership of the asset.
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