In 2012, the European Commission opened an investigation regarding the Maltese tonnage tax scheme to examine its compatibility with EU State aid rules. With the recent decision, the Commission endorses the Maltese scheme, subject to the amendments introduced by Malta.

Namely, the Commission found certain features of the original scheme, such as tax exemptions applied to Maltese residents and the broad scope of the scheme extending to vessels not carrying out maritime transport activities, to oppose to EU State aid rules.

Thus, Malta committed to proceed to a number of changes to its scheme, in order to prevent any discrimination between shipping companies and to avoid undue competition distortions.

Particularly, Malta will restrict the scope of the scheme to maritime transport and remove tax exemptions for shareholders which constitute State aid.

Under the current Maltese scheme, a shipping company is taxed based on the ship's net tonnage, and not the actual profits of the company. In particular, tonnage taxation is applied to a shipping company's:

  • core revenues from shipping activities, such as cargo and passenger transport,
  • certain ancillary revenues that are closely connected to shipping activities (which are, however, capped at a maximum of 50% of a ship's operating revenues),
  • revenues from towage and dredging subject to certain conditions.

In order for a shipping company to benefit from the scheme, an important part of its fleet must fly the flag of an European Economic Area Member State.

Addition, any new entrant to the scheme must have at least 25% of its fleet subject to tonnage tax with an EEA flag.

The Commission after assessing the new measures under EU State aid rules, it concluded that the altered Maltese scheme complies with EU State aid rules, as the tax relief granted is an appropriate instrument to address global competition and will provide incentives to maintain maritime jobs within the EU, while also preserving competition within the EU Single Market.

Commissioner Margrethe Vestager, in charge of competition policy, stated: "Tonnage tax systems are meant to promote the competitiveness of the EU shipping industry in a global market without unduly distorting competition. I am pleased that Malta committed to adapt its tonnage tax system to achieve this. Moreover, by encouraging the registration of ships in the EU, the scheme will enable the European shipping industry to keep up its high social and environmental standards”.