Managing tonnage tax

The shipping industry and its related activities are generally in good shape worldwide. A high demand for cargo space and strong international investment in new vessels led to an above average growth over the last few years. Particularly in Asia the shipping industry has developed a strong base, while Europe is trying to maintain its position. In this respect favourable tax and other incentives play an important role. One of the most important incentives has been the introduction of the favourable tonnage tax principle. Most European countries implemented a tonnage tax regime or other favourable tax regimes. The main advantage of the tonnage tax regimes is the very low effective tax rate of sometimes less than 1%, when the shipping business is doing well. Tax payable is based on the registered tonnage of a vessel, multiplied by a fixed amount of deemed profit per ton, instead of the actual accounting profits from the exploitation of a vessel. Nevertheless, the regimes differ in detail in calculation methods and concerning qualifying activities, ownership, lock up period, capital gains, flag requirement and management requirements. In the European Union, tonnage tax regimes are implemented in Belgium, Cyprus, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Malta, the Netherlands, Norway, Poland, Spain, Sweden (presumably sometime in 2008) and the UK. Only certain shipping activities qualify for a tonnage tax regime. Most tonnage tax regimes are applicable to ‘maritime transport’: the transport of goods and persons by sea in international traffic. Under some tonnage tax regimes towage, dredging and/or ship management activities may also qualify. To qualify for a tonnage tax regime a shipping company must have a certain degree of ownership regarding the vessel. The required degree of ownership differs between the different tonnage tax regimes.

How PwC can help you

Your decision on the most suitable tonnage tax model plus how and where to locate your (European) shipping activities will depend on the circumstances and your activities. And usually it will be based on a combination of the tonnage tax regime, ship financing, freight taxes, wage cost deduction for seafarers and the general tax system. Our PwC network of highly experienced and dedicated shipping experts can assist you in deciding how to structure your shipping business and advise companies with the selection of the most appropriate tonnage tax and other favourable tax regimes.