Post on 10-Jun-2018
Transportation & LogisticsInternational Tax
Choosing a profitable coursearound the globe*Corporate taxation of the global shippingindustry
*connectedthinking
PricewaterhouseCoopers provides sector-specific services in the fields ofAssurance, Tax & HRS and Advisory. Our objective is to help our clients improvetheir operational agility – not only as a service provider but also as a businesspartner. We give practical advice, identify opportunities and suggest innovativesolutions: with a result-driven focus and often from a surprising perspective. Wedo this with some 4,800 colleagues in the Netherlands and more than 155,000people in 153 countries around the world on the basis of our ConnectedThinking philosophy. We serve large national and international companies aswell as governments, not-for-profit organisations and private companies.
‘PricewaterhouseCoopers’ refers to the network of participating member firmsof PricewaterhouseCoopers International Limited. Each member firm is aseparate and independent legal entity.
PricewaterhouseCoopers 3
Foreword
Nobody can escape the reality of an increasingly globalising world. Large numbers of vessels sail the world'soceans every day, transporting vast quantities of goods of all kinds to and from places around the globe. This ledus to conclude in our 2007 shipping industry brochure that the shipping industry is in good shape. Having grownaccustomed to double-digit annual volume growth and strong freight rates, the sudden worldwide economicdownturn that started in 2008 has shocked the shipping industry.
The changing economic circumstances are forcing shipping companies to take a critical look at their businessmodel. In order to survive a period of reduced demand for shipping volume, the shipping industry will have toprove its flexibility.
For many countries, the shipping industry is of great importance. Therefore, tax incentives are used to stimulateinvestment in this sector. Especially with a rapidly changing business climate, choosing the optimal tax regimefor your organisation is more important than ever.
In order to be of assistance to you, we have compared the tax regimes of the countries most important for theshipping industry. This brochure gives you a description of the different ways the shipping industry is taxedaround the world.
As always, periods of economic downturn are not only full of challenges, but also of opportunities. After all, it isin difficult times when the most flexible and creative companies can gain market share and prove they aresuperior in their industry. We are confident that the current economic crisis will not mark the end of globalisationor world trade. In the long term, the outlook for the shipping industry is very positive. New corporate strategiesand processes are required to deal with an industry which is being reshaped through market consolidation andshifts in the balance of world trade. Sustained profitability in many sectors, increasingly international operationsand ever more sophisticated tax authorities are leading shipping companies to look at effective ways to aligntheir corporate, operational and tax structures.
PricewaterhouseCoopers can help you to optimise your worldwide tax position by taking a global view of yourbusiness and finding the most appropriate tonnage tax and other favourable tax regimes for your business.
Socrates Leptos-BourgiGlobal Shipping Industry Leader
"In a crisis, be aware of the danger, but recognise the opportunity"John F. Kennedy
Choosing a profitable coursearound the globe
4 Choosing a profitable course around the globe
Key contacts
Jeroen Boonacker+31 10 407 53 30jeroen.boonacker@nl.pwc.com
Robbert Jan Vrugt+31 10 407 6074robbert.jan.vrugt@nl.pwc.com
Victor Palm+31 10 407 65 71victor.palm@nl.pwc.com
Shipping experts
Antigua and BarbudaCharles Walwyn+1 268 462 3000charles.walwyn@ag.pwc.com
FinlandMirva Laaksonen+ 358 9 22 80 12 62mivra.laaksonen@fi.pwc.com
IrelandDeirdre Keegan+353 1 79 26 167deirdre.keegan@ie.pwc.com
BelgiumRene Willems+32 47 560 24 30rene.willems@pwc.be
FrancePhilippe Willemin+33 4 91 99 30 00philippe.willemin@fr.pwc.com
JapanKan Hayashi+81 3 5251 2400kan.hayashi@jp.pwc.com
BermudaPeter Mitchell+1 441 299 7101peter.c.mitchell@bm.pwc.com
GermanyWolfgang von Hacht+49 40 63 78 13 17wolfgang.von.hacht@de.pwc.com
MalaysiaTheresa Lim+60 3 2173 1583theresa.lim@my.pwc.com
BulgariaTania Pavlova+359 2 91 003tania.pavlova@bg.pwc.com
GreeceTheodoros Anthropopoulos+30 21 06 87 45 64theodoros.anthropopoulos@gr.pwc.com
MaltaNeville Gatt+356 25 64 67 11neville.gatt@mt.pwc.com
CyprusCleo Papadopoulou+357 25 55 52 30cleo.papadopoulou@cy.pwc.com
Hong KongAlan Ng+852 2289 2828alan.ng@hk.pwc.com
NetherlandsJeroen Boonacker+31 10 407 53 30jeroen.boonacker@nl.pwc.com
DenmarkBo Schou-Jacobsen+45 39 45 36 39bo.schou-jacobsen@dk.pwc.com
IndiaAmrit Pandurangi+91 11 4135 0505amrit.pandurangi@in.pwc.com
Netherlands AntillesRene Kempkes+599 9 430 0010rene.e.kempkes@an.pwc.com
EstoniaPeep Kalamäe+372 6141 976peep.kalamae@ee.pwc.com
ItalyLuciano Festa+39 65 70 25 24 65luciano.festa@it.pwc.com
NorwaySvein T. Sønning+47 95 26 10 71svein.t. sonning@no.pwc.com
PricewaterhouseCoopers 5
PanamaOrlando Palma+507 206 9200orlando.palma@pa.pwc.com
SingaporeHo Mui Peng+65 6236 3838mui.peng.ho@sg.pwc.com
TaiwanYishian Lin+886 2 2729 6682yishian.lin@tw.pwc.com
PhilippinesMalou P. Lim+63 2 8452728malou.p.lim@ph.pwc.com
South AfricaTerry McCarthy+27 (31) 250 3875terry.p.mccarthy@za.pwc.com
TurkeyCenk Ulu+90 212 355 58 52cenk.ulu@tr.pwc.com
PolandAndrzej Jacek Jarosz+48 61 850 51 51andrzej.jarosz@pl.pwc.com
Republic of Korea (South Korea)Jung-Il Joo+82 2 709 0722jung-il.joo@kr.pwc.com
United KingdomChistopher Goddard+44 12 93 56 66 86christopher.goddard@uk.pwc.com
RussiaNatalia Kuznetsova+7 495 967 6271natalia.kuznetsova@ru.pwc.com
SpainOscar Alonso Albarrán+34 91 568 42 76oscar.alonso@es.landwellglobal.com
United StatesAndre Chabanel+1 973 236 4549andre.chabanel@us.pwc.com
Saint LuciaRichard Peterkin+1 758 456 2600richard.n.peterkin@lc.pwc.com
SwedenSven Erik Holmdahl+46 31 793 14 14sven-erik.holmdahl@se.pwc.com
PricewaterhouseCoopers has established a European and Global Shipping Network of industry experts. Within this network, adedicated team of assurance, tax and advisory professionals provide advice and support to businesses like yours. Throughour network of local specialists PricewaterhouseCoopers can offer the solutions needed to manage your business on a localand global basis. The Shipping Network has strengthened its commitment to exchange experience through our globaldatabases and regular meetings, allowing all members to share knowledge and find solutions that fit your needs. No matterwhere you are navigating, PricewaterhouseCoopers has a Shipping Team ready.
Contents
1 Introduction 8
2 Tonnage tax regimes 10
Tonnage Tax models 14
Comparison 17
3 Shipping incentives regimes 22
4 Tax efficient regimes 26
5 Final remark 28
PricewaterhouseCoopers 7
1 Introduction
The aim of this brochure is to provide concise butintroductory information about the corporatetaxation of the shipping industry around the globe.We have distinguished three categories of taxregimes:1. tonnage tax regimes (tax regimes under which
the tax payable is based on the tonnage of avessel),
2. shipping incentives regimes (tax regimes withbeneficial tax provisions specifically aimed atthe shipping industry),
3. tax efficient regimes (tax regimes that make nospecific exemption for the shipping industry, butare generally characterised by their low effectivetax rate).
For each of these regimes we highlight the maincharacteristics, important similarities and differencesspecifically in relation to the shipping industry. We have
made a special effort to investigate whether and to whatextent general patterns can be found, and to analysewhether and how differences in taxation have consequencesfor the shipping industry. However, this brochure makes nopretention to be exhaustive.
Selection of countriesFor this brochure, the selection of the countries that areincluded was made on the basis of three criteria:1. the importance of a country for the shipping industry,
measured amongst others by the number of vesselsregistered in that country and the size of the domesticshipping industry,
2. the overall attractiveness of the tax regime,3. the availability of tax incentives specifically aimed at the
shipping industry.
Countries that meet at least two of these criteria are includedin this brochure. Countries are categorised, based on thecharacteristics of their tax regime specifically in relation tothe shipping industry.
1 Introduction
PricewaterhouseCoopers 9
The following countries are included in our brochure
1. Tonnage tax regimes 2. Shipping incentives regimes 3. Tax efficient regimesBelgium Hong Kong Antigua and BarbudaBulgaria Liberia BermudaCyprus Malaysia EstoniaDenmark Marshall Islands Saint LuciaFinland Netherlands AntillesFrance PanamaGermany PhilippinesGreece RussiaIndia SingaporeIreland TaiwanItaly TurkeyJapanMaltaNetherlandsNetherlands AntillesNorwayPolandRepublic of Korea (South Korea)South AfricaSpainSwedenUKUSA
2 Tonnage tax regimes
The main principle of tonnage tax is that thepayable tax is based on the tonnage of vesselsinstead of the actual accounting profits from theexploitation of a vessel. Various countries haveintroduced a tonnage tax regime.
The main advantage of tonnage tax regimes is the very loweffective tax rate of on average < 1%, when the shippingbusiness is doing well.
Most tonnage tax regimes are very much alike. In a tonnagetax regime the calculation of the profit is based on theregistered tonnage of the vessel, multiplied by a fixedamount of deemed profit per ton. All countries use adegressive scale system because smaller vessels tend to sailwith a higher profit margin per ton than larger vessels.Nevertheless there are still a number of differences betweenthe tonnage tax regimes of the individual countries. Theydiffer in detail in the method of calculating the deemed profitrelated to shipping activities and in the following respects.
Qualifying activitiesOnly certain shipping activities qualify for a tonnage taxregime. Most tonnage tax regimes are applicable to'maritime transport', the transport of goods and persons bysea in international traffic. Under some tonnage tax regimes,towage, cable- and pipe-laying, dredging and/or shipmanagement activities may also qualify.
OwnershipFor a shipping company to qualify for a tonnage tax regime,the company must have a certain degree of ownershipregarding the vessel. The required degree of ownershipdiffers between the different tonnage tax regimes. Theconditions in this respect usually refer to the following kindsof requirements:
� The shipping company must own a sea-going vessel orits interest in the vessel must be under a bareboat charterarrangement.
� The shipping company may be permitted to charter outvessels on time charter and in some circumstances onbareboat charter.
� The shipping company may include some time charteredvessels within tonnage tax.
Conditions regarding the level of ownership are typicallyused in combination with a requirement that a certain level ofmanagement activities with respect to the vessel is under-taken in the country where the company is located for taxpurposes. For most tonnage tax regimes strategic andcommercial management should usually be undertaken bythe vessel owning company itself.
Lock-up periodSome tonnage tax regimes are subject to a so-called'lock-up period', a period in which a taxpayer cannot switchregimes. Under most tonnage tax regimes it is ,for example,only possible to enter the tonnage tax regime for a fixedperiod of usually 10 years.
Capital GainsCapital gains on the sale of vessels and equipment related tointernational shipping activities are in some tonnage taxregimes not subject to ordinary taxation. In comparing thedifferent regimes, the main points to note are the following:� When entering the system, hidden reserves may or may
not be taxable and/or may result in deferred tax liabilities.� When leaving the system within the lock-up period,
penalties sometimes result in a direct tax liability.� When leaving the system after the expiry of a lock-up
period, different rules may be applicable regarding thevaluation of the vessel on the opening balance sheet.
2 Tonnage tax regimes
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Flag requirement� Most tonnage tax regimes demand a link between the
flag a vessel is flying and the place of residence of thecompany that owns the vessel. For example, for EUresident companies, in principle only EU and EEA flaggedvessels qualify for the application of the tonnage taxregime. However, many exceptions apply.
ManagementThe management requirements for applying a tonnage taxregime, differ per country. In general four types ofmanagement can be distinguished:� Strategic management: the decisions regarding
investments and disinvestments of a vessel and alsodecisions regarding the way other management activitiesare performed.
� Commercial management: activities regardingaffreightment, chartering and the carrying of cargo.
� Technical-nautical management: activities to keep thevessel in actual operation.
� Crew management, the hiring and setting to work ofseafarers.
For most tonnage tax regimes strategic and commercialmanagement should usually be exercised by the vesselowning company itself. However, sometimes it is allowed toapply the tonnage tax regime to ship managementcompanies as well. For example, in order to be eligible, shipmanagement companies may be able to apply for thetonnage tax system if the company performs the fulltechnical and crew management.
12 Choosing a profitable course around the globe
Tonnage tax models
Two different tonnage tax models can be distinguished:� the Dutch model, introduced in 1996 in advance of the
EU guidelines;� the Greek model, introduced in 1957.
The Dutch tonnage tax modelThe Dutch model, first introduced in 1996 by the Netherlands,is implemented by Belgium, Bulgaria, Denmark, Finland,France, Germany, India, Ireland, Italy, Japan, Republic ofKorea (South Korea), the Netherlands, the NetherlandsAntilles, Norway, Poland, South Africa, Spain, Sweden, theUK, and the USA.
The taxable operating profit of a vessel is based on thetonnage of the vessel, and not on the actual operatingresults. The amount of deemed taxable profit is subject toordinary (corporate) income tax ('CIT') rates. The maindifference between the Dutch model and the ordinarytaxation method is the calculation of the profit related to theshipping activities. Apart from that, the shipping companyand its non-qualifying shipping income is subject to regulartaxation rules.
14 Choosing a profitable course around the globe
ExampleCalculating the profit and tax according to the Dutchtonnage tax model for a 5-year-old cargo ship, with agross tonnage of 20.000 and a net tonnage of 18.000, thatis operational all year.
Amount of PROFIT per day per 1000 net tons per day
€ 8.00 up to 1.000 net ton
€ 6.00 for the excess up to 10,000
€ 4.00 for the excess up to 25,000
€ 2.00 for the excess over 25,000
Taxable profit: 1 x € 8.00 + 9 x € 6.00 + 8 x € 4.00 = € 94per day = € 34.310 per year
Corporate tax rate = 30%.Corporate tax levied amounts to € 34.310 x 30% = € 10.293
The Greek tonnage tax modelThe Greek model was introduced in 1957 and isimplemented by Greece, Cyprus and Malta. The calculationmethods applied by Cyprus and Malta differ slightly from theGreek one. The Greek model is mandatory for vessel ownerswho derive income from shipping activities. First the taxablegross tonnage must be calculated by multiplying coefficientrates by each scale of gross registered tonnage. This taxabletonnage is multiplied by an age corrected rate. Basically, inthis model the shipping activity is taxed. In addition to that,no matter how many intermediate holding companies areimposed, all distributions are exempt from taxation up to thebeneficial owner. The Greek tonnage tax model covers allvessels and all shipping activities.
In terms of Maltese law, the tonnage tax regime is mandatoryfor vessel owners only in the sense that the registration feeand annual tonnage tax are payable irrespective of whetheror not the vessel owner / charterer makes use of the benefitsand concessions contained in the Maltese tonnage taxregime.
Calculating the tonnage tax� Taxable tonnage of the vessel calculated based on
coefficients using 6 tonnage size groups.� Coefficients multiplied by taxable gross tonnage.� Tax calculated by using tax rate that corresponds with
the age of the vessel. Cyprus uses 4 size groups andapplies 25% deduction for vessels less than 10 years old;an additional 30% deduction can be obtained if thevessel management is performed in Cyprus.
� No CIT or dividend tax is levied on shipping profits. Maltauses 8 size groups and applies a fixed amount of tax pergroup plus amount of tax for exceeding tonnage.
2 Tonnage tax models
PricewaterhouseCoopers 15
ExampleThe example below calculates the profit and tax accordingto the Greek tonnage tax model for a 5 year old cargovessel operated by a Greek resident company operationalall year with a gross tonnage of 20.000 and a net tonnageof 18.000.
For Greece, for calculating the taxable tonnage the scalesare:Gross registered tonnage ('GRT') Coefficient100-10.000 1.210.001-20.000 1.120.001-40.000 1.040.001-80.000 0.9Over 80.001 0.8
For a GRT 20.000 vessel this results in: 10.000 x 1.2 +10.000 x 1.1 = 23.000 taxable tonnage.
This amount is multiplied by the respective tax ratecorresponding to the age of the vessel.
Age of the vesselIn years
Rates for passengerand cruise vesselsetc.
Rates for tankers,cargo vessels, etc.
(USD) (GRT > 1.500 ton)(USD)
0-4 $1.124 $0.318
5-9 $2.014 $0.57
10-19 $1.972 $0.558
20-29 $1.866 $0.528
Over 30 $1.442 $0.39
Corporate tax levied amounts to 23.000 x $ 0.57= $13.110(€ 10.000).
In Greece, the tonnage tax extinguishes the tax liability ofthe owner and if the owner is a company this extends toits shareholders. Tonnage tax also extinguishes the taxliability in relation to operating profits, capital gains arisingout of the vessel sale as well as liquidation proceeds.
Comparison
Countries that have implemented a tonnage tax regime
Dutch model � Belgium� Bulgaria� Denmark� Finland*� France*� Germany� India� Ireland� Italy� Japan� Netherlands� Netherlands Antilles� Norway� Poland*� Republic of Korea (South Korea)� South Africa*� Spain� Sweden*� UK� USA
Greek model � Greece� Cyprus� Malta
* Awaiting approval by the European Commission or nationalgovernment.
Method of calculating the tonnage tax
Dutch model � Fixed / deemed profit calculated usingdegressive tonnage size groups.
� Based on net tonnage.� The calculated profit is taxed against the
statutory CIT rate, or for individualentrepreneurs, in most cases againstindividual income tax rates.
� Norway: the tonnage tax is calculated directlybased on the net tonnage.
Greek model � Taxable tonnage of the vessel calculatedbased on coefficients using 6 tonnage sizegroups.
� Coefficients multiplied by taxable grosstonnage.
� Tax calculated by using tax rate thatcorresponds to the age of the vessel.
� Cyprus uses 4 size groups and applies 25%deduction for vessels younger than 10 years;an additional 30% deduction can be obtainedif the vessel management is performed inCyprus.
� No CIT or dividend withholding tax is leviedon shipping profits.
� Malta uses 8 size groups and applies a fixedamount of tax per group plus amount of taxfor exceeding tonnage.
2 Comparison
PricewaterhouseCoopers 17
Qualifying activities
Dutch model � Operating vessels in international trafficqualify. Also dredging and towing activities canqualify under most systems, under thecondition that more than 50% of theseactivities take place at sea.
� The vessel owner / bareboat charterer mustexercise certain management activities withrespect to the vessel.
� Bulgaria, India, and UK: certain otherrequirements, such as training requirementsshould be met.
� Netherlands Antilles: operating vessels ininternational traffic, towing, dredging, andactivities connected with exploitation of naturalresources at sea qualify.
Greek model � Greece: ownership qualifies, not activities (thelocation of the management is of nosignificance).
� Cyprus: operating vessels in international trafficqualify. Also dredging and towing activities canqualify under the condition that more than50% of these activities take place at sea.Other activities may also qualify. This appliesto both the vessel owner as well as the bareboat charterer.
� Malta: a 'shipping organisation' must qualifyby carrying out shipping activities with own orcharter vessels in international traffic(legislative amendments are in the pipeline onthe basis of which the tonnage tax systemshould also apply to other shippingcompanies, such as ship managementcompanies).
Who can qualify?
Dutch model � Entrepreneurs, e.g. individual entrepreneurs,foundations, legal entities, partnerships,permanent establishments.
� Denmark, India, South Africa, and USA: onlycorporate legal entities can opt for thetonnage tax system.
Greek model � Greece, Cyprus: entrepreneurs, e.g. individualentrepreneurs, foundations, legal entities,partnerships, permanent establishments.
� Malta: a legal entity, qualified as a 'licensedshipping organisation' (limited liabilitycompany, partnership, whether 'en nomcollectif' or 'en commandite', trust orfoundation, any foreign body corporate orother entity enjoying legal personality whichhas established a place of business in Malta).
18 Choosing a profitable course around the globe
Qualifying vessels / ownership
Dutch model � Owned vessels (not bareboat chartered out)and vessels in bareboat charter.
� South Africa: only applicable if additionalownership requirements are met.
� Netherlands Antilles: applies also to bareboatchartered vessels.
� Norway: a tonnage taxed company must ownat least one vessel or at least 3% of anothertonnage taxed company or partnership thathas at least one qualifying asset. As long asthe tonnage taxed company owns at least onequalifying asset, profits from operation ofvessels that are hired in on bareboat charteror time charter are exempt from taxationwithout limitations. The vessels may bechartered out on bareboat or time charter.
� USA: qualifying vessels must be at least 6,000deadweight tons
� Vessels in time charter (only applicable ifadditional ownership requirements are met,no additional requirements in the NetherlandsAntilles), and:– Denmark: max 80% of the fleets tonnage on
time chartered vessels without purchaseoptions (if a time charter vessel has apurchase option it is regarded as an ownedvessel). (The allowed time charter ratio isexpected to be changed during 2009 into90.9% allowed time charter vessels withoutpurchase options).
– Belgium, Spain, and UK: max 75% of thefleet's tonnage on time charter.
Greek model � Greece, Cyprus: vessels registered in Greece /Cyprus (for non Greek flagged vessels, aspecial regime applies to the operator).
� Malta: Malta registered, qualifying tonnage taxvessels (>1000 ton; smaller vessels cannotqualify, unless the Minister of Finance declaressuch vessels to be 'tonnage tax vessels').
Lock-up period
Dutch model � Choice must be made in the first year in whichthe taxpayer is engaged in shipping activitiesand is fixed for 10 years, whether to opt forthe tonnage tax regime or not. Exceptions are:– Belgium, Norway, Spain, and UK: opt at
any time; choice fixed for 10 year period.– Bulgaria, Japan, Poland*, Republic of Korea,
and South Africa: the choice is fixed for5 years.
– The Netherlands Antilles: opt at any time,choice fixed for a 5 year period.
– Norway: only formal lock-up period, butre-entry is not permitted until the end of thelock-up period if the company exits thetonnage tax regime during its first 10 yearperiod.
– USA: no fixed period.
Greek model � Greece, Malta: mandatory system.� Malta: mandatory payment of tonnage tax and
registration fees (however, shipping companymay opt out of the Tonnage Tax Regulationsand its income would be subject to the normalcorporate tax rate).
� Cyprus: optional system (mandatory forvessels flying the Cypriot flag).
* Subject to approval by the European Commission.
2 Comparison
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Capital Gains
Dutch model � Capital gains are not subject to additional tax.� Deferred tax liabilities: valuation at fair market
value upon entry into system and claw-backrules on hidden reserves realised duringlock-up period.
� Deferred tax liabilities disappear after thelock-up period.
� Exceptions are:– US, France: capital gains are subject to
regular statutory tax rate.– Poland: capital gains on sale of vessels will
be taxed against a flat rate of 15%. A taxexemption applies when reinvested in apurchase, co-ownership, modernisation,renovation or rebuilding of the shippingfleet within 3 years from the moment of saleof that vessel.
– Denmark: capital gains on vessels (orcontracts for vessels) are tax exempt for allvessels that are introduced into the tonnagetax system after January 1, 2007. Gains onvessels introduced prior to that date aregenerally taxed at the standard corporateincome tax rate of 25%.
– UK: no deferred tax liabilities.– South Africa: it is proposed that between
50% and 100% of the gain will be subjectto ordinary CIT at 28%, based on a formula.
– Norway: No claw-back on hidden reservesrealised during lock-up period exceptduring the transitional period lasting nolonger than the end of 2012 depending onwhether the company has moved over fromordinary taxation to the tonnage tax systemwith effect from 2007, 2008, or 2009 (3-yearlock-up period).
Greek model � Capital gains on vessels are not taxed.� No deferred tax liabilities.
Flag or registration requirement
Dutch model � Flag/registration requirement. Exceptions mayapply.
� Republic of Korea, Netherlands Antilles: Noflag requirement.
Greek model � Greece: only Greek flagged vessels qualify.� Malta: only Maltese flagged vessels qualify
(however, legislative amendments areexpected to extend the tonnage tax system toshipping organisations which own vesselsregistered in other EU / EEA Member States).
� Cyprus: Cyprus flag requirement.
20 Choosing a profitable course around the globe
Ship management activities
Dutch model Ship management activities may qualify in thefollowing countries:� Belgium, Bulgaria, the Netherlands Antilles:
performing commercial management activitiesfor third parties.
� Denmark, the Netherlands, Spain: performingtechnical and crew management for anothercompany.
� Germany: tonnage tax can often be used formanagement activities.
� Ireland: the provisions of ship managementservices for qualifying ships operated by thecompany.
� Norway: a tonnage taxed company canperform strategic, commercial/crewing, andtechnical management services for othergroup companies (more than 50% jointownership) or pools where the tonnage taxedcompanies or other group companiesparticipate. The company must have at leastone qualifying asset (a vessel or at least 3% ofanother tonnage taxed company orpartnership with at least one qualifying asset).
� Poland: additional conditions apply.
Greek model � Greece: not taxed if put under special regime.� Malta: currently ship management activities
do not fall within the tonnage tax system.However, expected amendments shouldextend and make available the tonnage taxsystem to ship management companies.
� Cyprus: qualifying vessel managementcompanies may choose on an annual basis toeither be taxed under the tonnage tax systemby paying taxes at 25% of the ratesapplicable to the shipowners or have their netprofits subjected to Cyprus flat corporate taxrate of 4.25%.
2 Comparison
PricewaterhouseCoopers 21
3 Shipping incentives regimes
Many countries offer tax and other incentives to theshipping industry. In this paragraph corporateincome tax incentives (other than tonnage taxregimes) are discussed. The form of the incentivesdiffers and their effectiveness can vary. However,the incentives generally have in common thereduction in tax burden. Tax incentives reduce thetax burden for shipping companies by eithernarrowing the tax base, or lowering the tax rate orproviding complete tax redemption.
We will discuss separately tax jurisdictions with corporateincome tax incentives specifically designed for the shippingindustry. These include Hong Kong, Liberia, Malaysia, MarshallIslands, the Netherlands Antilles, Panama, Philippines, Russia,Singapore, Taiwan and Turkey.
Hong Kong� The standard tax rate is 16.5%.� In principle, in Hong Kong there is no tax on capital gains
and no withholding tax on service fees or interest payments.� For shipping companies with ships flying the Hong Kong
flag, income related to cargo uploaded in Hong Kong andnavigated to international waters is exempt from HongKong corporate income tax.
� For a taxpayer resident in any territory outside HongKong but carrying on a shipping business in Hong Kong,it will be tax exempted in Hong Kong if there is areciprocal tax treatment in that country for a Hong Kongtaxpayer.
Liberia, Marshall Islands, Panama� Panama has a corporate tax rate of 30%.� Income from shipping activities is exempt from
Panamanian corporate income tax as far asPanamanian-registered vessels are concerned. This is
also the case if those activities are managed in Panama.As a result, except for a moderate annual registration fee,there is a tax free environment for shipping companies inPanama.
� To register a vessel in the Liberian or Marshall Islandsregister, the vessel must be owned by a Liberian orMarshall Islands company. As in Panama, only an annualtonnage tax and register fees are due.
Malaysia� Non-exempted shipping income is taxed at a rate of 25%.� Tax exemptions are given to Malaysian ship owners
provided that certain conditions are met. An income taxexemption is available to a Malaysian resident companyin relation to its income from the carrying on of businessof a Malaysian ship. A Malaysian ship is defined for taxpurposes as a sea-going vessel registered as such underthe Malaysian Merchant Shipping Ordinance.
The Netherlands Antilles� The Netherlands Antilles has an alternative regime to the
tonnage tax regime. In the alternative regime the regularprofit tax regime applies to profits, but 80% of incomefrom international shipping is taxed at 1/10 the standardtax rate.
� The Netherlands Antilles has two provisions for capitalinvestments, including vessels, that allow for accelerateddepreciation of 1/3 of the investment as well as a 16%investment allowance.
Philippines� Philippine shipping companies are subject to a corporate
income tax rate of 30%.� International shipping companies doing business in the
Philippines are liable to an income tax of 2.5% based ongross Philippine revenue. However, tax treaties normallyprovide for a lower rate. Also, a tax of 3% of grossreceipts is due quarterly.
3 Shipping incentives regimes
PricewaterhouseCoopers 23
Russia� The standard corporate tax rate in Russia is 20%.� Under provisions of the Russian Tax Code, profits
received from transportation of cargos and passengers,and other related shipping services are exempt fromtaxation in Russia provided ships are registered in theRussian International Vessel Register (RIVR) and point ofdeparture and/or point of destination of their course arelocated outside of Russia (N.B. Russian companies mayregister ships in the RIVR by purchasing ownership viabareboat charter and exemptions will apply in either caseprovided RIVR registration requirements are met).
� Exemption from profits tax also applies to profitsreceived from selling bareboat charters, provided therequirements mentioned above are met. However,provisions of the Russian Tax Code disallow taxdeduction of costs with respect to technicalmaintenance, repairs and other services related tomaintenance of ships registered in the RIVR. Only shipsregistered in the RIVR qualify for the above profits taxexemption.
� All other non-shipping income received by a company(e.g. interest income, dividends, capital gains, includingdisposal of ships registered in the RIVR, etc.) is taxedunder regular rates and rules.
Singapore� In the absence of incentives, shipping companies are
taxed at the prevailing corporate tax rate of 17%.� Singapore offers 2 main tax incentives for the shipping
industry that exempt shipping income from tax.� The first incentive, to promote the Singapore registry,
grants tax exemption to an owner or operator ofSingapore-registered ships on qualifying income derivedfrom the operating or chartering such ships ininternational waters. There is no expiry date for thisincentive as long as the ships continue to be Singapore
flagged and there is no need to apply this incentiveseparately.
� The second incentive to encourage the control andmanagement of foreign flagged ships from Singapore isavailable to Singapore resident companies which own oroperate foreign flagged ships under the ApprovedInternational Shipping Enterprise (AIS) incentive.
� To qualify for the AIS incentive, a company mustsubstantiate that the control and management of itsdeclared fleet will be based in Singapore and meet otherquantitative qualifying criteria. Under this incentive, taxexemption will be granted on qualifying shipping incomederived from foreign flagged ships plying internationalwaters.
� Exemption from withholding tax is also available oncharter fees payable to non-residents for AIS ships whichare declared to the authorities for this purpose. The taxexemption is granted for a period up to 10 years (withpossibility of extension up to another 20 years).
Taiwan� Business income earned from international shipping
activities is taxed at the standard rate of 25% in Taiwanfor Taiwanese resident companies.
� The business income derived from operations in Taiwanby a foreign shipping company is exempt from Taiwancorporate income tax provided that reciprocal exemptiontreatment is granted by the foreign country to a Taiwanresident shipping company.
� Where, in other cases, a foreign shipping companyconducts international shipping activities in Taiwan, andfinds difficulty in calculating its taxable income derivedfrom its shipping activities in Taiwan, the foreign shippingcompany may apply for approval from the Ministry ofFinance to use 10% of its turnover to calculate itsdeemed taxable income.
24 Choosing a profitable course around the globe
Turkey� The corporate tax rate in Turkey is 20%.� According to the Turkish International Vessel Registry
Law, earnings to be acquired from the operation ofvessels and yachts registered in the Turkish InternationalVessel Registry (TIVR) are exempt from corporate andincome tax.
� Purchase, sale, mortgage agreements, registration fees,credit and freight contracts are also exempt from stamptax and other duties. Furthermore, the wages paid topersonnel to be employed in the vessels registered inTIVR are all exempt from income tax.
3 Shipping incentives regimes
PricewaterhouseCoopers 25
4 Tax efficient regimes
Several countries do not offer special taxincentives for their shipping industry. Instead, thegeneral tax laws apply as they do for any othercompany. Locating your shipping activities in thesecountries, even though there are no incentivesspecifically targeted at the shipping industry, mightstill be interesting. Other aspects of the tax regimemay increase the attractiveness of a jurisdiction,like tax holidays for foreign investment, or thepossibility of applying accelerated amortisationschemes for seagoing vessels. In those cases,such a country deserves to be mentioned in aglobal shipping industry brochure.
Countries that will be discussed in more detail in thisparagraph are Antigua and Barbuda, Bermuda, Estonia andSaint Lucia.
Antigua and Barbuda, Bermuda, Saint Lucia� Many Caribbean islands have very 'efficient' tax regimes.
Included are Antigua and Barbuda, Bermuda, and SaintLucia.
� Mostly, these islands tax income earned from theshipping activities if the individual/company is resident fortax purposes. Corporate tax rates vary, but are currentlyapproximately 25%.
� Many exceptions apply, as a result of which a partial ortotal reduction of the tax burden may be available.
� If a shipping company in Antigua and Barbuda isregistered as an International Business Corporation (IBC),the company will be exempt from all taxes for fifty (50)years. IBC's are exempt from all taxes as long as theyconduct their business exclusively withindividuals/companies who are not residents in Antiguaand Barbuda.
� Except for an annual tonnage fee, shipping companiesincorporated in Bermuda are not required to pay anyincome tax on profit, capital gains or personal income inBermuda, when they are registered as an 'exemptedcompany'. For registering, certain requirements apply,most notably regarding the strategic and commercialmanagement of the business. Exempted companies areguaranteed to be exempt from income, profits and capitaltaxes for a period of 50 years.
Estonia� Under the existing Estonian corporate tax regime, all
undistributed corporate profits are tax-exempt. Thisexemption covers both active (e.g. shipping) and passive(e.g. dividends, interest, royalties) types of income, aswell as capital gains on sales of all types of assets,including shares and immovable property. This taxregime is available to Estonian companies and branchesof foreign companies that are registered in Estonia.
� The moment of taxation on corporate profits ispostponed until the profits are distributed as dividends ordeemed profit distributions. In 2008, distributed profitsare generally subject to 20% corporate income tax (20/80on the net amount of profit distribution).
4 Tax efficient regimes
PricewaterhouseCoopers 27
5 Final remark
Your decision on the most suitable tax regime, how tostructure it and where to locate your shipping activities willdepend on the circumstances and your activities. Usually itwill be based on a combination of the tax system, shipfinancing, freight taxes and wage cost deduction forseafarers, among other things.
Our PricewaterhouseCoopers network of highly experiencedand dedicated shipping experts can assist you in decidinghow to structure your shipping business. Contact us for aninformal discussion about your individual situation andconsiderations. You can find the contact details of our globalshipping experts on page 3 of this brochure and the contactdetails of our global Transportation & Logistics network onthe following page.
5 Final remark
PricewaterhouseCoopers 29
Contacts
PricewaterhouseCoopers 31
Global Transportation & Logistics LeaderKlaus-Dieter Ruske+49 211 981 2877klaus-dieter.ruske@de.pwc.com
Africa CentralVishal Agarwal+254 20 2855581vishal.agarwal@ke.pwc.com
FranceVincent Gaide+33 1 56 57 8391vincent.gaide@fr.pwc.com
Global Transportation & LogisticsBusiness DevelopmentPeter Kauschke+49 211 981 2167peter.kauschke@de.pwc.com
AustraliaPeter le Huray+61 3 8603 6192peter.le.huray@au.pwc.com
GermanyKlaus-Dieter Ruske+49 211 981 2877klaus-dieter.ruske@de.pwc.com
Global Transportation & LogisticsKnowledge ManagementUsha Bahl-Schneider+49 69 9585 5425usha.bahl-schneider@de.pwc.com
BelgiumPeter van den Eynde+32 3 259 33 32peter.van.den.eynde@be.pwc.com
GreeceSocrates Leptos-Bourgi+30 2104284000socrates.leptos-bourgi@gr.pwc.com
CanadaTodd Thornton+1 905 949 7323todd.thornton@ca.pwc.com
Hong KongAlan Ng+852 2289 2828alan.ng.@hk.pwc.com
Central and Eastern EuropeNick C. Allen+42251151330nick.allen@cz.pwc.com
IndiaAmrit Pandurangi+91 11 5135 0505amrit.pandurangi@in.pwc.com
ChinaThomas Leung+86 10 6533 2838thomas.w.leung@cn.pwc.com
IndonesiaThomson Batubara+62 21 5289 0400thomson.batubata@id.pwc.com
CyprusLiakos Theodorou+357 25 555 201liakos.m.theodorou@cy.pwc.com
ItalyLuciano Festa+39 6 57025 2465luciano.festa@it.pwc.com
DenmarkBo Schou-Jacobsen+45 39 45 36 39bo.schou-jacobsen@dk.pwc.com
JapanYasuhisa Furusawa+813 62665733Yasuhisa.furusawa@jp.pwc.com
PricewaterhouseCoopers' transportation & logistics practice provides industry-focused assurance, tax and advisory servicesto public and private T&L companies throughout the world. For more information on this brochure, please contact thetransportation & logistics leader in your country.
32 Choosing a profitable course around the globe
LuxembourgAnne Murrath+352 4948 481a.murrath@lu.pwc.com
RussiaJohn Campbell+7 495 9676279john.c.campbell@ru.pwc.com
SwitzerlandThomas Bruederlin+41 58 792 5579thomas.bruederlin@ch.pwc.com
MalaysiaAzizan Zakaria+60 (3) 2173 0512azizan.zakaria@my.pwc.com
South East EuropeMomchil Vasilev+359 2 93 55 301momchil.vasilev@bg.pwc.com
TaiwanCharles Lai+886 (0) 2 27296666 25186charles.lai@tw.pwc.com
MexicoMartha Elena Gonzalez+52 55 5263 5834martha.elena.gonzalez@mx.pwc.com
SingaporeKyle Lee+65 6236 3118kyle.lee@sg.pwc.com
TurkeyCenk Ulu+90 212 3266060cenk.ulu@tr.pwc.com
The NetherlandsJeroen Boonacker+31 10 4075 330jeroen.boonacker@nl.pwc.com
South AfricaAkhter Moosa+27 12 429 0546akhter.moosa@za.pwc.com
United Arab EmiratesNathan Weatherstone+971 507712906nathan.weatherstone@ae.pwc.com
New ZealandGrant Burns+64 9 355 8034grant.burns@nz.pwc.com
South and Central AmericaHenrique Luz+55 11 3674 3601henrique.luz@br.pwc.com
United KingdomClive Hinds+44 1727 892379clive.p.hinds@uk.pwc.com
NorwayRita Granlund+47 95 26 02 37rita.granlund@no.pwc.com
South KoreaJae-Eun Lee+82-27090470jae-eun.lee@kr.pwc.com
United States of AmericaKenneth Evans+1 305 375 6307kenneth.evans@us.pwc.com
PhilippinesRodel Acosta+63 2 8452728rodel.acosta@ph.pwc.com
SpainIgnacio Fernandez+34 915 684 780ignacio.fernandez.morodo@es.pwc.com
PortugalJorge Costa+351 213 599414jorge.costa@pt.pwc.com
SwedenClaes Thimfors+46 31 7931131claes.thimfors@se.pwc.com
Assurance � Tax � Advisorypwc.com
This publication was exclusively prepared as a general guideline for relevant issues, and should not be interpreted asprofessional advice. You should not act on the basis of the information contained in this publication without obtaining furtherprofessional advice. No explicit or implicit statement is made or guarantee offered in respect of the correctness or completenessof the information contained in this publication and, insofar as permitted by law, PricewaterhouseCoopers, its affiliates,employees and representatives accept no liability or responsibility whatsoever for the consequences of any action or omissionmade by yourself or any other person on the basis of the information contained in this publication or for any decision based onthat information.
www.pwc.com/transport© 2009 PricewaterhouseCoopers. All rights reserved. 2009.04.01.28.106.