Transportation & Logistics
International Tax
Choosing a profitable course
around the globe
*
Corporate taxation of the global shipping
industry
PricewaterhouseCoopers provides sector-specific services in the fields of Assurance, Tax & HRS and Advisory. Our objective is to help our clients improve their operational agility – not only as a service provider but also as a business partner. We give practical advice, identify opportunities and suggest innovative solutions: with a result-driven focus and often from a surprising perspective. We do this with some 4,800 colleagues in the Netherlands and more than 155,000 people in 153 countries around the world on the basis of our Connected Thinking philosophy. We serve large national and international companies as well as governments, not-for-profit organisations and private companies. ‘PricewaterhouseCoopers’ refers to the network of participating member firms of PricewaterhouseCoopers International Limited. Each member firm is a separate and independent legal entity.
PricewaterhouseCoopers 3
Foreword
Nobody can escape the reality of an increasingly globalising world. Large numbers of vessels sail the world's oceans every day, transporting vast quantities of goods of all kinds to and from places around the globe. This led us to conclude in our 2007 shipping industry brochure that the shipping industry is in good shape. Having grown accustomed to double-digit annual volume growth and strong freight rates, the sudden worldwide economic downturn that started in 2008 has shocked the shipping industry.
The changing economic circumstances are forcing shipping companies to take a critical look at their business model. In order to survive a period of reduced demand for shipping volume, the shipping industry will have to prove its flexibility.
For many countries, the shipping industry is of great importance. Therefore, tax incentives are used to stimulate investment in this sector. Especially with a rapidly changing business climate, choosing the optimal tax regime for 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 the shipping industry. This brochure gives you a description of the different ways the shipping industry is taxed around the world.
As always, periods of economic downturn are not only full of challenges, but also of opportunities. After all, it is in difficult times when the most flexible and creative companies can gain market share and prove they are superior in their industry. We are confident that the current economic crisis will not mark the end of globalisation or world trade. In the long term, the outlook for the shipping industry is very positive. New corporate strategies and processes are required to deal with an industry which is being reshaped through market consolidation and shifts in the balance of world trade. Sustained profitability in many sectors, increasingly international operations and ever more sophisticated tax authorities are leading shipping companies to look at effective ways to align their corporate, operational and tax structures.
PricewaterhouseCoopers can help you to optimise your worldwide tax position by taking a global view of your business and finding the most appropriate tonnage tax and other favourable tax regimes for your business.
Socrates Leptos-Bourgi
Global Shipping Industry Leader
"
In a crisis, be aware of the danger, but recognise the opportunity"
John F. Kennedy
Choosing a profitable course
around the globe
4 Choosing a profitable course around the globe
Key contacts
Jeroen Boonacker +31 10 407 53 30
Robbert Jan Vrugt +31 10 407 6074 [email protected] Victor Palm +31 10 407 65 71 [email protected] Shipping experts
Antigua and Barbuda
Charles Walwyn +1 268 462 3000 [email protected] Finland Mirva Laaksonen + 358 9 22 80 12 62 [email protected] Ireland Deirdre Keegan +353 1 79 26 167 [email protected] Belgium Rene Willems +32 47 560 24 30 [email protected] France Philippe Willemin +33 4 91 99 30 00 [email protected] Japan Kan Hayashi +81 3 5251 2400 [email protected] Bermuda Peter Mitchell +1 441 299 7101 [email protected] Germany
Wolfgang von Hacht +49 40 63 78 13 17 [email protected] Malaysia Theresa Lim +60 3 2173 1583 [email protected] Bulgaria Tania Pavlova +359 2 91 003 [email protected] Greece Theodoros Anthropopoulos +30 21 06 87 45 64 [email protected] Malta Neville Gatt +356 25 64 67 11 [email protected] Cyprus Cleo Papadopoulou +357 25 55 52 30 [email protected] Hong Kong Alan Ng +852 2289 2828 [email protected] Netherlands Jeroen Boonacker +31 10 407 53 30 [email protected] Denmark Bo Schou-Jacobsen +45 39 45 36 39 [email protected] India Amrit Pandurangi +91 11 4135 0505 [email protected] Netherlands Antilles Rene Kempkes +599 9 430 0010 [email protected] Estonia Peep Kalamäe +372 6141 976 [email protected] Italy Luciano Festa +39 65 70 25 24 65 [email protected] Norway Svein T. Sønning +47 95 26 10 71 svein.t. [email protected]
PricewaterhouseCoopers 5 Panama Orlando Palma +507 206 9200 [email protected] Singapore Ho Mui Peng +65 6236 3838 [email protected] Taiwan Yishian Lin +886 2 2729 6682 [email protected] Philippines Malou P. Lim +63 2 8452728 [email protected] South Africa Terry McCarthy +27 (31) 250 3875 [email protected] Turkey Cenk Ulu +90 212 355 58 52 [email protected] Poland
Andrzej Jacek Jarosz +48 61 850 51 51
Republic of Korea (South Korea)
Jung-Il Joo +82 2 709 0722 [email protected] United Kingdom Chistopher Goddard +44 12 93 56 66 86 [email protected] Russia Natalia Kuznetsova +7 495 967 6271 [email protected] Spain
Oscar Alonso Albarrán +34 91 568 42 76 [email protected] United States Andre Chabanel +1 973 236 4549 [email protected] Saint Lucia Richard Peterkin +1 758 456 2600 [email protected] Sweden
Sven Erik Holmdahl +46 31 793 14 14
PricewaterhouseCoopers has established a European and Global Shipping Network of industry experts. Within this network, a dedicated team of assurance, tax and advisory professionals provide advice and support to businesses like yours. Through our network of local specialists PricewaterhouseCoopers can offer the solutions needed to manage your business on a local and global basis. The Shipping Network has strengthened its commitment to exchange experience through our global databases and regular meetings, allowing all members to share knowledge and find solutions that fit your needs. No matter where 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
The aim of this brochure is to provide concise but introductory information about the corporate taxation of the shipping industry around the globe. We have distinguished three categories of tax regimes:
1. tonnage tax regimes (tax regimes under which the tax payable is based on the tonnage of a vessel),
2. shipping incentives regimes (tax regimes with beneficial tax provisions specifically aimed at the shipping industry),
3. tax efficient regimes (tax regimes that make no specific exemption for the shipping industry, but are generally characterised by their low effective tax rate).
For each of these regimes we highlight the main characteristics, important similarities and differences specifically in relation to the shipping industry. We have
made a special effort to investigate whether and to what extent general patterns can be found, and to analyse whether and how differences in taxation have consequences for the shipping industry. However, this brochure makes no pretention to be exhaustive.
Selection of countries
For this brochure, the selection of the countries that are included 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 vessels registered in that country and the size of the domestic shipping 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 included in this brochure. Countries are categorised, based on the characteristics of their tax regime specifically in relation to the 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 regimes
Belgium Hong Kong Antigua and Barbuda Bulgaria Liberia Bermuda
Cyprus Malaysia Estonia Denmark Marshall Islands Saint Lucia Finland Netherlands Antilles
France Panama Germany Philippines Greece Russia India Singapore Ireland Taiwan Italy Turkey Japan Malta Netherlands Netherlands Antilles Norway Poland
Republic of Korea (South Korea) South Africa
Spain Sweden UK USA
The main principle of tonnage tax is that the payable tax is based on the tonnage of vessels instead of the actual accounting profits from the exploitation of a vessel. Various countries have introduced a tonnage tax regime.
The main advantage of tonnage tax regimes is the very low effective tax rate of on average < 1%, when the shipping business is doing well.
Most tonnage tax regimes are very much alike. In a tonnage tax regime the calculation of the profit is based on the registered tonnage of the vessel, multiplied by a fixed amount of deemed profit per ton. All countries use a
degressive scale system because smaller vessels tend to sail with a higher profit margin per ton than larger vessels. Nevertheless there are still a number of differences between the tonnage tax regimes of the individual countries. They differ in detail in the method of calculating the deemed profit related to shipping activities and in the following respects.
Qualifying activities
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, cable- and pipe-laying, dredging and/or ship management activities may also qualify.
Ownership
For a shipping company to qualify for a tonnage tax regime, the company must have a certain degree of ownership regarding the vessel. The required degree of ownership differs between the different tonnage tax regimes. The conditions in this respect usually refer to the following kinds of requirements:
l The shipping company must own a sea-going vessel or its interest in the vessel must be under a bareboat charter arrangement.
l The shipping company may be permitted to charter out vessels on time charter and in some circumstances on bareboat charter.
l The shipping company may include some time chartered vessels within tonnage tax.
Conditions regarding the level of ownership are typically used in combination with a requirement that a certain level of management activities with respect to the vessel is under-taken in the country where the company is located for tax purposes. For most tonnage tax regimes strategic and commercial management should usually be undertaken by the vessel owning company itself.
Lock-up period
Some tonnage tax regimes are subject to a so-called 'lock-up period', a period in which a taxpayer cannot switch regimes. Under most tonnage tax regimes it is ,for example, only possible to enter the tonnage tax regime for a fixed period of usually 10 years.
Capital Gains
Capital gains on the sale of vessels and equipment related to international shipping activities are in some tonnage tax regimes not subject to ordinary taxation. In comparing the different regimes, the main points to note are the following:
l When entering the system, hidden reserves may or may not be taxable and/or may result in deferred tax liabilities.
l When leaving the system within the lock-up period, penalties sometimes result in a direct tax liability.
l When leaving the system after the expiry of a lock-up period, different rules may be applicable regarding the valuation of the vessel on the opening balance sheet.
2 Tonnage tax regimes
Flag requirement
l Most tonnage tax regimes demand a link between the flag a vessel is flying and the place of residence of the company that owns the vessel. For example, for EU resident companies, in principle only EU and EEA flagged vessels qualify for the application of the tonnage tax regime. However, many exceptions apply.
Management
The management requirements for applying a tonnage tax regime, differ per country. In general four types of
management can be distinguished:
l Strategic management: the decisions regarding investments and disinvestments of a vessel and also decisions regarding the way other management activities are performed.
l Commercial management: activities regarding affreightment, chartering and the carrying of cargo.
l Technical-nautical management: activities to keep the vessel in actual operation.
l Crew management, the hiring and setting to work of seafarers.
For most tonnage tax regimes strategic and commercial management should usually be exercised by the vessel owning company itself. However, sometimes it is allowed to apply the tonnage tax regime to ship management
companies as well. For example, in order to be eligible, ship management companies may be able to apply for the tonnage tax system if the company performs the full technical and crew management.
Tonnage tax models
Two different tonnage tax models can be distinguished:
l the Dutch model, introduced in 1996 in advance of the EU guidelines;
l the Greek model, introduced in 1957.
The Dutch tonnage tax model
The Dutch model, first introduced in 1996 by the Netherlands, is implemented by Belgium, Bulgaria, Denmark, Finland, France, Germany, India, Ireland, Italy, Japan, Republic of Korea (South Korea), the Netherlands, the Netherlands Antilles, Norway, Poland, South Africa, Spain, Sweden, the UK, and the USA.
The taxable operating profit of a vessel is based on the tonnage of the vessel, and not on the actual operating results. The amount of deemed taxable profit is subject to ordinary (corporate) income tax ('CIT') rates. The main difference between the Dutch model and the ordinary taxation method is the calculation of the profit related to the shipping activities. Apart from that, the shipping company and its non-qualifying shipping income is subject to regular taxation rules.
14 Choosing a profitable course around the globe
Example
Calculating the profit and tax according to the Dutch tonnage tax model for a 5-year-old cargo ship, with a gross tonnage of 20.000 and a net tonnage of 18.000, that is 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 =€94 per day =€34.310 per year
Corporate tax rate = 30%.
The Greek tonnage tax model
The Greek model was introduced in 1957 and is
implemented by Greece, Cyprus and Malta. The calculation methods applied by Cyprus and Malta differ slightly from the Greek one. The Greek model is mandatory for vessel owners who derive income from shipping activities. First the taxable gross tonnage must be calculated by multiplying coefficient rates by each scale of gross registered tonnage. This taxable tonnage is multiplied by an age corrected rate. Basically, in this model the shipping activity is taxed. In addition to that, no matter how many intermediate holding companies are imposed, all distributions are exempt from taxation up to the beneficial owner. The Greek tonnage tax model covers all vessels and all shipping activities.
In terms of Maltese law, the tonnage tax regime is mandatory for vessel owners only in the sense that the registration fee and annual tonnage tax are payable irrespective of whether or not the vessel owner / charterer makes use of the benefits and concessions contained in the Maltese tonnage tax regime.
Calculating the tonnage tax
l Taxable tonnage of the vessel calculated based on coefficients using 6 tonnage size groups.
l Coefficients multiplied by taxable gross tonnage.
l Tax calculated by using tax rate that corresponds with the age of the vessel. Cyprus uses 4 size groups and applies 25% deduction for vessels less than 10 years old; an additional 30% deduction can be obtained if the vessel management is performed in Cyprus.
l No CIT or dividend tax is levied on shipping profits. Malta uses 8 size groups and applies a fixed amount of tax per group plus amount of tax for exceeding tonnage.
2 Tonnage tax models
PricewaterhouseCoopers 15
Example
The example below calculates the profit and tax according to the Greek tonnage tax model for a 5 year old cargo vessel operated by a Greek resident company operational all year with a gross tonnage of 20.000 and a net tonnage of 18.000.
For Greece, for calculating the taxable tonnage the scales are:
Gross registered tonnage ('GRT') Coefficient 100-10.000 1.2 10.001-20.000 1.1 20.001-40.000 1.0 40.001-80.000 0.9 Over 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 rate corresponding to the age of the vessel.
Age of the vessel In years
Rates for passenger and cruise vessels etc.
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 of the owner and if the owner is a company this extends to its shareholders. Tonnage tax also extinguishes the tax liability in relation to operating profits, capital gains arising out of the vessel sale as well as liquidation proceeds.
Comparison
Countries that have implemented a tonnage tax regime
Dutch model lBelgium
lBulgaria lDenmark lFinland* lFrance* lGermany lIndia lIreland lItaly lJapan lNetherlands lNetherlands Antilles lNorway lPoland*
lRepublic of Korea (South Korea)
lSouth Africa*
lSpain
lSweden*
lUK
lUSA Greek model lGreece
lCyprus
lMalta
* Awaiting approval by the European Commission or national government.
Method of calculating the tonnage tax
Dutch model l Fixed / deemed profit calculated using degressive tonnage size groups.
l Based on net tonnage.
l The calculated profit is taxed against the statutory CIT rate, or for individual entrepreneurs, in most cases against individual income tax rates.
l Norway: the tonnage tax is calculated directly based on the net tonnage.
Greek model l Taxable tonnage of the vessel calculated based on coefficients using 6 tonnage size groups.
l Coefficients multiplied by taxable gross tonnage.
l Tax calculated by using tax rate that corresponds to the age of the vessel.
l Cyprus uses 4 size groups and applies 25% deduction for vessels younger than 10 years; an additional 30% deduction can be obtained if the vessel management is performed in Cyprus.
l No CIT or dividend withholding tax is levied on shipping profits.
l Malta uses 8 size groups and applies a fixed amount of tax per group plus amount of tax for exceeding tonnage.
2 Comparison
Qualifying activities
Dutch model lOperating vessels in international traffic qualify. Also dredging and towing activities can qualify under most systems, under the condition that more than 50% of these activities take place at sea.
lThe vessel owner / bareboat charterer must exercise certain management activities with respect to the vessel.
lBulgaria, India, and UK: certain other requirements, such as training requirements should be met.
lNetherlands Antilles: operating vessels in international traffic, towing, dredging, and activities connected with exploitation of natural resources at sea qualify.
Greek model lGreece: ownership qualifies, not activities (the location of the management is of no
significance).
lCyprus: operating vessels in international traffic qualify. Also dredging and towing activities can qualify under the condition that more than 50% of these activities take place at sea. Other activities may also qualify. This applies to both the vessel owner as well as the bare boat charterer.
lMalta: a 'shipping organisation' must qualify by carrying out shipping activities with own or charter vessels in international traffic (legislative amendments are in the pipeline on the basis of which the tonnage tax system should also apply to other shipping companies, such as ship management companies).
Who can qualify?
Dutch model l Entrepreneurs, e.g. individual entrepreneurs, foundations, legal entities, partnerships, permanent establishments.
l Denmark, India, South Africa, and USA: only corporate legal entities can opt for the tonnage tax system.
Greek model l Greece, Cyprus: entrepreneurs, e.g. individual entrepreneurs, foundations, legal entities, partnerships, permanent establishments.
l Malta: a legal entity, qualified as a 'licensed shipping organisation' (limited liability company, partnership, whether 'en nom collectif' or 'en commandite', trust or foundation, any foreign body corporate or other entity enjoying legal personality which has established a place of business in Malta).
Qualifying vessels / ownership
Dutch model lOwned vessels (not bareboat chartered out) and vessels in bareboat charter.
lSouth Africa: only applicable if additional ownership requirements are met.
lNetherlands Antilles: applies also to bareboat chartered vessels.
lNorway: a tonnage taxed company must own at least one vessel or at least 3% of another tonnage taxed company or partnership that has at least one qualifying asset. As long as the tonnage taxed company owns at least one qualifying asset, profits from operation of vessels that are hired in on bareboat charter or time charter are exempt from taxation without limitations. The vessels may be chartered out on bareboat or time charter.
lUSA: qualifying vessels must be at least 6,000 deadweight tons
lVessels in time charter (only applicable if additional ownership requirements are met, no additional requirements in the Netherlands Antilles), and:
– Denmark: max 80% of the fleets tonnage on time chartered vessels without purchase options (if a time charter vessel has a purchase option it is regarded as an owned vessel). (The allowed time charter ratio is expected to be changed during 2009 into 90.9% allowed time charter vessels without purchase options).
– Belgium, Spain, and UK: max 75% of the fleet's tonnage on time charter.
Greek model lGreece, Cyprus: vessels registered in Greece / Cyprus (for non Greek flagged vessels, a special regime applies to the operator).
lMalta: Malta registered, qualifying tonnage tax vessels (>1000 ton; smaller vessels cannot qualify, unless the Minister of Finance declares such vessels to be 'tonnage tax vessels').
Lock-up period
Dutch model l Choice must be made in the first year in which the taxpayer is engaged in shipping activities and is fixed for 10 years, whether to opt for the 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 for 5 years.
– The Netherlands Antilles: opt at any time, choice fixed for a 5 year period.
– Norway: only formal lock-up period, but re-entry is not permitted until the end of the lock-up period if the company exits the tonnage tax regime during its first 10 year period.
– USA: no fixed period.
Greek model l Greece, Malta: mandatory system.
l Malta: mandatory payment of tonnage tax and registration fees (however, shipping company may opt out of the Tonnage Tax Regulations and its income would be subject to the normal corporate tax rate).
l Cyprus: optional system (mandatory for vessels flying the Cypriot flag). * Subject to approval by the European Commission.
2 Comparison
Capital Gains
Dutch model lCapital gains are not subject to additional tax.
lDeferred tax liabilities: valuation at fair market value upon entry into system and claw-back rules on hidden reserves realised during lock-up period.
lDeferred tax liabilities disappear after the lock-up period.
lExceptions 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 tax exemption applies when reinvested in a purchase, co-ownership, modernisation, renovation or rebuilding of the shipping fleet within 3 years from the moment of sale of that vessel.
– Denmark: capital gains on vessels (or contracts for vessels) are tax exempt for all vessels that are introduced into the tonnage tax system after January 1, 2007. Gains on vessels introduced prior to that date are generally taxed at the standard corporate income tax rate of 25%.
– UK: no deferred tax liabilities.
– South Africa: it is proposed that between 50% and 100% of the gain will be subject to ordinary CIT at 28%, based on a formula.
– Norway: No claw-back on hidden reserves realised during lock-up period except during the transitional period lasting no longer than the end of 2012 depending on whether the company has moved over from ordinary taxation to the tonnage tax system with effect from 2007, 2008, or 2009 (3-year lock-up period).
Greek model lCapital gains on vessels are not taxed.
lNo deferred tax liabilities.
Flag or registration requirement
Dutch model l Flag/registration requirement. Exceptions may apply.
l Republic of Korea, Netherlands Antilles: No flag requirement.
Greek model l Greece: only Greek flagged vessels qualify.
l Malta: only Maltese flagged vessels qualify (however, legislative amendments are expected to extend the tonnage tax system to shipping organisations which own vessels registered in other EU / EEA Member States).
l Cyprus: Cyprus flag requirement.
Ship management activities
Dutch model Ship management activities may qualify in the following countries:
lBelgium, Bulgaria, the Netherlands Antilles: performing commercial management activities for third parties.
lDenmark, the Netherlands, Spain: performing technical and crew management for another company.
lGermany: tonnage tax can often be used for management activities.
lIreland: the provisions of ship management services for qualifying ships operated by the company.
lNorway: a tonnage taxed company can perform strategic, commercial/crewing, and technical management services for other group companies (more than 50% joint ownership) or pools where the tonnage taxed companies or other group companies participate. The company must have at least one qualifying asset (a vessel or at least 3% of another tonnage taxed company or
partnership with at least one qualifying asset).
lPoland: additional conditions apply.
Greek model lGreece: not taxed if put under special regime.
lMalta: currently ship management activities do not fall within the tonnage tax system. However, expected amendments should extend and make available the tonnage tax system to ship management companies.
lCyprus: qualifying vessel management companies may choose on an annual basis to either be taxed under the tonnage tax system by paying taxes at 25% of the rates
applicable to the shipowners or have their net profits subjected to Cyprus flat corporate tax rate of 4.25%.
2 Comparison
Many countries offer tax and other incentives to the shipping industry. In this paragraph corporate income tax incentives (other than tonnage tax regimes) are discussed. The form of the incentives differs and their effectiveness can vary. However, the incentives generally have in common the reduction in tax burden. Tax incentives reduce the tax burden for shipping companies by either narrowing the tax base, or lowering the tax rate or providing complete tax redemption.
We will discuss separately tax jurisdictions with corporate income tax incentives specifically designed for the shipping industry. These include Hong Kong, Liberia, Malaysia, Marshall Islands, the Netherlands Antilles, Panama, Philippines, Russia, Singapore, Taiwan and Turkey.
Hong Kong
l The standard tax rate is 16.5%.
l In principle, in Hong Kong there is no tax on capital gains and no withholding tax on service fees or interest payments.
l For shipping companies with ships flying the Hong Kong flag, income related to cargo uploaded in Hong Kong and navigated to international waters is exempt from Hong Kong corporate income tax.
l For a taxpayer resident in any territory outside Hong Kong but carrying on a shipping business in Hong Kong, it will be tax exempted in Hong Kong if there is a reciprocal tax treatment in that country for a Hong Kong taxpayer.
Liberia, Marshall Islands, Panama
l Panama has a corporate tax rate of 30%.
l Income from shipping activities is exempt from Panamanian corporate income tax as far as
Panamanian-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 in Panama.
l To register a vessel in the Liberian or Marshall Islands register, the vessel must be owned by a Liberian or Marshall Islands company. As in Panama, only an annual tonnage tax and register fees are due.
Malaysia
l Non-exempted shipping income is taxed at a rate of 25%.
l Tax exemptions are given to Malaysian ship owners provided that certain conditions are met. An income tax exemption is available to a Malaysian resident company in relation to its income from the carrying on of business of a Malaysian ship. A Malaysian ship is defined for tax purposes as a sea-going vessel registered as such under the Malaysian Merchant Shipping Ordinance.
The Netherlands Antilles
l The Netherlands Antilles has an alternative regime to the tonnage tax regime. In the alternative regime the regular profit tax regime applies to profits, but 80% of income from international shipping is taxed at 1/10 the standard tax rate.
l The Netherlands Antilles has two provisions for capital investments, including vessels, that allow for accelerated depreciation of 1/3 of the investment as well as a 16% investment allowance.
Philippines
l Philippine shipping companies are subject to a corporate income tax rate of 30%.
l International shipping companies doing business in the Philippines are liable to an income tax of 2.5% based on gross Philippine revenue. However, tax treaties normally provide for a lower rate. Also, a tax of 3% of gross receipts is due quarterly.
3 Shipping incentives regimes
Russia
l The standard corporate tax rate in Russia is 20%.
l Under provisions of the Russian Tax Code, profits received from transportation of cargos and passengers, and other related shipping services are exempt from taxation in Russia provided ships are registered in the Russian International Vessel Register (RIVR) and point of departure and/or point of destination of their course are located outside of Russia (N.B. Russian companies may register ships in the RIVR by purchasing ownership via bareboat charter and exemptions will apply in either case provided RIVR registration requirements are met).
l Exemption from profits tax also applies to profits received from selling bareboat charters, provided the requirements mentioned above are met. However, provisions of the Russian Tax Code disallow tax deduction of costs with respect to technical maintenance, repairs and other services related to maintenance of ships registered in the RIVR. Only ships registered in the RIVR qualify for the above profits tax exemption.
l All other non-shipping income received by a company (e.g. interest income, dividends, capital gains, including disposal of ships registered in the RIVR, etc.) is taxed under regular rates and rules.
Singapore
l In the absence of incentives, shipping companies are taxed at the prevailing corporate tax rate of 17%.
l Singapore offers 2 main tax incentives for the shipping industry that exempt shipping income from tax.
l The first incentive, to promote the Singapore registry, grants tax exemption to an owner or operator of
Singapore-registered ships on qualifying income derived from the operating or chartering such ships in
international waters. There is no expiry date for this incentive as long as the ships continue to be Singapore
flagged and there is no need to apply this incentive separately.
l The second incentive to encourage the control and management of foreign flagged ships from Singapore is available to Singapore resident companies which own or operate foreign flagged ships under the Approved International Shipping Enterprise (AIS) incentive.
l To qualify for the AIS incentive, a company must substantiate that the control and management of its declared fleet will be based in Singapore and meet other quantitative qualifying criteria. Under this incentive, tax exemption will be granted on qualifying shipping income derived from foreign flagged ships plying international waters.
l Exemption from withholding tax is also available on charter fees payable to non-residents for AIS ships which are declared to the authorities for this purpose. The tax exemption is granted for a period up to 10 years (with possibility of extension up to another 20 years).
Taiwan
l Business income earned from international shipping activities is taxed at the standard rate of 25% in Taiwan for Taiwanese resident companies.
l The business income derived from operations in Taiwan by a foreign shipping company is exempt from Taiwan corporate income tax provided that reciprocal exemption treatment is granted by the foreign country to a Taiwan resident shipping company.
l Where, in other cases, a foreign shipping company conducts international shipping activities in Taiwan, and finds difficulty in calculating its taxable income derived from its shipping activities in Taiwan, the foreign shipping company may apply for approval from the Ministry of Finance to use 10% of its turnover to calculate its deemed taxable income.
Turkey
l The corporate tax rate in Turkey is 20%.
l According to the Turkish International Vessel Registry Law, earnings to be acquired from the operation of vessels and yachts registered in the Turkish International Vessel Registry (TIVR) are exempt from corporate and income tax.
l Purchase, sale, mortgage agreements, registration fees, credit and freight contracts are also exempt from stamp tax and other duties. Furthermore, the wages paid to personnel to be employed in the vessels registered in TIVR are all exempt from income tax.
3 Shipping incentives regimes
Several countries do not offer special tax
incentives for their shipping industry. Instead, the general tax laws apply as they do for any other company. Locating your shipping activities in these countries, even though there are no incentives specifically targeted at the shipping industry, might still be interesting. Other aspects of the tax regime may increase the attractiveness of a jurisdiction, like tax holidays for foreign investment, or the possibility of applying accelerated amortisation schemes for seagoing vessels. In those cases, such a country deserves to be mentioned in a global shipping industry brochure.
Countries that will be discussed in more detail in this paragraph are Antigua and Barbuda, Bermuda, Estonia and Saint Lucia.
Antigua and Barbuda, Bermuda, Saint Lucia
l Many Caribbean islands have very 'efficient' tax regimes. Included are Antigua and Barbuda, Bermuda, and Saint Lucia.
l Mostly, these islands tax income earned from the
shipping activities if the individual/company is resident for tax purposes. Corporate tax rates vary, but are currently approximately 25%.
l Many exceptions apply, as a result of which a partial or total reduction of the tax burden may be available.
l If a shipping company in Antigua and Barbuda is
registered 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 they conduct their business exclusively with
individuals/companies who are not residents in Antigua and Barbuda.
l Except for an annual tonnage fee, shipping companies incorporated in Bermuda are not required to pay any income tax on profit, capital gains or personal income in Bermuda, when they are registered as an 'exempted company'. For registering, certain requirements apply, most notably regarding the strategic and commercial management of the business. Exempted companies are guaranteed to be exempt from income, profits and capital taxes for a period of 50 years.
Estonia
l Under the existing Estonian corporate tax regime, all undistributed corporate profits are tax-exempt. This exemption covers both active (e.g. shipping) and passive (e.g. dividends, interest, royalties) types of income, as well as capital gains on sales of all types of assets, including shares and immovable property. This tax regime is available to Estonian companies and branches of foreign companies that are registered in Estonia.
l The moment of taxation on corporate profits is
postponed until the profits are distributed as dividends or deemed profit distributions. In 2008, distributed profits are generally subject to 20% corporate income tax (20/80 on the net amount of profit distribution).
4 Tax efficient regimes
Your decision on the most suitable tax regime, how to structure it and where to locate your shipping activities will depend on the circumstances and your activities. Usually it will be based on a combination of the tax system, ship financing, freight taxes and wage cost deduction for seafarers, among other things.
Our PricewaterhouseCoopers network of highly experienced and dedicated shipping experts can assist you in deciding how to structure your shipping business. Contact us for an informal discussion about your individual situation and considerations. You can find the contact details of our global shipping experts on page 3 of this brochure and the contact details of our global Transportation & Logistics network on the following page.
5 Final remark
Contacts
PricewaterhouseCoopers 31
Global Transportation & Logistics Leader
Klaus-Dieter Ruske +49 211 981 2877 [email protected] Africa Central Vishal Agarwal +254 20 2855581 [email protected] France Vincent Gaide +33 1 56 57 8391 [email protected]
Global Transportation & Logistics Business Development Peter Kauschke +49 211 981 2167 [email protected] Australia Peter le Huray +61 3 8603 6192 [email protected] Germany Klaus-Dieter Ruske +49 211 981 2877 [email protected]
Global Transportation & Logistics Knowledge Management
Usha Bahl-Schneider +49 69 9585 5425
Belgium
Peter van den Eynde +32 3 259 33 32 [email protected] Greece Socrates Leptos-Bourgi +30 2104284000 [email protected] Canada Todd Thornton +1 905 949 7323 [email protected] Hong Kong Alan Ng +852 2289 2828 [email protected]
Central and Eastern Europe
Nick C. Allen +42251151330 [email protected] India Amrit Pandurangi +91 11 5135 0505 [email protected] China Thomas Leung +86 10 6533 2838 [email protected] Indonesia Thomson Batubara +62 21 5289 0400 [email protected] Cyprus Liakos Theodorou +357 25 555 201 [email protected] Italy Luciano Festa +39 6 57025 2465 [email protected] Denmark Bo Schou-Jacobsen +45 39 45 36 39 [email protected] Japan Yasuhisa Furusawa +813 62665733 [email protected]
PricewaterhouseCoopers' transportation & logistics practice provides industry-focused assurance, tax and advisory services to public and private T&L companies throughout the world. For more information on this brochure, please contact the transportation & logistics leader in your country.
32 Choosing a profitable course around the globe Luxembourg Anne Murrath +352 4948 481 [email protected] Russia John Campbell +7 495 9676279 [email protected] Switzerland Thomas Bruederlin +41 58 792 5579 [email protected] Malaysia Azizan Zakaria +60 (3) 2173 0512 [email protected]
South East Europe
Momchil Vasilev +359 2 93 55 301 [email protected] Taiwan Charles Lai +886 (0) 2 27296666 25186 [email protected] Mexico
Martha Elena Gonzalez +52 55 5263 5834 [email protected] Singapore Kyle Lee +65 6236 3118 [email protected] Turkey Cenk Ulu +90 212 3266060 [email protected] The Netherlands Jeroen Boonacker +31 10 4075 330 [email protected] South Africa Akhter Moosa +27 12 429 0546 [email protected]
United Arab Emirates
Nathan Weatherstone +971 507712906 [email protected] New Zealand Grant Burns +64 9 355 8034 [email protected]
South and Central America
Henrique Luz +55 11 3674 3601 [email protected] United Kingdom Clive Hinds +44 1727 892379 [email protected] Norway Rita Granlund +47 95 26 02 37 [email protected] South Korea Jae-Eun Lee +82-27090470 [email protected]
United States of America
Kenneth Evans +1 305 375 6307 [email protected] Philippines Rodel Acosta +63 2 8452728 [email protected] Spain Ignacio Fernandez +34 915 684 780 [email protected] Portugal Jorge Costa +351 213 599414 [email protected] Sweden Claes Thimfors +46 31 7931131 [email protected]
Assurance
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Tax
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Advisory
pwc.com
This publication was exclusively prepared as a general guideline for relevant issues, and should not be interpreted as professional advice. You should not act on the basis of the information contained in this publication without obtaining further professional advice. No explicit or implicit statement is made or guarantee offered in respect of the correctness or completeness of 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 omission made by yourself or any other person on the basis of the information contained in this publication or for any decision based on that information.
