LUXEMBOURG. Luxembourg: a jurisdiction of choice for the maritime industry

Transcription

1 LUXEMBOURG Luxembourg: a jurisdiction of choice for the maritime industry February 2018

2 Loyens & Loeff shipping team In order to cater for the legal and tax needs of the maritime industry, Loyens & Loeff Luxembourg avails of a dedicated shipping team, which is composed of regulatory, banking & financing, corporate, competition, tax and employment law specialists. Practice groups working closely together ensure that clients can obtain integrated and tailor-made shipping advice. The Luxembourg shipping team is part of Loyens & Loeff s firm-wide cross border shipping team, which assures that the Luxembourg team can efficiently spot and implement opportunities that our other home market jurisdictions (i.e. Netherlands, Belgium and Switzerland) are offering to the maritime industry. For more background on our shipping team we refer to This brochure aims to provide high level background on Luxembourg legal and tax matters, which typically attract the attention of the maritime industry, i.e. the Luxembourg flag and shipping register, accreditation of shipping companies and shipping managers, the Luxembourg Maritime Administration and Cluster, the tax regime applicable to shipping companies and seafarers as well as social security and employment law aspects. Although great care has been taken when compiling this overview, Loyens & Loeff Luxembourg S.à r.l. does not accept any responsibility whatsoever for any consequences arising from the information in this publication being used without its consent. The information provided in the publication is intended for general informational purposes and can not be considered as advice.

3 Luxembourg: a jurisdiction of choice for the maritime industry 3 Luxembourg: a jurisdiction of choice for the maritime industry Although Luxembourg is a land locked country, it has provided since the early nineties for an attractive legal framework for the maritime industry and its seafarers. As a result of this framework, its developed financial industry and attractive business climate, Luxembourg has always been on the shortlist as a jurisdiction of choice for the maritime industry. Also, the proximity to the harbours of Antwerp, Zeebrugge and Rotterdam plays an important role in Luxembourg attractiveness. Many important ship-owners, classification companies and maritime suppliers are located in Luxembourg. The Luxembourg flag and shipping register The Luxembourg flag The Luxembourg maritime register was brought to life by way of a law of 9 November 1990, as amended (Maritime Law). In accordance with the Maritime Law, a vessel has the Luxembourg nationality if it is registered with the Luxembourg maritime register and is authorised to operate under the Luxembourg flag (the Red Lion). Conditions and procedure for registration In principle, registration is open for vessels with a tonnage of at least 25 tons, that are not older than 15 years and which are used, or intended to be used, on a regular basis for the transport by sea of persons or goods, for fishing, for towing or for any other gainful seafaring activity. In order to register a vessel with the Luxembourg public maritime register, it is amongst others required that such vessel is owned for at least 50% by a company or an individual which is a resident of an EU Member State, or is chartered on bare boat or operated by such person. Further, a significant part of the management of the vessel should be conducted out of Luxembourg, which triggers the need for a Luxembourg accredited shipping manager (we refer to the following section). Registration of a vessel or its renewal may be done online via a secure platform and is processed by the Luxembourg Maritime Administration (Commissariat aux Affaires Maritimes). If approved, the application and authorisation shall be presented to the Register of Mortgages (Bureau de la Conservation des Hypothèques Maritimes) within 30 days. The Register of Mortgages will issue the registration certificate to the applicant. The period of validity of the registration certificate cannot exceed two years, but it is renewable. Once registered, the applicant is obliged to inform the authorities about any fact that would require an amendment to the information contained in the public maritime register. Registration fees vary between EUR 100 and EUR 500, depending on the specific type of registration requested.

4 4 The public maritime register accommodates three types of registration: full registration (immatriculation pleine), bareboat in registration (immatriculation coque nue) and bareboat out registration (frètement coque nue). Full registration means that the ownership and in rem rights are registered in Luxembourg and that the vessel is authorised to sail under the Luxembourg flag. Bareboat in registration means that the ownership and in rem rights are registered with a public maritime register outside of Luxembourg, but that the vessel is authorised to operate under the Luxembourg flag on the basis of a bareboat charter party arrangement. Bareboat out registration means that the vessel is registered with a public maritime register outside of Luxembourg while the ownership and in rem rights are registered at the same time with the Luxembourg public maritime register. Under a bareboat out registration, a vessel is not authorised to sail under the Luxembourg flag, but will sail under the flag of the country where it is registered. Accredited shipping companies and shipping managers The Maritime Law also provides for an accreditation and supervision framework for shipping companies. A Luxembourg shipping company is defined as a company that carries out activities in relation to the purchase, the sale, the chartering-in, the charteringout and the management of seagoing ships, as well as the financial operations that are directly or indirectly related to such activities. Before it can start its activities, a Luxembourg shipping company must be accredited with the Luxembourg Maritime Administration. The Maritime Law does not require that a shipping company adopts a specific legal form, which leaves a lot of flexibility to choose from the various legal forms the Luxembourg company toolbox has to offer. The accreditation process requires amongst others that the Luxembourg company must appoint a Luxembourg accredited shipping manager (dirigeant maritime agréé) who can either be (i) an external service provider or (ii) a designated person / entity applying for such licence. The accredited shipping manager does not necessarily need to be a member of the management body of the Luxembourg shipping company. Shipping management may either be carried out individually or under the form of a company. An accredited shipping manager may manage several shipping companies. Individuals or legal persons willing to become an accredited shipping manager must have their professional residence in Luxembourg. Individual shipping managers or members of the management bodies of the corporate shipping managers must be able to provide evidence of their personal probity and professional experience. The Luxembourg Maritime Administration and Cluster Compliance with the Maritime Law is supervised and monitored by the Luxembourg Maritime Administration. The Luxembourg Maritime Administration is headed by the Commissioner of Maritime Affairs and is placed under the authority of the Minister of Economy and Foreign Trade. More specifically, the Commissioner of Maritime Affairs is responsible for processing requests for the registration of vessels, for ascertaining that the persons responsible for the management of shipping companies applying for an accreditation meet the criteria of professional integrity and experience and for the supervision of accredited shipping companies. Since 2008, Luxembourg also has a well-established Maritime Cluster, bringing together ship-owners, ship-logistics, shipsurveillance and service providing companies. The Maritime Cluster is the voice of the Luxembourg maritime economy and promotes the interests of the Blue Economy in the Grand-Duchy. For more background on the Maritime Cluster we refer to

5 Luxembourg: a jurisdiction of choice for the maritime industry 5 Taxation of a shipping company Being subject to Luxembourg taxation A company is subject to Luxembourg taxation if its place of effective management is located in Luxembourg, is incorporated under Luxembourg corporate law, or meets both criteria. The place of effective management of a company is the place where the key management and commercial decisions, that are necessary for the conduct of the entity s business as a whole, are made in substance. In case of a residency conflict, double tax treaties - superseding domestic tax laws - typically allocate sole taxation rights not to the country of incorporation but to the country where the place of effective management of a company is situated. Most double tax treaties to which Luxembourg is a party specifically determine that profits from ships that operate in international maritime traffic or boats that are engaged in inland waterways can only be taxed by the state in which the enterprise has its effective place of management, by exclusion of the state where the vessel is operated. Applicable Luxembourg taxes The Luxembourg income tax law subjects companies to tax on their worldwide income at a headline rate of 19% in 2017 and 18% in 2018 (to which a surcharge for the unemployment fund of 1,26% should be added). In addition, corporate taxpayers are subject to municipal business tax and net wealth tax. Similar to corporate income tax, municipal business tax is a tax on income and is levied at a rate of 6.75% in the municipality of Luxembourg City. Net wealth tax is a tax levied on the fair market value of the net assets of a company on the first of January of each year at a headline rate of 0.5%. Luxembourg tax law does not provide for a tonnage tax regime by which the taxable profits of a qualifying company would be determined on the basis of the tonnage of a qualifying vessel times a nominal amount per operating day. Such regimes typically result in a limited tax base and therefore in minimal tax leakage only. Despite the absence of a tonnage tax regime, Luxembourg tax law offers a variety of interesting incentives that typically lead to a similarly limited tax exposure. Please find hereafter a high level overview of the various available tax incentives: Income tax incentive investment tax credits Upon request, a Luxembourg company can benefit from the complementary investment tax credit (bonification d impôt pour investissement complémentaire) and the global investment tax credit (bonification d impôt pour investissement global) for qualifying new investments. The investment must be allocable to a Luxembourg enterprise and should be intended to stay permanently with that enterprise. The new investment must furthermore be put to use in the European Economic Area (i.e. Member States of the European Union, Iceland, Liechtenstein and Norway). An accredited shipping company (as defined above) is entitled to investment tax credits for investments in vessels operated in international maritime traffic, irrespective of where they are put to use in the European Economic Area and irrespective of whether the vessels are new or second-hand. If a vessel is second-hand, a shipping company is only entitled to investment tax credits if it can prove that the vessel was not eligible for investment tax credits in the past. Investment tax credits can be offset against the shipping company s corporate income tax liability, with the possibility to carry forward excess credits for a maximum of up to 10 years. The complementary tax credit amounts to 13% of the difference between the net book value of qualifying additional investments made during a year and a specific reference value (average net book value of these assets during the past five years). The global investment tax credit amounts to 8% for qualifying investments up to an acquisition price of EUR 150,000 and 2% for the part of the acquisition price exceeding

6 6 EUR 150,000. A Luxembourg accredited shipping company that acquires a vessel operated in international maritime traffic will therefore typically benefit from a tax credit of some 15% of the acquisition price of the vessel. Making use of the investment tax credits generally translates in a minimal tax basis for a number of years which achieves a similar situation, in terms of tax leakage, as if a tonnage tax was applied to calculate the taxable profits of the shipping company. Particular rules dealing with the allocation of the credits apply for vessels and other assets that are operated under specific financial lease arrangements. For financial lease arrangements, which provide for an irrevocable term during which the lessee is obliged to pay the purchase price or the full cost price including ancillary costs and financing costs, it is the lessee, subject to certain formalities, by exclusion of the lessor, who can claim entitlement to the tax credits. For a financial lease agreement not meeting the aforementioned conditions, the lessor is entitled to the investment tax credits provided that the relevant asset is used by the lessee in the context of a taxable enterprise conducted in Luxembourg. If a Luxembourg lessor aims to claim tax credits in respect of a vessel that is leased to a foreign party, it is thus relevant that the lease arrangement does not qualify as a financial lease but as an operational lease (e.g. structured as a bareboat arrangement or a time charter). To qualify a lease agreement as either a financial or operational lease it is of utmost importance to properly analyse the terms and conditions of the contract. Income tax incentive - neutralisation of capital gains and depreciation A Luxembourg taxpayer has the option to neutralise a capital gain, realised in the course of its ongoing operations on assets being buildings or non-depreciable assets. The assets on which the gain is to be neutralised must have been part of the net assets of the company for at least five years. Although a vessel is not a building or a non-depreciable asset, an accredited shipping company has the possibility to neutralise a capital gain on a vessel operated in international maritime traffic. In the financial year of realisation, the gain is neutralised through a transfer of the gain to qualifying replacement assets acquired or created by the company. The tax book value of the new asset - typically also a vessel - is reduced with the amount of the gain. The tax on the gain is effectively recouped gradually by a reduced amortisation on the replacement asset or at the moment a gain is realised on the replacement asset. Note however that a gain on the replacement asset can again be neutralised in a similar manner.

7 Luxembourg: a jurisdiction of choice for the maritime industry 7 If the investment in the replacement asset does not occur before the end of the financial year, the gain will be taxable unless a reinvestment intention can be demonstrated and the gain is allocated to a specific reserve in the financial accounts. That reserve will be released and will be taxable if there is no longer an intention to make a reinvestment in a replacement asset, no reinvestment took place by the end of the second financial year following the year of disposal and in the event the enterprise is transferred or liquidated. In case of re-investment, the company can opt to reduce the cost price of that new asset with the amount of the gain. The tax on the gain is effectively recouped in the same manner as outlined above. The depreciation of a vessel is tax deductible. A vessel is generally depreciated following the linear depreciation method, meaning at an annual amount which is equal to the difference between its acquisition value minus its recovery value divided by the useful economic lifetime as expressed in years. Upon request, a taxpayer may opt to postpone depreciation to subsequent years. Alternatively, accelerated depreciation under the annual declining balance sheet method may be applied. This method allows an annual deduction of a fixed percentage of the acquisition price, which can be at maximum three times higher than the annual percentage under the linear method, without exceeding 30%. As a matter of example, a vessel with a purchase price of 100, a recovery value of 20 and a life time of 20 years would be depreciated under the linear method for an amount of 4 per annum, which is 4% of the acquisition price. Under the declining balance sheet method, the depreciation rate is capped at 12% (4% times 3) per year. A taxpayer can change from the annual declining balance sheet method to the linear method, but not the other way around. The change is mandatory in the event of extraordinary depreciation. Extraordinary depreciation is permitted in the event of extraordinary technical or economic loss. The depreciation volume and method should, as a matter of principle, be supported by the financial statements. Municipal business tax incentive exemption for the maritime industry Municipal business tax is levied on a similar basis as the corporate income tax, with the difference that it has a territorial character. This means that if the profits of a Luxembourg enterprise are allocated to a foreign permanent establishment, they are not subject to municipal business tax. Most types of vessels do not qualify as a foreign permanent establishment (i.e. absence of a fixed place of business and absence of operations in an economic and geographical coherent area). The profits allocable to the economic operations of such types of vessels ordinarily fall within the scope of municipal business tax. However, in line with the territorial character of the municipal business tax, the income earned from operating or chartering vessels used in international maritime traffic is excluded from the municipal business tax basis, even in case they do not qualify as foreign permanent establishments. Net wealth tax incentive reduction rules Under specific conditions, a reduction for net wealth tax purposes is available. One of these conditions is that the reduction cannot exceed the income tax due in the year preceding the year for which the reduction is requested. Absent any further measures, this would mean that shipping companies would be in a payable position for net wealth tax purposes, as they do typically only pay a very limited amount of income tax as a result of the investment tax credits they rely on (see above). However, for purposes of the net wealth tax reduction, the income tax payable is to be determined prior to the application of the investment tax credits. As such, shipping companies with a high net asset value can typically benefit from a net wealth tax reduction, despite their tax neutral position for income tax purposes. Net wealth tax can generally not be reduced below a minimum level. The minimum annual amount of net wealth tax is contingent on balance sheet total. Applicable amounts vary from EUR 535, for a total balance sheet of less than EUR 350,000 to EUR 32,100 for a total balance sheet exceeding EUR 30,000,000.

8 8 VAT A shipping company having for activities the exploitation of ships for consideration qualifies as taxable person for Luxembourg VAT purposes. The exploitation itself of the ships should be taxable from a Luxembourg VAT perspective. However, one ought to carefully analyse the transactions performed as the VAT treatment may differ from one to another (e.g. leasing out of ships, international transportation, digging activities, etc.). In particular, due to its qualification of VAT taxable person in Luxembourg, a shipping company should pay specific attention to the acquisitions of goods/services, which should be thoroughly analysed from a VAT perspective (e.g. the VAT treatment of the acquisition of the ships may notably be impacted by the place of disposal, even when the acquisition takes place outside Luxembourg or the EU territory). A shipping company having established its activities in Luxembourg and performing such exploitation of ships will generally be required to register for Luxembourg VAT under the normal regime and file periodical VAT returns, the frequency of which depends on the annual turnover. Such activities should grant the right to recover input VAT incurred in Luxembourg, therefore allowing one to avoid a VAT leakage. The financing of the assets is an additional point of attention, as it may lead to unexpected and unrecoverable VAT. Leasing structures are often used in practice to avoid such tax leakage. Seafarers, taxation, social security and labour law aspects Taxation of employment income Luxembourg resident seafarers are subject to the common Luxembourg rules for employment income. This means that they are subject to progressive tax rates varying from 0% to 42%. On top of that, a surcharge for the unemployment fund of 7% (9% for a taxable income of more than EUR EUR for a household of two persons) applies, so that the marginal top income tax rate is 45,78% for As Luxembourg is a land-locked country, the likelihood that seafarers are non-residents is important. Non-residents are taxed by Luxembourg on their salary only if their activities are physically performed within the territory of Luxembourg or, if they come for the account of a domestic employer (in line with the principle of mise

9 Luxembourg: a jurisdiction of choice for the maritime industry 9 en valeur ). A seafarer qualifying under the mise en valeur principle is taxed on his gross salary by way of a 10% withholding tax applied to 90% of his gross income minus a monthly allowance of EUR 1,800. The seafarer is however not subject to taxation if it is proven that his salary is subject to a foreign tax equivalent to the Luxembourg domestic income tax. Tax treaties may set aside the above taxation rights that Luxembourg claims under its domestic law. Most tax treaties to which Luxembourg is a party follow the OECD Model Convention (MC). The 2017 version of the MC exclusively allocates the taxation rights for employment income to the state of residence of the employee. As an exception, subject to certain conditions, the state where the employment is exercised may claim the taxation rights. As seafarers do not exercise their activities in Luxembourg, the taxation rights would, under the general rule, by default be exclusively allocated to the state of residence of the seafarer. This means that the non-resident taxation rights Luxembourg claims for taxing seafarers are often superseded. Similarly, the 2017 version of the MC allocates the taxation rights over the income of a seafarer that exercises its activity on board of a vessel operated in international traffic to the state of residence of that seafarer, unless the vessel would be operated solely within the other contracting state. Luxembourg social security Luxembourg social security is levied from both the employer as well as the employee. The employer contributes at a rate varying between 12,52% and 15,01% and the employee at a rate of 12,45% up to an annual salary of EUR 119,915,16 for Salary going beyond that level is not subject to social security charges. Luxembourg social security applies for: (i) Luxembourg nationals, if employed on a vessel flying the Luxembourg flag. (ii) EU/EEA of Swiss nationals, if employed on a vessel flying the Luxembourg flag, unless the employer whose place of business is another EU/EEA state of Switzerland and the seafarer has his residence there, he is subject to the social security scheme of that state (exceptions may apply). (iii) Nationals of other states, if employed on a vessel flying the Luxembourg flag and residing in Luxembourg. If they do not reside in Luxembourg the convention determines the social security scheme (flag state or residence state), if not the scheme of the residency state applies. Labour law aspects Employment contracts entered into between a ship-owner and a sea farer must comply with the provisions of the Maritime Law, and notably: upon preliminary delivery of a medical certificate issued by a doctor approved by the Commissioner of Maritime Affairs attesting that the seaman meets the physical condition required for service at sea and that there is no danger to his health or that of the crew; a written employment contract drawn up in two originals and signed no later than the first day of commencement of work, and containing at least the following information: the name of the ship owner and of his representative (where applicable); the surname and forenames of the crew member, together with the following particulars: date and place of birth; permanent address; nationality; licenses and qualification certificates;

10 10 heirs or beneficiaries; passport number and expiry date; seafarer s book number; the work for which he is employed; place and date of taking up duties and name of the ship; the voyage or voyages which will be undertaken; salary; the social security system to be applied; duration of the contract; place and date of engagement; and whether the engagement is for a specific duration, an indefinite duration or for one or more voyages. If the engagement is for an indefinite duration, the contract must specify the minimum notice period to be observed in case of termination by one of the parties. The contract of maritime employment entered into for indefinite duration may be terminated by giving notice in writing against a receipt signed by the principal or the seafarer, or by a verbal declaration recorded in the logbook, made in the presence of two witnesses who shall sign the logbook or, if necessary, by registered letter. On termination, employees are entitled to a notice period calculated according to their length of service within the company. Unless the employer and employee have agreed otherwise in the employment contract, notice periods are calculated as follows: Service Employer Seafarer Less than three months One week One week Between three months and three years Two weeks Two weeks More than three years Six weeks Six weeks In addition to the notice period, seafarers dismissed with notice are entitled to a severance payment calculated according to their length of service. Severance payments are calculated as follows: (i) from 5 up to 10 years of employment one month s salary, (ii) from 10 up to 15 years of employment two months salary; and (iii) over 15 years of employment three months salary. Seafarers dismissed for gross misconduct are not granted a severance payment. Ship financings Tailor-made is the key word of this industry in Luxembourg. Various national and cross-border ship financing solutions exist, such as bank lending, bond issuances, securitizations, joint venture structures and regulated or unregulated investment funds structures. The choice depends on the needs of the parties involved. Luxembourg also offers various types of maritime mortgages. Such mortgages are internationally well-known by banks and financial institutions, and also explain the high position of Luxembourg in the banks short lists.

11 Contact information Loyens & Loeff Luxembourg S.à r.l. Avocats à la Cour 18-20, rue Edward Steichen L-2540 Luxembourg T F Direct and indirect tax Frank van Kuijk Partner - direct tax T E Frank.van.Kuijk@loyensloeff.com Tom Hamen Associate - direct tax T E Tom.Hamen@loyensloeff.com Thierry Charon Partner - indirect tax T E Thierry.Charon@loyensloeff.com Karin Finné Senior Associate - indirect tax T E Karin.Finné@loyensloeff.com Ship finance, registration and accreditation Judith Raijmakers Partner - banking and finance T E Judith.Raijmakers@loyensloeff.com Elie-Raphaël Soudry Senior Associate - banking and finance T E Elie-Raphael.Soudry@loyensloeff.com Wage tax and labour law Annie Elfassi Local Partner - labour law T E Annie.Elfassi@loyensloeff.com Kheira Mebrek Senior Associate - wage tax and social security T E Kheira.Mebrek@loyensloeff.com

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