Opportunities and challenges for the shipping industry* Introduction Belgium China Cyprus Denmark France Germany Greece Hong Kong Ireland Italy Luxembourg Malta Mauritius The Netherlands Norway Poland Portugal Singapore Spain Sweden United Kingdom
Opportunities and challenges for the shipping industry Advancing globalisation, more flexible tax regimes and an increasingly mobile workforce are creating opportunities and challenges for the shipping industry. 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. Challenge yourself with these questions Are you completely happy with your current tax structure is it best in class? Could you lower the cost of your working capital through tax optimised funding? Are you in control of tax compliance wherever you operate for all taxes? PricewaterhouseCoopers helps you to address these questions With its well established global network of shipping industry specialists, PricewaterhouseCoopers offers comprehensive taxation and legal advice to help you achieve the best tax operational model for your business.
Facing the challenges The wide range of taxes falling on shipping business can be a major burden. Industry volatility and complex rules can make it difficult to manage the group s taxation. A flexible, efficient structure and well understood procedures are essential. The shipping business is capital intensive: technical and environmental developments trigger an ongoing need for investment. Tax optimised financing models help lower the cost of capital investment. Managing the workforce and meeting employer compliance obligations at the lowest cost has become increasingly challenging, as shipping companies and groups become more global through alliances and mergers. PricewaterhouseCoopers can help add value to your business Through our shipping industry experience and expertise we can help you realise the best solutions to some of the key challenges that face the industry: Taxation of shipping income and Tonnage Tax 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. International Mobility and Cross-border Employment An increasingly mobile workforce can create tax residence or permanent establishment problems. You may even inadvertently be allowing your staff to work abroad illegally. PricewaterhouseCoopers has considerable experience of helping global shipping businesses to manage the many company and employee taxation risks associated with cross-border operations. Tax risk management Tax risk management should be on the Boardroom agenda. PricewaterhouseCoopers works with your key people to establish clarity around the company s tax risk profile, develop global tax strategies and policies, and design a tax risk management model that meets your commercial objectives. By working in partnership with you and your management team, our proactive approach helps you to create and protect stakeholder value. M&A considerations Transactions are often complex and impacted by the regulatory environment, competition issues, or opportunities for subsidies. PricewaterhouseCoopers is one of the leading M&A advisers in these areas. We are also market leading providers of associated transaction services including financial due diligence, tax structuring and legal services. We also provide post-deal integration support to help you meet value expectations. Global Compliance The combination of dedicated teams with state of the art software tools allows us to offer you enhanced control of your compliance globally, efficiently and cost effectively, making us a leading provider in corporate tax, VAT, sales tax and payroll compliance. Lowering the cost of capital PricewaterhouseCoopers has built up considerable know-how in tax optimised financing. Our experience allows you to save on your investment cost. PricewaterhouseCoopers Shipping Network PricewaterhouseCoopers has established a European and Global Shipping Network of industry experts. Within this network, a dedicated team of tax and legal professionals provide advice and support to businesses like yours. This network of highly experienced professionals can advise your company at an international level and guarantee you responsive and consistent high quality services. Through our network of local specialists PricewaterhouseCoopers can offer the solutions and help needed to manage your business on a local and global basis. The PricewaterhouseCoopers Shipping Network has built on 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.
TRANSPORT & LOGISTICS INDUSTRY NETWORK Global Network, Local Expertise, Individual Services Belgium* Solutions for shipping companies Opportunities in Belgium Thanks to its central location, Belgium regularly serves as a spring board to the European Union. A major part of the EU s economic activity is located in an area 1,500 km long and 200 km wide running from Liverpool (UK) to Genoa (Italy). Belgium is located right in the centre of this area and therefore deserves to be called the hub of Europe. Belgium s role as a transit zone is due chiefly to the fact that an important part of Europe s road traffic is performed by Belgian carriers. In addition, Antwerp is Europe s second largest port and one of the 10 largest in the world. Since the introduction of a series of (tax) measures in support of companies running maritime operations, Belgium saw some of its most important maritime companies returning to base flying the Belgian flag. Based on the number of rulings already requested for and granted in a short period of time, one may conclude that due to the competitiveness of the newly installed regime Belgium will regain some of the lost ground in the maritime sector. Belgian ship register Registering with Belgium s Maritime Registry implies flying the Belgian flag. To be admitted to registration, all ships to be registered in Belgium shall have to be inspected beforehand by the Belgian Maritime Inspectorate. Seagoing vessels are registered upon submission of certain documents to the register. Those include amongst other: Registration statement; Original tonnage certificates; A document showing a clean title of ownership (building contract, purchasing document, assets brought into business, etc.); The articles of association of the company or companies owning the seagoing vessel. In principle, command over Belgian-registered ships should be entrusted to Masters of Belgian nationality. The empowered official may depart from this rule, at the shipowner s request, if the needs of trade or navigation so require. Belgian wage taxes and Social Security A Belgian employer, employing employees who are taxable in Belgium, is in principle obliged to withhold Belgian wage taxes on the income derived by the employees and deposit the amount to the account of the Belgian tax authorities. Employers belonging to the merchant marine, dredging or towage sector are however, under certain conditions, exempted from the obligation to transfer the amount of the wage taxes withheld. As such an incentive, equal to the amount of wage taxes withheld, is given by the Belgian state to employers active in these sectors. In pursuance of domestic law, Belgian Social Security coverage is available for seafarers who are on board of a Belgian flag ship, enrolled in the Belgian Maritime Register and are resident of the European Economic Area or countries with which Belgium has concluded a bilateral Social Security treaty. In case the Belgian Social Security scheme applies, the seafarers fall under a particular category seen the specifics inherent to their profession. The level of Social Security contributions for this category is less than the ordinary Social Security contributions due for employees (total exemption for the employer s Social Security contributions, partial exemption for the employee s contributions and reduced contributions to the Accidents at Work Fund). Belgian tax framework Belgian shipping companies are subject to the general tax framework applicable to all commercial companies with the exception of some tax incentives that are specially intended for shipping companies. Thanks to a comprehensive treaty framework (e.g. with Hong Kong) and specific Belgian tax incentives (e.g. the notional interest deduction concept), Belgium can be an interesting option for shipping companies wishing to lower their overall effective tax rate.
Belgium* A Belgian entity operating a vessel is subject to Corporate Income Tax at a rate of 33.99% on its net taxable profits. Some of the main Belgian tax incentives for shipping companies are the following: A. Tonnage tax regime ( TTS ) Generalities - Both Belgian companies and Belgian branches of foreign companies may elect into the TTS, provided certain conditions and qualifications are being complied with; - Shipping entities can elect into the TTS if they are engaged in maritime transport, i.e. when the entities derive profits from sea shipping. The latter concept is explicitly defined in Belgian law; - The requirement to fly a Member State s flag in order to constitute an eligible shipping activity need not be met, if the conditions thereto, as set out in the Community Guidelines, are met. Tax advantages - The applicability of the TTS is secured by a ruling granted for an initial period of 10 years, with an automatic renewal every 10 years; - Capital gains upon the sale of seagoing vessels are not taxable; - Corporate income taxes are levied on a virtual taxable profit computed by applying a notional profit tax to the tonnage, in accordance with the following scales: Up to 1,000 tons: EUR 1.00 per 100 net tons From 1,001 to 10,000 tons: EUR 0.60 per 100 net tons From 10,001 to 20,000 tons: EUR 0.40 per 100 net tons From 20,001 to 40,000 tons: EUR 0.20 per 100 net tons In excess of 40,000 tons: EUR 0.05 per 100 net tons Belgium is the first Member State to introduce the low rate of EUR 0.05. B. Other advantages for shipping companies not electing into the TTS Accelerated amortisation scheme: For new seagoing vessels (or co-owned parts or shares thereof) one can apply an accelerated amortisation with a scale of 20% for the first accounting year, 15% for the two following accounting years and 10% for the remaining accounting years. For secondhand seagoing vessels (or co-owned parts or shares thereof) and costs related to the renovation or modernisation upon acquisition thereof, the same amortisation scales can be applied, provided certain conditions are met. Exemption from capital gains on vessels: Capital gains realised on the seagoing vessels held by taxpayers that are exclusively engaged in sea shipping business, are exempt from corporate income tax, provided a.o. the entire sales price is reinvested and the ships have been accounted for as fixed assets for more than 5 years prior to realisation. National interest deduction: As from tax year 2007, Belgian corporate income taxpayers are for tax purposes allowed to claim a notional interest deduction, reflecting the economic cost of the use of capital equal to the cost of long-term risk free financing. As for determining the basis on which the notional interest deduction is calculated, the company s/ branch s (share) capital plus its retained earnings, under Belgian GAAP and as per the last year-end date are taken into account. For the tax year 2009 (financial year endings as per December 31, 2008 or later), the notional interest deduction rate is set at 4.307%. The rate is based on the average of the monthly published interest rate, which is paid on 10-year Belgian Government Bonds, of the prior year. Hence, it is adjusted annually. Investment deduction: Belgian companies or branches that are exclusively engaged in the sea shipping business with new sea-going vessels or second-hand vessels that are used for the first time by a Belgian taxpayer, are eligible for an investment deduction of 30% of the acquisition price. Failing sufficient income, the unused portion of the deduction can be carried over to subsequent years. Such carry-over is suspended during, and re-activated after a tonnage tax period. Contact For more information, please contact: Pascal Janssens pascal.janssens@pwc.be Tel.: +32 (0)3 259 3119 Information in this leaflet was last updated in January 2008 and is presented in a summarised form and is intended for general guidance only. Specific advice should be obtained before any action is taken. 2008 PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. www.pwc.com/be
TRANSPORT & LOGISTICS INDUSTRY NETWORK Global Network, Local Expertise, Individual Services China* Solutions for shipping companies Opportunities in China Introduction Ever since China s adoption of its Open Door policy in 1979, the Chinese Government has introduced various policies and measures to attract foreign investment into China. The pace of opening to the outside world, however, has varied with industry sectors. Foreign participation in the maritime business in China has been regulated until China s formal accession to the World Trade Organisation ( WTO ) in December 2001, which led to China s opening up of market access to various previously regulated industries. Relaxation in the rules has provided foreign investors the opportunity to step up their participation/ involvement in the maritime business in China. Depending on the nature of the maritime activities, a foreign investor can now participate in the form of joint ventures or wholly foreignowned enterprises. China has also experienced remarkable growth in its foreign trade in recent years. Latest statistics ranked China as the third largest trading country in the world. Reportedly more than 80% of exports are through ocean freight and freight volume is forecast to grow by 8% to 10% on yearly basis. Port development is also a priority for the Chinese Government, seeing to the construction of excellent port facilities throughout the coastlines. The right business environment, relaxation in the regulatory regime for foreign investors all contribute towards a favourable environment for the shipping industry s rapid development and present opportunities for domestic and foreign players alike. General PRC Corporate Tax Regime Corporate Income Tax Generally, all Foreign-Invested Enterprises ( FIEs ) incorporated in China are subject to Corporate Income Tax ( CIT ) on their profits. The standard CIT rate used to be 30% plus a local tax of 3%. The new CIT Law was promulgated on March 16, 2007 and came into effect from January 1, 2008. The new standard CIT rate is reduced to 25%. A lower tax rate is available for qualified small and thin-profit companies (20%) and for qualified high/new technology enterprises (15%). FIEs which are currently subject to 33% CIT rate should immediately benefit from the new reduced rate. FIEs engaged in the transportation of goods (including sea, land, air) which were incorporated prior to March 16, 2007 and are qualified for tax incentives (in the form of tax holiday or reduced tax rate) under the existing CIT Law can continue to enjoy such incentives for a prescribed period under the grandfathering provisions in the new CIT Law. Other than this, there appears to be little incentives available under the new CIT Law for FIEs in this sector. Business Tax Business Tax ( BT ) is a tax on the income earned from the provision of certain services in China. BT rates range from 3% to 20% depending on the nature of services. Income from transportation service is subject to BT at the rate of 3%. Other services such as shipping agency, freight forwarding, logistics services etc. are subject to BT at the rate of 5%. BT is usually calculated on gross basis with limited allowable deductions. For agency services, e.g. shipping agency, freight forwarding, etc, BT is calculated on net income basis. Stamp Duty Stamp Duty is levied on dutiable documents at prescribed rates. For contracts or equivalent documents for transportation, the relevant stamp duty rate is 0.05% on the transportation fee. Other taxes FIEs incorporated in China (including shipping FIEs) may potentially be subject to a number of other taxes such as Deed Tax, Land Appreciation Tax, Urban Real Estate Tax, Motor Vehicle Acquisition Tax and various other local levies.
China* Avoidance of Double Taxation According to the relevant Chinese tax law and regulations, if a foreign shipping company derives shipping income from carrying passengers, cargo and parcels from Chinese ports, the gross shipping revenue so earned shall be subject to BT and the net shipping income shall be subject to CIT. In this regard, the PRC tax authorities adopt a deemed profit method to assess the CIT on the taxable profit of foreign shipping companies. The deemed profit rate is 5% of the gross shipping revenue. Thus the CIT is 1.65% (33% x 5%) of the gross shipping revenue. Therefore the total tax cost for a foreign shipping company is 4.65% (being 1.65% plus BT of 3%) on gross shipping income. Notwithstanding the above, China has an extensive network of Double Taxation Treaties (currently signed up with more than 90 countries) and Shipping and Air Transport Agreements (currently signed up with more than 50 countries) providing for reciprocal tax exemption or a reduced tax rate on the relevant income for both the eligible companies themselves as well as crews working on board. Contacts For more information, please contact: Betty Ko betty.ko@cn.pwc.com Tel.: +86 21 6123 3380 Linjun Shen linjun.shen@cn.pwc.com Tel.: +86 21 6123 3060 Information in this leaflet was last updated in January 2008 and is presented in a summarised form and is intended for general guidance only. Specific advice should be obtained before any action is taken. 2008 PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. www.pwc.com/cn
TRANSPORT & LOGISTICS INDUSTRY NETWORK Global Network, Local Expertise, Individual Services Cyprus* Solutions for shipping companies Opportunities in Cyprus Cyprus is considered to be an ideal centre for the establishment and operation of shipping and shipping related companies, which seek to exploit the benefits of Cyprus strategic position and its well-developed infrastructure. The double tax treaties signed and the numerous bilateral agreements in conjunction with the tax benefits introduced for both foreign and local shipowners, triggered the tremendous expansion of the Cyprus Shipping Registry, both in terms of number of vessels registered as well as gross tonnage. Today, Cyprus ranks among the top ten countries with one of the largest shipping fleet in the world, with ships representing a gross tonnage of 22 million. The Cyprus Merchant fleet represents approximately 6% of the merchant fleet under EU flags being the 3 rd largest fleet in the EU. Cyprus has also become one of the largest third-party shipmanagement centres with about 100 shipmanagement companies. The island has its own well-established maritime infrastructure comprising the admiralty courts, unions and Classification Society. It also has a specialised department, The Department of Merchant Shipping, which is operating under the Ministry of Communications and Works and offers a dedicated service to the shipping industry. A substantial percentage of the vessels in the Cyprus Registry is currently managed by specialised ship management companies, which operate from fully manned offices in Cyprus. This promotes the proximity and close relationship between the Cyprus Government and the shipping community. Taxation Cyprus offers complete tax exemption on all profits and dividends arising from shipping operations. This tax relief was introduced in 1963 for 10 years and has been extended a number of times. The current expiry date is December 31, 2020 and it is likely that it will be extended. Essentially the relief provides that: no income tax is payable on the profits derived from any shipping activity by a Cyprus shipping company which owns and uses or charters out ships under the Cyprus flag or on dividends paid out of such profits at all levels of distribution; the exemption extends to the profits generated by a bare boat charterer of a foreign flag vessel, registered in Cyprus under parallel registration; no capital gains tax is payable on the sale or transfer of a ship (any flag) or shares in a shipping company; no income tax is payable on the salaries of officers and crew of Cyprus ships which operate in international waters; no stamp duty is payable on bills of sale and mortgages on ships and related documents. Cyprus international business companies, that generate profits from shipping activities of ships under non-cyprus flag, are taxed under normal taxation rules and they are liable to corporation tax at the rate of 10%. Dividend distributions from such profits: have no WHT if paid to non Cyprus residents are fully exempt from tax in the hands of a Cyprus holding Company. Tonnage tax Tonnage tax is payable by shipowners of Cyprus flag ships. The tax depends on the tonnage of the ship and its age. Tonnage Tax of a ship = (Basic Charge + Gross Tonnage Increment) x Age Multiplier Shipmanagement activities Cyprus shipmanagement companies that manage Cyprus flag vessels pay no tax, whereas the shipmanagment of foreign flag vessels is subject to tonnage tax at 25% of the tonnage tax rates or subject to 4.25% tax on the profits.
Cyprus* In particular, the main characteristics of the shipmanagment tax regime are the following: The taxation regime covers the three types of internationally accepted shipmanagement services, i.e. crewing, technical and commercial management of ships, rendered under a contract with the owner or bareboat charterer of a ship, by persons who have an office in Cyprus manned with sufficient personnel in number and qualifications. Shipmanagement companies are taxed in accordance with the provisions of the Merchant Shipping (Fees and Taxing provisions) Law, unless they elect to be taxed for a specific tax year in accordance with the provisions of the Income Tax Law. In accordance with the provisions of the Merchant Shipping (Fees and Taxing Provisions) Law, and for the period ending December 31, 2020, any income arising from the provision of shipmanagement services is subject to a tax rate equal to 25% of the tonnage tax rates of the vessels under management. This tax is applicable to foreign flag vessels under management and is calculated based on the annual tonnage tax these vessels would have to pay if they were registered in the Cyprus Register of Ships. Shipmanagement services offered to Cyprus flag vessels are exempt. In accordance with the same legislation, no tax will be withheld from dividends distributed out of profits generated from shipmanagement activities and no tax is imposed to the recipient shareholders in respect of these dividends at all levels of distribution. Registration of ships A vessel may be registered in Cyprus if more than one half of the shares of the ship are owned by: a Cypriot, or a corporation established and operating under and in accordance with the laws of the Republic of Cyprus and having its registered office in the Republic, or a corporation incorporated outside the Republic in which the controlling interest is vested in Cypriots (physical persons), if specially authorised by a decision of the Council of Ministers of the Republic. In view of the above requirements, all non-cypriot owners who wish to register their ships under the Cyprus flag must incorporate a company in Cyprus which will either acquire the ship in its name, or bareboat charter the ship. Provisional registration Cyprus merchant shipping legislation allows for the provisional registration of a vessel and most owners usually opt to have their ship provisionally registered first. The provisional registration is deemed to be a full registration for a period of up to six months and it can be extended further for three months with an application prior to the expiration of the sixmonth period. Permanent registration The permanent registration of a vessel registered provisionally under the Cyprus flag must be completed within nine months, including the three-month extension period, which is the maximum provisional registration period. It is not necessary for the ship to be present in a Cyprus port. Once the necessary documents are submitted and formalities completed, the Registrar of Cyprus ships will issue the Certificate of Cyprus Registry and the vessel will be permanently registered under the Cyprus flag. Parallel registration Under Cyprus legislation the possibility of parallel (bareboat) registration of vessels exists. The legislation provides for the two forms of internationally accepted bareboat registration: Parallelin registration and Parallel-out registration. These two options offer some very interesting opportunities for leaseback, hire purchase and finance arrangements. The administrative practice of the Department of Merchant Shipping has confirmed that the parallel (bareboat) registration of vessels under the Cyprus regime may be effected with more than 20 states whose legislation is compatible with Cyprus legislation. Contacts For more information, please contact: Cleo Papadopoulou cleo.papadopoulou@cy.pwc.com Tel.: +357-25555000 Nicos Neophytou nicos.neophytou@cy.pwc.com Tel.: +357-25555000 Information in this leaflet was last updated in September 2007 and is presented in a summarised form and is intended for general guidance only. Specific advice should be obtained before any action is taken. 2007 PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. www.pwc.com/cy
TRANSPORT & LOGISTICS INDUSTRY NETWORK Global Network, Local Expertise, Individual Services Denmark* Solutions for shipping companies Opportunities in Denmark The Danish tonnage tax system The Danish Tonnage Tax Act was adopted by the Danish Parliament on April 18, 2002. The decision of whether or not to enter into the scheme is binding for a period of 10 years. This also applies to newly established shipping entities. Possibilities exist to transfer shipping entities, which have not from the beginning applied the Danish Tonnage Tax Act, to the Danish Tonnage Tax Act. The main principle of the tonnage tax regime is that shipping entities which qualify for the usage of this regime are not taxed on the basis of their actual income derived from their business, but on a fictitious income based on the net tons carrying capability of their fleet used for purposes covered by the tonnage tax scheme. Shipping entities, which do not apply the Danish Tonnage Tax Act, will be taxed according to the general tax provisions in Denmark. This presentation only provides a general overview of the Danish tonnage tax scheme, and does not cover the special Seamen taxation rules besides the following brief description. If the ship is registered in the Danish International Shipregister ( DIS ), DIS gives Danish ship owners an opportunity to reduce their manning costs to an internationally competitive level. Like other countries, Denmark has chosen tax incentives as a means of reducing costs. The seafarer is thus exempt from paying income tax on the salary earned on DIS ships, so the shipping company in fact only has to pay net wages, thereby reducing its labour costs significantly. Requirements in order to qualify The tonnage tax scheme is available to Danish shipping entities organised as limited liability companies (A/S or ApS), foreign shipping companies with the place of management control in Denmark, and EU shipping companies with a permanent establishment in Denmark. As a main rule, group related shipping companies based in Denmark must make the same choice regarding the tonnage tax scheme. However shipping companies which do not have the same management or operating organisation, and do not conduct business in related fields can be exempt from the joint decision provision. The only type of shipping business which qualifies for the tonnage tax scheme, is the commercial transportation of passengers or cargo between different destinations with ships owned, or chartered on a bareboat or time-charter with a call/buy option by the company basis, provided such ships have a minimum gross tonnage of 20 tons, and the business is strategically and commercially carried out from Denmark. Ships hired in on timecharter contracts without call/buy options can only be included in the tonnage tax scheme with a gross tonnage amount equivalent to 4 times the total gross tonnage of owned tonnage and tonnage on bareboat terms and timecharter contracts with call/buy options. Please note that this rule is under change and the level is expected to be raised to 10 times the level of owned tonnage during 2008. Income from activities, which are carried out in close connection to this business, such as the usage of containers and loading facilities, etc. can also be included in the tonnage tax scheme. Ships which are used for exploration, diving, fishing, sand dredging, etc., are specifically exempt from the tonnage tax scheme. The same applies for certain types of ships such as barges, floating docks, etc. However, EU/EEC registered ships used for towage activities at sea during at least 50% of its operating time during the income year can be included in the tonnage tax system. The exemption does not apply for towage activities in and around ports. Because of the change in EU governmental support rules an EU flag requirement has been introduced in the Danish tonnage tax system with effect from 2005. The rule states that a shipping company that has elected to use the tonnage tax system, must in average during the year of income maintain or increase the percentage of owned gross tonnage registered in an EU/EEC registry. This main rule does not apply if the average EU/EEC registered tonnage of all the shipping companies using the Danish tonnage tax system has not been decreased, or if the average EU/EEC gross tonnage of the specific shipping company is at least 60%.
Denmark* However if a shipping company at the point of entering the tonnage tax system does not own any EU/EEC registered tonnage, the flag requirement does not apply, because the rule only stipulates a requirement to maintain or increase the company s share of EU/EEC registered tonnage. As a new addition ship operating companies can also use the Danish tonnage tax system. A ship operator is defined as a company doing business with crew management and technical management of ships qualified for use in the tonnage tax system. It is a requirement that the ship operator has taken over the full operating responsibility and all obligations and responsibilities according to the ISM codex. Taxable income The taxable income for the part of the business, which qualifies for the tonnage tax scheme, is determined for each ship as a fixed amount per 100 net tons (NT) per day according to the Table below: Ship net ton Fixed amount per day Amount per 100 net ton in Euro 0-1,000 NT DKK 7.8 per day per 100 NT 0.94 1,001-10,000 NT DKK 5.6 per day per 100 NT 0.67 10,001-25,000 NT DKK 3.35 per day per 100 NT 0.40 Over 25,000 NT DKK 2.2 per day per 100 NT 0.27 The income is taxed at the ordinary corporate tax rate (25%). No deductions re shipping income will be allowed. Special rules apply for financial income and financial expenses, and in relation to so called thin capitalisation. Income, which does not qualify for the tonnage tax scheme, is taxed according to the general tax provisions in Denmark. Depreciation Shipping entities, which apply the tonnage tax regime from the time of their establishment, may not deduct tax depreciations for tax purposes. Special rules apply for shipping entities that already existed when they elected to become subject to the tonnage tax and when an entity elects to include some other assets at a later point in time which where not previously subject to the tonnage tax regime. Gains on the sale of ships For shipping companies covered by the tonnage tax regime, gains on the sale of ships which have not been used in the regime prior to January 1, 2007 is tax exempt. The same applies to gains on the sale of contracts on the delivery of ships, provided that the ship was destined to be delivered after January 1, 2007. For ships used in the tonnage tax scheme prior to January 1, 2007 any gain on the sale of such ships will be taxable. The taxable gain is calculated as the sale price minus the purchase price plus improvements. Any losses on ships acquired and sold within the same income year as the year when gain is realised are deductible from the gain. Expected changes in the Danish regime The Danish Government has decided to amend some of the rules in the tonage tax regime to favour the shipping companies. These rules are currently undergoing EU approval before they can be implemented. The first amendment is as mentioned above to change the allowed level of timechartered ships used by a shipping entity to 10 times the level of owned, bareboat, and timechartered ships with buy options, instead of the current 4:1 ratio. Further it has been decided that fees for the administration of a pool recieved by a shipping company, which has entered into the tonnage tax scheme, will be considered to be tonnage income and therefore not taxable, provided the shipping company itself has at least one ship (chartered or owned) in the pool which it administrates. These changes are expected to be implemented during 2008. Contacts For more information, please contact: Bo Schou-Jacobsen bsj@pwc.dk Tel.: +45 39 45 36 39 Lars Koch Jensen lkc@pwc.dk Tel.: +45 39 45 94 57 Ove Lykke Hindhede olh@pwc.dk Tel.: +45 39 45 94 29 Information in this leaflet was last updated in January 2008 and is presented in a summarised form and is intended for general guidance only. Specific advice should be obtained before any action is taken. 2008 PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. www.pwc.com/dk
TRANSPORT & LOGISTICS INDUSTRY NETWORK Global Network, Local Expertise, Individual Services France* Solutions for shipping companies Opportunities in France For the last 20 years, France has been opening itself up to the world and adapting to a globalised economy. The French economy ranks fifth in the world in terms of gross domestic product, third for exports of services and third for outward foreign investments. There can be no doubt that France is a major economic power at the heart of Europe, the world s largest market. Just as important, five out of the fifteen main ports in Europe are located in France: Marseille, Mediterranean s largest port and the 3 rd largest in Europe in terms of freight traffic; Le Havre, Europe s 5 th largest port; Dunkirk, which handles 47.56 million tons annually and is experiencing steady growth, followed by St-Nazaire and Bordeaux. The French International Register ( RIF ) In view of the harmonisation of the EU policies, of the reinforcement of safety and security at sea, developing ship owners competitiveness and maritime employment, a new shipping register, the French International Register ( RIF ), has been implemented by the law of May 3, 2005. The main advantages of the French International Register are the following: The RIF register offers all guarantees with regard to ships safety and security as ships registered in the RIF are submitted to any safety and security, certification and training, health and safety at work, and environmental protection rules applicable as per French law, European regulations and France international commitments; The RIF offers simplified administrative procedures with regard to registering through a single window (so-called Guichet Unique ), which will assist the ship owners/ operators in their relations with the French Administration; The RIF registration is accompanied by various fiscal and exonerations measure; The RIF sets a social base for seafarers residing outside France; The RIF sets nationality rules with regard to the crew; The RIF is a EU registry. Registering in the RIF is not submitted to any registration, annual, or other fees. French labour law and social security Seafarers sailing on board vessels registered in the RIF are hired by the ship owner/operator. Seafarers living outside France can also be placed at the owner s disposal by a maritime manning agency. Seafarers residing in France, whatever their nationality, are submitted to French laws, amongst others regarding health insurance and pension scheme. They are covered by the seafarers special social security system ( ENIM ). The terms of employment and the social security coverage for seafarers residing outside France, are subject to the minimum requirement set by the law creating the RIF, but otherwise determined by the contractual stipulations of the parties and the applicable law as determined in the contract. Also, hiring, working and living on board conditions on a vessel registered in the RIF can not be less favourable than the ones resulting from the ILO conventions ratified by France. In the same way, social protection can not be less favourable than the one resulting from the ILO conventions applicable to seafarers and bi-lateral social security conventions between France and the countries from where the seafarers are originated. Seafarers residing in a EU member state or EEA nationals or citizens of a state having a bilateral social security convention with France will have the benefit of a social security and pension scheme as per the conditions of the European rules or the applicable bilateral convention. Seafarers who are not residing in a EU member state or who are not EEA nationals or citizens of a state having a bi-lateral social security convention are insured against disease, accident, maternity, invalidity and are included in a pension scheme. The wages for seafarers residing outside France can not be less than the minimum fixed by the December 30, 2005 regulation of the minister in charge of the merchant marine. Seamen having their fiscal residence in France and sailing on board RIF registered vessels for at least 183 days in a period of 12 consecutive months are tax exempted on these wages. Seamen without fiscal residence in France are submitted to the law of their fiscal residence.
France* Crewing requirements At least 25% of the crew for ships registered in the RIF, based on the minimum safe manning document (SMD), must be EU or EAA nationals. This percentage may be higher in certain circumstances (eg, in case of benefit from certain fiscal aid scheme). The master and his relief, who may be the chief engineer, must be French citizens. However, there are no nationality or residence requirements for rest of the crew. French tax framework Ship owners wishing to register vessels in the RIF may benefit of various tax advantages, the main ones being the Tonnage tax regime. Tonnage tax regime The tonnage tax regime is an alternative method of calculating corporation tax profits by reference to the net tonnage of the ship operated applicable to companies having 75% at least of turnover deriving from qualifying ships operations. The tonnage tax regime is applicable upon election, to the profits deriving from ships used for carriage, towage or other marine assistance activity, strategically and commercially managed from France, which gross capacity is higher than 100 units. Moreover, upon application of this tax regime, gains on disposal of tonnage tax assets are partially or totally tax exempt depending on the duration of the owning period of the ship. Other profits of a tonnage tax company are taxable in the normal way. Fiscal aid scheme for purchasing a ship: fiscal economic interest groupings ( fiscal EIGs ) The French General Tax Code ( CGI ) provides (Art. 39C) that the tax deductible depreciation of assets leased by an economic interest grouping ( EIG ), a fiscally transparent structure, may not exceed the amount charged for the leasing operation. As an exception to this rule, however, financing operations involving assets depreciable over a period of more than 8 years, subject to ministerial approval, are not subject to the above restriction (Art. 39CA CGI). Besides the removal of the depreciation ceiling, the operations concerned benefit from a one-point increase in the depreciation coefficient and from an exemption from capital gains if the assets are sold by the EIG to its user. On December 20, 2006, the European Commission decided that the French tax scheme for fiscal economic interest groupings, a scheme intended to promote primarily maritime investment following the example of the previous quirat, constitutes incompatible State aid. Further to this decision and in order to comply with the European State aid regulations, France has adapted its legislation as part of its Amended Finance Act for 2006 dated December 30, 2006. Section 39 C of the CGI (new version) still allows benefiting from a favourable financing scheme for significant assets subject to certain conditions. Other various tax advantages may benefit to ship owners such as a favourable tax regime with respect to business licence tax (section 310 HH of the FTC) or an exemption of some social contributions with respect to the crew members as above indicated. Taking the opportunity PricewaterhouseCoopers/Landwell provides industry-focused assurance, tax and advisory services. More than 122,000 people in 144 countries connect their thinking, experience and solutions to build public trust and enhance value for clients and their stakeholders. A dedicated team of industry experts focuses on issues relevant for shipping industry. Landwell in France (correspondent tax and legal practice of PricewaterhouseCoopers- visit our website at www.landwell.fr) consists of 9 offices of Landwell & Associés. With more than 400 professionals, we form the leading tax and business law practice in France, benefiting from the PricewaterhouseCoopers worldwide network. Our solutions are global and practical and ensure that our clients acquire an excellent understanding of the implications of tax and legal issues on their business. Contacts For more information, please contact: Michel Combe michel.combe@fr.landwellglobal.com Tel.: +33 1 56 57 56 57 Emmanuelle Veras emmanuelle.veras@fr.landwellglobal.com Tel.: +33 4 91 99 30 30 Information in this leaflet was last updated in December 2007 and is presented in a summarised form and is intended for general guidance only. Specific advice should be obtained before any action is taken. 2007 PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. www.pwc.com/fr
TRANSPORT & LOGISTICS INDUSTRY NETWORK Global Network, Local Expertise, Individual Services Germany* Solutions for shipping companies Opportunities in Germany The German tonnage tax system Combined with an outstanding infrastructure and a comprehensive German network of tax treaties with more than 80 countries worldwide, the tonnage system turns Germany into one of the most attractive locations for the establishment of shipping companies. It was introduced in 1999 and gives enterprises and individuals with seagoing vessels the opportunity to be taxed on the basis of a deemed profit related to the ships tonnage instead of the actual operating results. Basis for the calculation of the deemed profit is an amount per net ton of the ships in operation. According to the German tonnage tax system, taxable profit is thus fixed at a certain amount and is much lower than the profit calculated by reference to the actual business profit. Entering German Tonnage Tax The following requirements must be fulfilled in order to qualify for the German tonnage tax system: Operation of merchant ships in international traffic (see (a)); Qualifying presence in Germany (see (b)); lrrevocable application (see (c)). (a) Operation of merchant ships in international traffic Merchant ships are operated in international traffic if they are: Owned or chartered (e.g. bareboat-, time-, voyage- or slotcharter) seagoing vessels. In the case where an equipped vessel is chartered, both the charterer and the owner of the vessel can qualify for the tonnage tax system provided that the owner also operates own vessels or vessels he has equipped by himself; Predominantly registered within the business year in a German ship register. Flying of the German flag is not mandatory; Vessels mainly used during the business year for the transportation of goods or passengers between foreign ports, within foreign ports or between a foreign port and the high seas for more than half of their operating time. Chartered vessels which are not registered in the German shipping register can qualify for tonnage tax if at least one ship of the company is registered in the German ship register. In addition, the net tonnage of the ships not registered in Germany may not exceed the triple total net tonnage of the ships registered in Germany. Only owned or bareboat chartered ships are included in the calculation base. Again, German flagging is not required. (b) Qualifying presence in Germany Requirements for the qualifying presence in Germany are: The management of the business establishment has to be located in Germany. However, unlimited tax liability of the taxpayer in Germany is not required. Moreover, the shipping company has to carry out almost all of the strategic and commercial management in Germany, in particular: Conclusion of contracts concerning the ship engagement; Crewing of captain and officers, and freighting; Technical management (i.e. maintenance), fitting out and provisions of the ship; Conclusion of bunker and insurance contracts; Accounting and book keeping. Generally, management activities can be delegated to service companies in Germany but in the case of a tax audit, the service company should be able to prove that management has been carried out in Germany. From a tax point of view the entire crew can be of foreign nationality.
Germany* There may remain very little day-to-day business for the management of the business establishment located in Germany, in cases where management activities are delegated to service companies. Therefore, the manager should, at the least, observe the current affairs and make the significant decisions in Germany. (c) Irrevocable application Election of the tonnage tax system is optional and binding for a period of ten years (the application is irrevocable); Application has to be filed in the business year during which the ship is built or bought (year of commission). This will take effect from the beginning of the respective business year; otherwise companies can only opt in ten years later; Profits generated before the merchant ship has been commissioned through operating in international traffic are not taxable. Losses cannot be deducted; Your Advantages a) Tonnage Tax Amounts The main advantage of the application of the German tonnage tax system is that the deemed profit of the operated ship is in general much lower than the actual profit achieved. A profit for each day a ship is operated by a company is calculated by reference to the following table: Amount per day per 100 net tons EUR 0.92 EUR 0.69 EUR 0.46 EUR 0.23 up to 1,000 net tons for the excess up to 10,000 net tons for the excess up to 25,000 net tons for the excess over 25,000 net tons Basically, every day counts as a day of operation. Only days of large reconstruction or repair works are excluded. b) Tax Planning Reliability Furthermore, beside the low deemed profit, the ship owner has the advantage that he knows his tax burden beforehand and the tonnage tax system simplifies the determination of the profit. c) Other Benefits The tonnage tax system covers the capital gains on disposal of a vessel. The auxiliary business of a ship operator can also be subject to tonnage tax and thus be taxed at a low level (e.g. interest derived from a current account of the company). The system does allow the establishment of a fiscal unity, where the requirements of the tonnage tax have to be met by the subsidiary. In the case where the ship management is delegated to a third party located in Germany, the ship management fee paid for the management services can be tax free income for the ship manager, as long as the vessel operates in the tonnage tax regime and the ship manager holds a share in the ship owning company. It might therefore be advantageous for foreign charterers to establish their own German shipping companies or to enter into joint ventures. Contact the Hamburg Maritime Competence Center Business worldwide faces great challenges every day, which are posed by the ever-changing regulatory and tax conditions. The identification of risks and opportunities contributes significantly to the success of your company and requires professional advice of an interdisciplinary team of transport and logistics specialists. The management of opportunities and risks combined with an intelligent proactive and innovative approach to developing adequate investment strategies is an essential part of the philosophy of PwC Hamburg Maritime Competence Center. Our team of 60 highly specialised staff members in the transport and logistics sector will be pleased to discuss all your questions. Contacts For more information, please contact: Wolfgang von Hacht wolfgang.von.hacht@de.pwc.com Tel.: +49 40 6378-1317 Claus Jochimsen claus.jochimsen@de.pwc.com Tel.: +49 30 2636-5251 Wilhelm Marcus Blömer marcus.bloemer@de.pwc.com Tel.: +49 40 6378-8435 Information in this leaflet was last updated in January 2008 and is presented in a summarised form and is intended for general guidance only. Specific advice should be obtained before any action is taken. 2008 PricewaterhouseCoopers S.à r.l. All rights reserved. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. www.pwc.com/de