Introduction
The Merchant Shipping (Fees and Taxing Provisions) Law 20101 (the so-called 'tonnage tax law') requires community- flagged ships (ie, ships lawfully registered in and flying the flag of an EU member state or any other contracting party to the European Economic Area Agreement) wanting to qualify for the tonnage tax scheme to account for a specified minimum percentage (ie, the reference share) of the taxpayer's fleet. The reference share is calculated as of the date of entry to the tonnage tax scheme.
The tonnage tax law requires the Department of Merchant Shipping to assess the community-flagged share of each participant in the tonnage tax scheme as of the third year from the date of opting to be taxed under the scheme.
Review
The Department of Merchant Shipping recently announced the arrangements for the review as at December 31 2017, which will cover companies that entered the tonnage tax scheme between January 1 2014 and January 1 2015. Any company or group of companies whose community-flagged share at the time of assessment is less than its reference share and less than 60% cannot introduce any additional non-community ships into the tonnage tax scheme until it increases its community-flagged share to at least its reference share.
However, the tonnage tax law2 and the Tonnage Tax (Special Provisions for the Calculation of the Community Flagged Share) Notification 20103 allow owners, charterers and managers to introduce additional non-community vessels if the aggregate share of community-flagged ships in their individual sector has increased compared with the reference date.
Taxpayers taking advantage of this provision are subject to a surcharge of 10% of the total amount of tonnage tax payable for all of the qualifying non-community ships in their fleet.
According to the Department of Merchant Shipping, the global share of community-flagged ships has decreased in comparison with 2015 for owners (from 27.29% to 24.52%) and ship managers (from 51.97% to 49.04%), but increased for charterers (from 62.39% to 64.15%). This means that for the fiscal year 2018, the option of introducing additional non- community vessels and paying the surcharge is available only to charterers.
The owners of foreign ships and ship managers whose community-flagged share at December 31 2017 was less than 60% and less than their reference share cannot include additional non-community ships in the tonnage tax scheme until they increase their community-flagged share to at least their reference share. Any additional ships will be treated as non- qualifying ships, in respect of which the taxpayer will be liable to pay corporate income tax on its profits and must maintain separate books, records and accounts as provided by Article 44 of the tonnage tax law.
Footnotes
1 Law number 44(I)/2010.
2 Articles 15(3)(a), 25(3)(a) and 35(2)(a).
3 PI 536/2010.
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