The Irish Tonnage Tax Regime for Shipping Companies
27 Aug 2020
Advantages of the Irish Tonnage Tax Regime
- Taxable profits can be determined upfront and, combined with the general Irish 12.5% corporate tax rate, results in a favourable end result;
- No vessel ownership requirement for ship management companies;
- No capital gains tax ("CGT") on the disposal of a ship;
- No requirements regarding where the ship is registered;
- No Irish flag requirements;
- No crew training requirements;
- No requirement to provide training berths;
- Up to 75% of the fleet’s tonnage may be chartered in; and
- The company’s tax position is clear and statute based, making it more attractive to prospective investors and potential business partners.
Additional Irish Tax Benefits
- Ireland has a large network of double tax treaties which may exempt the Irish company from foreign tax or the company will be credited for foreign tax paid against Irish tax;
- Irish withholding tax exemptions for overseas qualifying lenders on interest payments on loans to Irish tonnage tax companies; and
- Various exemptions on Irish dividend withholding tax on repatriation of profits to overseas shareholders.
In assessing whether strategic management is carried out in Ireland, the following items will be considered:
- Where the company is headquartered;
- Where senior managers are located;
- Where decisions of the board of directors are made;
- Where decisions on significant capital expenditure and disposals are made;
- Where the awarding of major contracts occur; and
- The extent to which foreign based personnel work under the direction of, and report to personnel based in Ireland.
- Matters relating to route planning;
- The taking of bookings for passengers or cargo;
- The management of the bunkers;
- Personnel management;
- Technical management of ships; and
- The maintenance of support facilities such as training centres and terminals in Ireland.
A valid election for tonnage tax takes effect from the beginning of the accounting period in which it is made and the company must stay in it for a minimum of 10 years. The commitment to stay in for 10 years can be renewed by election (called a "renewal election") at any time in which case the period of election is extended for a further period of 10 years from the date of the renewal election.
Relevant Shipping Income
- Activities which are related to the actual operation of a qualifying ship, for example carriage of passengers at sea or carriage of cargo at sea;
- The provision of goods and services on board the qualifying ship such as the operation of bars and restaurants, shops etc., which are ancillary to the carriage of cargo and passengers and which are consumed on board the ship; and
- The provision of ship management services for qualifying ships.
Calculation of Tonnage Tax
The amount of the profits per ship for an accounting period is aggregated to get the company's total tonnage tax profits for the accounting period. The corporation tax rate of 12.5% is then applied to this profit.
Once a company is established in the tonnage tax regime, there are no deductions allowed for capital allowances nor are balancing charges and capital gains allowed as part of the tonnage tax regime.
Lastly, a company cannot use losses forward from any period before entry into tonnage tax to reduce tonnage tax profits.
In certain cases, it can be beneficial for a shipping company or shipping related activities to be treated under a regime outside of tonnage tax, such as an Irish trading company regime, the Irish securitisation regime or as a regulated Irish fund. We can advise on this further depending on the facts of the case.
Ireland is a highly attractive country for locating international shipping operations. Ireland has a pro-business environment, is a long-standing member of the European Union and Eurozone, an English speaking country and the maritime industry has strong Government support.
If you have any questions or require further information on the measures highlighted above, please contact a member of our Tax practice.
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