The Tonnage Tax Act (476/2002) has proved problematic ever since its enforcement in 2003. The act aimed:

  • to preserve the competitiveness of the Finnish fleet; and
  • to promote the shipping industry through:
    • the employment of EU seafarers;
    • the preservation of maritime know-how;
    • the development of maritime skills; and
    • the improvement of safety.

Under the act, the corporation tax for each qualifying ship is to be calculated by reference to a fixed rate per net tonnage per day in accordance with an official chart, regardless of what the ship earns. A shipping company which is subject to tax in Finland can choose between ordinary corporate income tax or tonnage tax. If the shipping company chooses the latter, it is bound to the tonnage tax regime for 10 years. Only limited companies and – in certain circumstances – branches of foreign companies with permanent establishments in Finland are eligible to opt for tonnage tax. The company must be managed from within Finland and its main activity must be international maritime services with vessels which are subject to tonnage tax. The vessels must be registered in the Finnish Merchant Vessel Register, except when the vessel is bare-boat chartered.

However, the shipping industry found the scheme unattractive and inflexible. Problems were found, among other things, in:

  • the application periods;
  • the scope;
  • the handling of the latent tax;
  • the prohibition against over-capitalisation;
  • the tax-free sale; and
  • the taxation of dividends.

Consequently, only one company applied to become subject to tonnage tax. At the same time, the percentage of Finnish tonnage carrying foreign trade products to and from Finland plummeted from 40% to 20%. Therefore, the government issued a bill on amendments to the Tonnage Tax Act in 2009. However, the European Commission found some of the amendments to be against EU guidelines on state aid to maritime transport(1) and the Finnish government had to draw up new amendments. These were finally approved in December 2011 and the government approved the amended bill in January 2012. The amended act came into force on March 1 2012.

The amendments are technical in nature and require a deep insight into fiscal rules in order to be understood. However, the commission's assessment of the amendments may have broader interest for the shipping industry.

Pursuant to Article 107(3)(c) of the Treaty on the Functioning of the European Union, certain economic activities may be considered compatible with the internal market, where such aid does not adversely affect trading conditions to an extent that is contrary to the common interest. Under certain conditions, member states are allowed to set up state aid schemes in order to support their maritime transport industry.

The maritime guidelines specifically mention tonnage tax schemes as examples of fiscal measures that have been shown to safeguard high-quality employment in the onshore maritime sector.

Regarding the amended act, the commission has approved the following provisions, among other:

  • Tonnage tax beneficiaries will be obliged to have at least 60% of their tonnage registered in the European Union;
  • The maximum permissible limit with respect to the charter with crew is 75% of tonnage;
  • Under certain conditions, revenues from towage vessels can be covered by tonnage tax;
  • A maritime transport company within a group can opt for the tonnage tax scheme independently of the taxation regime that applies to the other maritime transport companies in the same group;
  • Any group subsidy received by a company subject to tonnage tax shall always be regarded as income from non-eligible activities and subject to corporate income taxation; and
  • The rules regarding over-depreciated ships are formulated so that they discourage ship acquisition transactions ahead of entry into the tonnage tax scheme with the sole aim of obtaining tax benefits.

It remains to be seen whether shipping companies will opt for tonnage tax in the future. The corporate tax income from the shipping industry has ranged from €10 million to €30 million annually from 2003 to 2010. The annual tonnage tax income has been estimated at €0.5 million, if most shipping companies decide to opt for tonnage tax. At present, shipping companies have about €600 million worth of depreciation difference in their balance sheets, which represents a tax debit of €156 million. Shipping companies which opt for tonnage tax have the right to tax relief for latent corporate tax according to detailed rules.

For further information on this topic please contact Matti Komonenor Herman Ljungberg at Hammarström Puhakka Partners, Attorneys Ltd by telephone (+358 9 474 2207), fax (+358 9 474 2247) or email ([email protected]or [email protected]).


(1) Commission communication (C (2004) 43).