Introduction
Eligible vessels
Flag link requirements
Minimum flag entry portion requirement
Availability of aid scheme to time and voyage charterers and to bareboat-out activity
Comment
The Italian International Ship Registry was established by Decree Law No. 457 of 30 December 1997, later confirmed by Act No. 30 of 27 February 1998, known as the International Registry Act. The Act contains several advantage measures in favour of shipowners, tax reliefs and labour costs abatements. A tonnage tax system option is also in force for vessels registered in the International Ship Registry. This legislation helped in keeping the Italian flag competitive.
As a result of EU Pilot Procedure 7060/14/TAXU 020 established by the European Commission against Italy, Italy introduced legislation No. 167/2017 to extend the ability to apply the fiscal benefits provided for in the International Ship Registry, as well as the tonnage tax option, to vessels flying the flag of any member state of the European Economic Area (EEA). However, such legislation was incomplete because it:
- never formally amended the International Registry Act; and
- was subject to a Decree of the Ministry of Infrastructures and Transports aimed at implementing the practicalities of the reform, which has not yet been issued.
Furthermore, during the process held between Italy and the European Commission for the prolongation of the aid scheme under the International Ship Registry, the European Commission granted the requested time extension, provided that Italy implement the corrective measures set out in the Commission decision dated 11 June 2020.
Recently, Decree Law No. 144 of 23 September 2022, converted into Law No. 175 dated 17 November 2022, amended the International Registry Act to align it with measures set out by the European Commission in 2020.
This article sets out the main amendments to the International Registry Act by Decree Law No. 144/2022.
The vessels eligible to be registered in the International Ship Registry were vessels carrying out maritime transport activities. Article 1 of the International Registry Act has now been amended by explicitly including vessels that carry out a maritime activity that has characteristics in common with maritime transport. Indeed, this modification is the result of dialogue between Italy and the European Commission as to the type of eligible vessels for the state aid scheme underlying the International Ship Registry. These are the vessels now explicitly included in the list of eligible vessels for registration in the International Ship Registry (on top of those vessels dedicated to transport activity):
- vessels that provide assistance to offshore rigs;
- supply vessels;
- cable layer vessels;
- scientific research vessels;
- dredgers that engage in not only in dredging activity but also in transport of dredged materials; and
- service vessels that carry out other types of assistance or salvage services at sea and that operate in regulatory environments in the European Union similar to those of EU maritime transport in terms of labour protection, technical requirements and safety and operating in a global market.
Benefits set out under article 4 (tax reduction on income generated by vessels and tax credit on withholding taxes for shipping companies corresponding to the amount of income tax due on the income of crew members), article 6 (exemption of social security and welfare contributions for seafarers) and article 9 quarter (reduction of the tax on insurance contracts for vessels registered in the International Ship Registry and reduction of registration tax of labour contracts for seafarers) of the International Registry Act are now available to ship-owning companies established in Italy or with a stable organisation in the Italian territory that operates vessels registered in another country of the European Union or the EEA.
To access the benefits such vessels will have to be included in a special list held by the Ministry of Infrastructures and Transports. However, a ministerial decree will have to be issued containing the procedure for setting out, managing and updating the special list of vessels.
The tonnage tax option was already made available to vessels flying an EEA flag by Act No. 167/2017. The decree that is yet to be issued under Act No. 167/2017 will have now to be coordinated with the decree to be issued under Decree Law No. 144/2022.
Eligible vessels not registered in the International Ship Registry will have to comply with rules contained in the International Registry Act setting limitations as to the number of cabotage voyages, minimum manning rules, applicable law to seafarer contracts and applications of collective agreements for EU/EEA crew and of International Labour Organization conventions for non-EU seafarers.
Minimum flag entry portion requirement
The legislation has introduced a flag entry requirement, as requested by the European Commission, ensuring that the fleet tonnage of eligible beneficiaries of the aid scheme is composed of at least 25% of EU/EEA vessels.
Availability of aid scheme to time and voyage charterers and to bareboat-out activity
In a June 2020 decision, the Commission highlighted that no provisions were in force in Italy aimed at limiting the application of the aid scheme under the International Ship Registry to time and voyage charter-in activities and to bareboat-out activity, in accordance with the Community Guidelines with regard to state aid for maritime transport.
The International Registry Act has now been amended to specify that time and voyage charterers can access the tax relief measures if:
- on top of the chartered vessels, at least 20% of the beneficiary's fleet contains vessels for which the beneficiary provides technical and crew management;
- the share of non-EEA vessels time or voyage chartered by the beneficiary does not exceed 75% of the beneficiary's fleet; or
- at least 25% of the beneficiary's fleet is registered in a EEA country.
As far as bareboat-out activity is concerned, in order to be able to access the tax relief measure, the beneficiary must comply with the following three conditions:
- Bareboat-out contracts cannot exceed three years.
- Bareboat-out activity must be related to a temporary excess capacity connected to the beneficiary maritime transport services.
- At least 50% of the beneficiary's fleet must be managed by the same beneficiary.
The process of making the aid scheme under the International Ship Registry compliant with the rules set out by the European Commission is now implemented. However, the last piece of legislation (the Ministry of Infrastructures and Transports decree that will create the list of non-Italian vessels benefitting from the aid) is still pending. Once this decree is issued, this process will be deemed eventually completed.
For further information on this topic please contact Marco Manzone at Dardani Studio Legale by telephone (+39 010 576 1816) or email ([email protected]). The Dardani Studio Legale website can be accessed at www.dardani.it.