The European Commission has approved for a period of 10 years a Malta tonnage tax system which is designed to encourage ship registration in the EU. Under the Maltese scheme, a shipping company is taxed on the basis of ship net tonnage (i.e. based on its volume) rather than the actual profits of the company. In particular, tonnage taxation is applied to a shipping company’s:
- core revenues from shipping activities, such as cargo and passenger transport;
- certain ancillary revenues that are closely connected to shipping activities (which are, however, capped at a maximum of 50% of a ship’s operating revenues); and
- revenues from towage and dredging subject to certain conditions.
If a shipping company wants to benefit from the scheme, a significant part of its fleet must fly the flag of an European Economic Area (EEA) Member State. In addition, any new entrant to the scheme must have at least 25% of its fleet subject to tonnage tax with an EEA flag.
To address the risk of flagging out and relocating of shipping companies to low-tax countries outside of the EU, the Commission’s 2004 Guidelines on State aid to maritime transport allow Member States to adopt measures that improve the fiscal climate for shipping companies. One of the most important measures is tonnage tax, whereby shipping companies can apply to be taxed based on a notional profit or the tonnage they operate, instead of being taxed under the normal corporate tax system. Only companies that are active in maritime transport are eligible for such measures under the Maritime Guidelines. Shareholders in shipping companies are excluded from preferential tax treatment.
Since 2004, the Commission’s decision-making practice under the Maritime Guidelines has further clarified the eligible transport activities and compatibility conditions to ensure that the main objectives of the Maritime Guidelines are met. The Commission has to ensure that there are no spill-over of the IP/17/5361 favourable tax treatment of shipping companies into other sectors unrelated to maritime transport and there is no discrimination of other EEA State registries and flags.