Belgian tax law provides in several tax incentives for shipping companies. We provide a general overview of the main incentives below.
1. The optional-tonnage tax regime
Belgian companies or Belgian establishments of foreign entities can opt for a special tonnage tax regime, according to which profit taxable in Belgium and resulting from ocean shipping is assessed on a flat-rate basis based on the tonnage of the sea-going vessels which have generated this profit. More precisely, the tonnage tax is determined on the basis of a “virtual profit” (computed by applying a notional profit rate to the tonnage) which is then subject to the normal corporate income tax rate (33.99%).
On 6 November 2017, the European Commission approved continuation of this tonnage tax regime until the end of 2022. Belgium has nonetheless committed to a number of changes to its scheme to prevent any discrimination between shipping companies and registries of different European Economic Area States. These changes were enacted by a Law dated 3 July 2018 and apply as of assessment year 2019.
To be eligible for the Belgian tonnage tax regime, the following conditions must be met:
(i) the profit must result from:
- the operation of a sea-going vessel flying the flag of a European Economic Area (EEA) country, used for the transportation of goods or persons as well as all activities directly connected with the exploitation of a seagoing vessel used for the transport of cargo or passengers: (a) on international maritime routes or (b) on routes from and to installations at sea designed for the exploration or exploitation of natural resources. Activities directly connected with the exploitation of a seagoing vessel used for the transport of cargo or passengers, refer both to (i) essential activities for the exploitation of a seagoing vessel used for the transport of cargo or passengers and (ii) ancillary activities that are related to such exploitation if the profits derived from those activities do not exceed 50% of the total profits derived from such vessels. If the ancillary activities concern services ashore that are an integrated part of the transport, an arm's length price must be paid for those services. Or;
- the operation of a sea-going vessel flying the flag of an EEA country for the transportation of dredged materials on the high seas resulting from the exploration or exploitation of natural resources at sea, if the operation of such sea-going vessel involves carrying such dredged materials on the high seas for more than fifty percent of the vessel’s operating time during the tax period; or
- the operation of a sea-going vessel flying the flag of an EEA country if more than fifty percent of the said vessel’s actual operations during the tax period involve the performance of towing operations on the high seas and if such towing operations can be considered as maritime transport.
(ii) the taxpayer must be the owner, co-owner or bareboat charterer of a sea-going vessel that is managed to a considerable extent in an EEA member state and which it has not given out for bareboat chartering purposes; or
the taxpayer must mainly carry out, in an EEA member state, the management of a sea-going vessel for the account of third parties, provided the annual total of the net daily tonnages of the sea- going vessels for which it performs this commercial management does not exceed three times the annual total of the net daily tonnages it manages in the way referred to above. In this respect, sea-going vessels in co-ownership count for their full tonnage if a joint owner holds at least 5% and employment aboard and ashore is fulfilled for at least 51% by residents of an EEA member state; or
the taxpayer must be the time- or voyage charterer of the sea-going vessel in an EEA member state, provided the annual total of the net daily tonnages of the sea-going vessels it charters on a time or voyage basis does not exceed three times the annual total of the net daily tonnages it manages in the way referred to above. In this respect, sea-going vessels in co-ownership count for their full tonnage if a joint owner holds at least 5 %.
(iii) a ruling request must be timely filed with the Belgian tax authorities (this should in principle be done during the previous financial year).
Ship management companies engaged in the management of sea-going vessels on behalf of third party owners, can also opt for the tonnage tax regime provided that certain conditions are met.
1.2 Tax features
The taxable profit is determined on a flat-rate basis per vessel, per day and per 100 net tons, based on the tonnage of the seagoing vessels that are generating the profit:
The EUR 0.05 rate for the bracket over 40,000 net tons shall only apply:
- either to sea-going vessels that have been acquired as new vessels;
- or to sea-going vessels less than five years old which have been registered under the flag of a non-EEA member state as of their delivery and during the entire period immediately preceding the taxable period during which taxable profits are assessed on a flat-rate basis for the first time in Belgium;
- or to sea-going vessels at least five years old which have been registered under the flag of a non-EEA member state during the five years immediately preceding the taxable period during which taxable profits are assessed on a flat-rate basis for the first time in Belgium.
In other cases, the rate of EUR 0.20 per 100 tons applies in respect of vessels exceeding 40,000 net tons. For the implementation of this article, the age of a vessel shall be determined on the basis of the delivery date as established by the Registrar of maritime mortgages or the competent registration authorities
As a main rule, capital gains from seagoing vessels under the tonnage tax regime are tax exempt (they are deemed to be included in the profit established on the flat-rate basis), and capital losses are not deductible.
During the first and nine subsequent years of application of the tonnage tax regime, however, capital gains of seagoing vessels benefiting from the regime must be reported in an annex to the tax declaration. This annex must also include the net tonnage.
For vessels already existing when the tonnage tax regime is applied for the first time, the capital gain to be reported, is equal to the fair market value of the vessel less the purchase or investment value reduced by value reductions and depreciations.
The reported capital gains become taxable under the normal CIT regime at the standard tax rate of 29.58% if one of the following situations occurs:
- a vessel is sold within 24 months after the first application of the tonnage tax regime;
- the net tonnage is permanently reduced by 30% after 1 January 2018; or
- the tonnage tax activities after 1 January 2018 are wholly or partially terminated within 9 years after the first application of the regime.
The tonnage tax regime remains applicable, however, if the vessel is transferred to a group company that applies the tonnage tax regime for the remainder of the 24-month period or if the net tonnage of the group as whole is not reduced lastingly.
Previously incurred losses cannot be deducted from the profit determined in accordance with the tonnage tax system. Such losses (not yet deducted) could however be deducted after the expiration of the period for which the profit was assessed on the basis of the tonnage tax regime. Furthermore, shipping companies which opt for the tonnage tax regime cannot benefit from the notional interest deduction regime.
The tonnage tax regime will apply from the taxable period that follows the one in which the ruling request was filed until the end of the taxable period that is closed during the tenth calendar year following the one during which the ruling request was filed. At the end of the above period, the system is extended for an identical period. The tonnage tax system can be cancelled by the taxpayer at the latest three months before the expiry of the last taxable period of the above-mentioned period.
If the Belgian tonnage tax system applies, the special optional system of depreciations and the investment allowance (see below) cannot be applied.
The ordinary rules of Belgian corporate income tax will apply to all other activities of the company that are not subject to the tonnage tax system.
2. Alternative tax incentives
Other alternative tax incentives are available for sea-shipping companies that do not opt for the tonnage tax regime.
2.1 Special optional system of depreciation
The following depreciation percentages are allowed for new vessels, for jointly owned parts of such new seagoing vessels, and for shares in such new vessels:
- 20% for the financial year in which the new seagoing vessel is put into service
- 15% for each one of the two financial years that follow
- 10% for each of the following financial years up to the complete writing off.
Sea-going vessels not acquired as new but used exclusively to generate certain profits from ocean shipping, jointly owned parts of such sea-going vessels and shares in such vessels shall also be entitled to this special optional system of depreciation when such vessels are owned for the first time by a Belgian taxpayer.
2.2 Increased investment deduction
The investment deduction is equal to 30% of the purchase price of the sea-going vessels, with regard to vessels obtained in new condition or with regard to second hand sea-going vessels that are owned for the first time by a Belgian taxpayer. If no or insufficient profit is generated during a taxable period in order to benefit from the investment allowance, the deduction can be carried forward to the following taxable period(s).
2.3 Exemption of capital gains realised on the sale of seagoing vessels
In principle, capital gains realised on sea-going vessels are subject to Belgian corporate income tax (rate: 29.58%) if they are realised when the special tonnage tax regime is not applied. However, an exemption applies subject to the following conditions:
- the company realising the capital gain, is exclusively engaged in the ocean shipping sector;
the capital gain is recorded on a separate and blocked reserve account;
the vessel which is alienated, has been a fixed asset for more than five years before its alienation;
a sum equal to the sales value is reinvested in sea-going vessels, shares in joined ownership of seagoing vessels, in interests or in shares of a company-ship operator whose registered office is located within the EEA;
the reinvestment must be made at the latest at the time of termination of the professional activity and within a period of 5 years as from the first day of the taxable period during which the capital gain was realised or from the first day of the penultimate taxable period that preceded the realisation of the capital gain;
the investment considered as reinvestment must be maintained as an asset during at least five years but can possibly be replaced within three months after its alienation;
a special form must be enclosed with the tax return for the assessment year during which the capital gain was realised and the following years of assessment until the reinvestment is carried out.
If the reinvestment is not done in the way and within the periods of time mentioned above, the capital gain realised will be considered as profit of the taxable period during which the reinvestment period has expired. As of assessment year 2019 (relating to the taxable period starting the earliest on 1 January 2018), a late payment interest of minimum 4% will become due in such case. The same will apply if the taxpayer converts the tax free reserve into a taxed reserve prior to the expiration of the reinvestment term.