EU Approves New Tonnage Tax Schemes

by Ulrika Lomas, Tax-News.com, Brussels

31 December 2019

The EU has approved under state aid rules the introduction of a tonnage tax scheme in Estonia and the prolongation of a tonnage tax scheme in Cyprus.

To address the risk of flagging out and relocation of shipping companies to low-tax countries outside of the EU, the Commission's 2004 Guidelines on State aid to maritime transport allow EU member states to adopt measures that improve the fiscal climate for shipping companies.

The Commission said that both Estonia's and Cyprus's tonnage tax schemes comply with the rules limiting tonnage taxation to eligible activities and vessels. As regards the taxation of dividends of shareholders, the Commission said that both schemes ensure that shareholders in shipping companies are treated in the same way as shareholders in any other sector.

Under a tonnage tax scheme, 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.

The Commission has also approved the introduction of seafarer schemes in Estonia and Poland, as well as the prolongation of such schemes in Cyprus and Sweden, and the prolongation and extension of a scheme in Denmark. This can reduce the overall level of taxes paid.

Under seafarer schemes, labor costs (such as income tax and social security contributions) for seafarers employed on board vessels flying the flag of an EU or European Economic Area member state may be partly or totally reduced.

The Commission said that the schemes are in line with EU state aid rules, as they will contribute to the competitiveness of the EU maritime transport sector and encourage ship registration in Europe, while preserving the EU's social, environmental, and safety standards and ensuring a level playing field.

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