Portuguese Tonnage Tax and Seafarer Scheme Get Nod from EU

The European Commission has approved a Portuguese tonnage tax scheme which, together with a scheme to support seafarers, aims to encourage ship registration in Europe and preserve employment in the sector.

Under the new tonnage tax scheme, maritime transport companies will pay taxes on the basis of the net tonnage, i.e. the size of the shipping fleet, operated in maritime transport activities instead of their taxable profits.

In particular, tonnage taxation will be applied to a shipping company’s core revenues from maritime transport activities, such as cargo and passenger transport, certain ancillary revenues that are closely connected to shipping activities (which are capped at a maximum of 50 pct of a ship’s operating revenues), and revenues from towage and dredging subject to certain conditions.

In addition, for certain more environmentally-friendly ships, companies can achieve an additional reduction of 10 pct to 20 pct of the tax base.

If a shipping company wants to benefit from the scheme, a significant part of its fleet must fly the flag of a European Economic Area (EEA) state. The requirement is expected to encourage shipping companies to register their ships in the EEA and prevent any discrimination between shipping companies and registries of different EEA states.

The move seeks to curb the risk of companies flagging out and relocating to low-tax countries outside of the EU.

“The Portuguese measures that we approved today (April 6) will help the EU shipping industry to remain competitive on the global market, while protecting know-how and jobs in the maritime transport sector,“ Commissioner Margrethe Vestager, in charge of competition policy, said.

The new Portuguese seafarer scheme exempts seafarers employed on vessels that are eligible under the tonnage tax scheme from paying personal income tax. It also allows them to pay reduced rates of contribution for social insurance.

Both the tonnage tax and seafarer schemes will remain in force for ten years.