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Danish Government expands tonnage tax scheme to include offshore ships

As a part of a 2014 'growth package' the Danish Government has widened the scope of the tonnage tax regime by including certain types of ships operating in relation to offshore activities. The aim is to ensure the competitiveness of Danish shipping companies and therefore the Government are improving the legal framework in this regard. Taxand Denmark takes a look at new amendments to the tonnage tax regime and the impact they will have on the Danish offshore industry.

The position of the offshore industry
The Danish offshore industry has strong growth potential but is still facing keen competition from shipping industries in other jurisdictions, which may benefit from more favourable tax regimes and lower labour costs. By widening the scope of the Danish tonnage tax regime the Danish Government seeks to ensure a better competitive position to offer shipping companies.

The tonnage tax regime
The tonnage tax regime favourably allows shipping companies to opt for tax payments based on the tonnage of its fleet rather than its profit. The regime hereby establishes a fictitious income subject to the corporate tax rate of 24.5% (2014). No deductions are available under the tonnage tax scheme.

The tonnage tax regime makes the tax assessment predictable as it does not depend on the actual profit of the shipping company. The choice to opt in to the tonnage tax scheme is binding for a 10 year period.

The improvement of the scheme
The proposal will expand the scope of the tonnage tax regime to include offshore ships under the favourable tonnage tax regime. The ships in question are:

  • Accommodation and Support Vessels (ASV)
  • Ships used to transport and mount offshore wind turbines
  • Guard, supply and construction ships
  • Icebreaker ships

The tonnage tax payable
The tax assessment in the tonnage tax regime is based on a fictitious income based on the tonnage of the ships using the following formula in conjunction with the scale below.

x DKK per 100 net ton (NT) per day

The 2014 rates are:

0 - 1,000 NT:

DKK 9.14 per 100 NT

1,001 NT - 10,000 NT:

DKK 6.56 per 100 NT

10,001 NT - 25,000 NT:  

DKK 3.92 per 100 NT

More than 25,000 NT:

DKK 2.58 per 100 NT

A sufficient improvement?
The Government is acknowledging the necessity of a more flexible tax regime as implemented in other jurisdictions. It may, however, be argued that the proposal does not respond significantly to the need for a flexible tax regime for drilling ships and oil rigs. Further, the proposal does not alter the fact that offshore related ships cannot be registered with the Danish International Shipping Register (DIS), for which reason crewmembers are not covered by the tax exemption found in DIS. Therefore, it remains an open question whether the proposal will significantly improve the position of Danish shipping companies. The Danish Shipowners’ Association has stated that they find the lack of inclusion of these points a hindrance to the establishment of a strong position for the Danish offshore industry.

Your Taxand contact for further queries is:
Anders Oreby Hansen
T. +45 25263602

Taxand's Take

The proposed expansion of the tonnage tax regime is a positive development for Danish shipping companies, as it provides a favourable scheme for profit yielding shipping companies with offshore related ships in their fleet. Sadly the expansion does not cover drilling ships and oil rigs and crewmembers of offshore ships are not covered by the tax exemption in the DIS regime. Consequently, the proposed expansion does not fully adhere to the wishes of the Danish shipping industry and it remains an open question whether the proposal will significantly improve the position of Danish shipping companies.

Although the amendments to the Danish Tonnage Tax Act have been adopted it presupposes approval from the EU commission which is required as the tonnage tax regime is a state aid scheme.

Taxand's Take Author