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Finnish Tonnage Tax Reform to Parliament
The Finnish Government has issued a bill proposing amendments to the Finnish tonnage tax regime. The proposed amendments aim to promote the international competitiveness of the Finnish shipping industry. The new tonnage tax regime offers tax incentives to Finnish ship-owners and encourages ship-owners to undertake new investments and to register ships under the Finnish flag. Taxand Finland examines the proposed amendments to the Finnish Tonnage Tax.
The Government proposes significant amendments in relation to the dividend distribution provisions of the tonnage tax regime, relaxed flag requirements, increased flexibility of shipowners' activities, alleviated tax debt provisions and relieved sanction mechanisms.
The new tonnage tax is based on a calculation of income subject to tonnage tax instead of the current system where the amount of tax payable is calculated on the basis of the total tonnage of the fleet. The taxable income is calculated gradually on the basis of the net cargo holds of the ship.
Dividends distributed by a company subject to tonnage taxation receive the same tax treatment as other dividends distributed by other companies. Therefore, there are situations where tax exempt dividends can be distributed to a parent company out of income covered by tonnage taxation.
Also the scope of activities subject to tonnage taxation will be extended. According to the proposed changes, tonnage taxation will also cover services that are closely related to marine transport such as harbour, delivery and terminal services. In line with this, to increase the flexibility of shipowners'
activities, the flag requirements of the tonnage tax regime will be relaxed. In future only 60% of shipowners' ships will be required to register under the flag of an EU member state. In addition, 25% of the ships owned and rented shall be registered under the Finnish flag.
Tax debts from income taxation are due to be reduced against ship-owners' new investments. For example taxes paid in relation to the acquisition of the ship and costs related to environmental protection will be deducted from the overall tax debts before tonnage taxation.
The amended tonnage tax regime shall enter into force after the EU Commission has approved the amended state aid. Ship-owners are required to apply to be subject to tonnage taxation within three years from the entry into force of the new legislation. Clearly, the entry into the regime which will take effect for the taxable years beginning on or after 1 January 2010, will require careful planning, which may well include a restructuring exercise to maximise the potential benefits.
The changes in the legislation will have a significant impact on the Finnish ship-owners industry. The new regime is expected to increase the attractiveness of tonnage taxation. Finnish shipping companies should act fast and start exploring the possibilities for tax savings that the new regime offers. The tax optimal structure could require company and financial restructuring that can be time-consuming.
Taxand recommends Finnish and foreign ship-owners seek expert tax advice to take advantage of the Finnish reforms, to ensure accurate implementation of the tonnage taxation regime and the robust tax restructuring of the ship-owners' group structure.
Your Taxand contact for further queries is:
T. +358 9 615 333