In the dynamic world of international shipping, the Irish tonnage tax regime stands out as a cornerstone policy designed to support the Irish maritime sector.
Introduced in 2002, the EU-approved Irish tonnage tax regime aligns with broader EU efforts to promote a robust and competitive maritime industry across EU member states. The regime continues to support economic growth and sustain employment in the Irish maritime sector.
The Irish tonnage tax system replaces traditional corporation tax calculations with a formula based on a qualifying ship's net tonnage. The regime provides certainty and predictability to companies operating in a highly cyclical sector within the domestic and global economy. It not only stabilises financial planning for qualifying companies but also helps those companies remain competitive internationally.
The tonnage tax regime coupled with Ireland’s competitive corporation tax system makes Ireland an attractive location for international shipping groups.
Who can access the tonnage tax regime?
The regime is currently utilised by a range of companies across the dry bulk, tanker and liner trades amongst others, playing a crucial role in strengthening Ireland’s maritime industry.
How does the Irish tonnage tax regime operate?
The regime operates as an alternative method of taxing the profits of qualifying shipping companies. Instead of being taxed on trading profits (as under normal corporation tax rules), qualifying companies are taxed on a nominal notional profit computed as a profit per day based on the net tonnage of the ships operated by them.
The standard corporation tax rate of 12.5% or 15% if within the scope of the OECD Pillar Two GloBE rules, is then applied to the notional profit. Foreign exchange and other financial gains associated with the shipping business are included in the regime.
What are the advantages of the Irish tonnage tax regime?
‘Relevant shipping income’ is exempt from regular corporation tax and the term is broadly defined. Ireland’s tonnage tax is not a tax deferral, representing the final corporation tax liability on those profits and results in permanent savings.
There are no tax barriers to the establishment of an Irish operation and start-up costs are generally low. Repatriation of profits is facilitated by Ireland’s comprehensive network of tax treaties which provide favourable dividend and interest withholding tax rates.
A full exemption from capital gains tax applies on gains arising on qualifying ships provided those assets have always been used within the company’s tonnage tax trade and financing into the tonnage tax company is not restricted.
There is normally no exit charge where a company leaves the regime by ceasing to carry on shipping operations within Ireland.
The Irish regime offers benefits to ship managers and pools over EU competitors. There is no requirement for the ships to be Irish registered or Irish flagged. Profits from ship management activities also benefit from the regime. Furthermore, there is no vessel ownership requirement on ship managers.
The strategic and commercial management tests under which the regime operates are EU-approved and align with the OECD Pillar Two GloBE requirements.
The regime does not impose training requirements. Furthermore, a tonnage tax company may charter in up to three times the amount of tonnage it owns/bareboat charters in.
There are no tax barriers to the establishment of an Irish operation and start-up costs are generally low.
What else can Ireland offer?
Outside of the Irish tonnage tax regime, Ireland affords many other opportunities to domestic and global shipping groups. Ireland is a leading centre for leasing and financing of mobile assets, particularly in the aircraft leasing and finance space.
There are many attractive and tax-efficient leasing structures which are commonly used in other mobile asset sectors which may be beneficial for global shipping groups as they consider establishing operations in Ireland.
Get in touch
Our Tax Shipping team works with a wide range of clients across the maritime sector. We have expert tax and commercial knowledge of the tonnage tax regime.
Contact us for professional advice on maritime tax matters; we'd be delighted to hear from you.
Fidelma Cosgrove
Tax Director
KPMG in Ireland
