The new tax landscape for shipping companies in Luxembourg The new tax landscape for shipping companies in Luxembourg The new tax landscape for shipping companies in Luxembourg

With an eye on the constant evolution of the international tax environment, we’re summarizing the latest national and international developments relevant for the sector.

The 2022 budget law confirms that the corporate income tax rates will remain unchanged in 2022. The current legislation regarding inter alia the tax rates, taxable income, incentives, credits, use of tax losses, will remain in force. In this context, there should be no changes in the taxation of companies in the maritime sector which are generally subject to corporate income tax at a rate of 18.19% but exempt from municipal business tax (6.75% – Luxembourg City).

According to Luxembourg’s Minister of Economy, the Luxembourg government wants to attract shipping companies that use or engage in research and development of sustainable vessels – thus promoting a green shipping orientation for the Luxembourg fleet.

On 15 December 2021, the Luxembourg Government Council approved the appointment of André Hansen as the new Government Commissioner for Maritime Affairs, effective 1 May 2022.

Luxembourg has a network of 90+ double tax treaties – and counting. In 2021, the government signed new double tax treaties with the Republic of Rwanda, Ethiopia and Ghana, which have not yet entered enforcement.

Updates on existing tax treaties:

• Russia: Amendments signed on 6 November 2020, update the withholding tax rate on some dividends payments and entered enforcement on 5 March 2021.
• Kuwait: Amendments signed on 25 March 2021 are in line with the most recent BEPS provisions introduced in the Luxembourg Parliament on 28 July 2021. This treaty and its protocol were ratified on 17 December 2021.
• Botswana: The tax treaty with Botswana, signed on 19 September 2018 entered enforcement on 6 July 2021.

On 8 October 2021, the OECD Inclusive Framework (IF) on base erosion and profit shifting released details of an agreement which refines their statement of 1 July 2021.

In the October release, it became clear that the agreed global minimum tax rate is 15% (not “at least 15%”). In addition, the special tax rules for the shipping industry that were proposed in the July agreement, as well as the formulaic substance-based carve-out, were both included in the October release. The Euro Tax Flash from our EU Tax Centre contains more information about this.

On 20 December 2021 the OECD published the Pillar 2 Model Rules. Pillar 2 is still in development, and further guidance in the form of commentary and detailed implementation framework are expected in the first half of 2022.

Colombia has introduced a special reduced income tax rate for income derived from the provision of international maritime transport services. Income realized from services provided by ships and naval vessels registered in Colombia is taxed at a 2% income tax rate (currently, 31%).

EU Commission approved modification German tonnage tax regime. The following modifications should be noted:

• Prolongation until 31 December 2027
• Extension of regime to all eligible vessels registered in any EEA country shipping register
• EUR 2.5 million increase in budget for the tonnage tax regime.

These modifications are approved by the European Commission, which means they are in line with the Guidelines on State aid to maritime transport.

The Netherlands announced a reduced tax rate of EUR 0.50/MWh for the shore-side supply of electricity to maritime and inland waterway vessels moored in ports as of 1 October 2021.

Regulation Table II was amended in response to the CJEU judgment of 20 June 2019, which ruled that the supply of a jackable offshore drilling rig is not exempt from VAT, given that a jackable offshore drilling rig is not a ship within the meaning of the VAT exemption for international traffic. The amended decree will take effect on 1 January 2023.

The Dutch tonnage tax regime includes flag requirements. In short, a vessel that is added to the fleet (operated in ownership, bareboat charter-in) should sail under an EU/EEA flag, unless one of three exemptions apply. The national exemption will not apply in 2022, but please note that does still apply in 2021. Please also note that, since 2020, the flag requirements and exemptions also apply to ship management activities.

The United Kingdom plans to reform its tonnage tax regime to make it easier for shipping companies to move to the UK. Legislation will be introduced to reduce (from ten to eight years) the period for which a tonnage tax election remains in force from the beginning of the accounting period in which it is made. In addition, Her Majesty’s Revenue and Customs (HMRC) will have the power to allow elections made outside the normal period within good reason. The proposed legislation will remove flagging rules introduced in 2005 and simplify the rule which includes dividends or other distributions by overseas shipping companies in relevant shipping profits.

Norway’s Ministry of Finance has submitted a proposal for changes to the tonnage tax regime for a public consultation hearing. Read this report, prepared by our KPMG colleagues in Norway, for more details.

The Norwegian government had proposed significant changes to the petroleum tax law which would amend the current rules on accelerated depreciation and the “uplift allowance” under the special petroleum tax regime and replace these measures with an immediate tax deduction in the year of investment, effective 2022. Read this report, prepared by our KPMG colleagues in Norway, for more details.

Shipowners or operators will not be able to buy or lease VAT-free vessels unless they submit a zero-rating application to the Italian tax authorities. On 6 August 2021, the Italian Tax Authority published a resolution which clarifies the form used to apply zero-rating to the purchase/lease of vessels and related components and services. This is a mandatory form to apply zero-rating. Read this report (PDF | 0.2MB) prepared by our KPMG colleagues in Italy, for more details.

This blog post is adapted from a newsletter prepared by my Dutch colleague and tax lawyer Ernst-Jan Bioch.

Henri Prijot, Tax Partner, Commerce & Industry at KPMG Luxembourg also serves as a Board Member of the Luxembourg Maritime Cluster.