3 years. The ship in question must be seagoing; in other words, it is engaged in
carriage of cargo or passengers by sea, or in towage or in salvage or in other form of
assistance at sea, or sea transportation connected with some other services necessarily provided at sea. A laid-up ship that continues to be operated will attract tonnage
tax. A ship must also be certificated for sea navigation by a competent authority and
must be engaged in normal commercial operations carried out at sea.
26 Vessels that
do not qualify are fishing vessels or factory ships, pleasure craft, harbour or river
ferries, offshore installations, tankers dedicated to a particular oil field, certain tugs ,
certain dredgers, vessels the main purpose of which is to provide goods or services
normally provided on land (e.g. floating hotel or supermarket).
The tonnage tax is computed by reference to the net tonnage of a ship and is
payable instead of the corporate income derived from the operation of the ship. In
other words, entering into a tonnage tax regime enables the shipowner to reduce its
tax liability by a considerable amount compared to what it would have paid under a
corporate income tax regime.
27
The actual profits covered by a tonnage tax profit include those derived from the
following: core qualifying activities in operating its own ships; other necessary shiprelated activities integral to the above; qualifying secondary activities; qualifying
incidental activities, not exceeding 0.25% turnover from qualifying core and secondary activities; distributions from oversea shipping companies (which only operate qualifying ships); loan relationship profits and foreign exchange gains, which
would otherwise be trading income; gains on disposal of tonnage tax assets.
The above-mentioned activities are considered to be of primary character because
they relate to the direct operation of the company’s own ships. Those activities that
are not so connected directly but have a substantial connection with the core
qualifying activities of the company or a fellow group member are secondary
activities, but they would qualify for tonnage tax. These activities are as follows:
Support services to fellow group member’s ships that would be qualifying core or
secondary activities if carried out for own ships; carriage of passengers or cargo
beyond the sea-leg of an inclusively priced journey where the transport is bought in
from a third party; administration and insurance services; embarkation and disembarkation of passengers; loading and unloading cargo; excursions for passengers
where cabins remains available to passengers; normal sales and services to, and
entertainment of passengers; similar services to third parties where use of surplus
capacity; and reciprocal arrangements with third parties.
26 The Commissioners of Inland Revenue, “The Tonnage Tax Regulations (2000)” in Volume 2303
(2000).
27 Smith and Middledich (2003/2004).
722
Y. Yin
carriage of cargo or passengers by sea, or in towage or in salvage or in other form of
assistance at sea, or sea transportation connected with some other services necessarily provided at sea. A laid-up ship that continues to be operated will attract tonnage
tax. A ship must also be certificated for sea navigation by a competent authority and
must be engaged in normal commercial operations carried out at sea.
26 Vessels that
do not qualify are fishing vessels or factory ships, pleasure craft, harbour or river
ferries, offshore installations, tankers dedicated to a particular oil field, certain tugs ,
certain dredgers, vessels the main purpose of which is to provide goods or services
normally provided on land (e.g. floating hotel or supermarket).
The tonnage tax is computed by reference to the net tonnage of a ship and is
payable instead of the corporate income derived from the operation of the ship. In
other words, entering into a tonnage tax regime enables the shipowner to reduce its
tax liability by a considerable amount compared to what it would have paid under a
corporate income tax regime.
27
The actual profits covered by a tonnage tax profit include those derived from the
following: core qualifying activities in operating its own ships; other necessary shiprelated activities integral to the above; qualifying secondary activities; qualifying
incidental activities, not exceeding 0.25% turnover from qualifying core and secondary activities; distributions from oversea shipping companies (which only operate qualifying ships); loan relationship profits and foreign exchange gains, which
would otherwise be trading income; gains on disposal of tonnage tax assets.
The above-mentioned activities are considered to be of primary character because
they relate to the direct operation of the company’s own ships. Those activities that
are not so connected directly but have a substantial connection with the core
qualifying activities of the company or a fellow group member are secondary
activities, but they would qualify for tonnage tax. These activities are as follows:
Support services to fellow group member’s ships that would be qualifying core or
secondary activities if carried out for own ships; carriage of passengers or cargo
beyond the sea-leg of an inclusively priced journey where the transport is bought in
from a third party; administration and insurance services; embarkation and disembarkation of passengers; loading and unloading cargo; excursions for passengers
where cabins remains available to passengers; normal sales and services to, and
entertainment of passengers; similar services to third parties where use of surplus
capacity; and reciprocal arrangements with third parties.
26 The Commissioners of Inland Revenue, “The Tonnage Tax Regulations (2000)” in Volume 2303
(2000).
27 Smith and Middledich (2003/2004).
722
Y. Yin