The new Tonnage Tax Regime in Portugal
This year promises to be a year of change in the maritime transport sector of Portugal.
For decades the International Shipping Register of Madeira (RIN-MAR) was the only competitiveness factor that Portugal could leverage to invigorate the Portuguese merchant marine fleet. Despite all the obstacles and difficulties that it has faced, both in terms of legislation and operations, RIN-MAR has been able to prevent restriction of the number of commercial vessels to fly the Portuguese flag to the dozen or so ships registered in the Portuguese Conventional Register. The operational and fiscal advantages granted to vessels and their crew registered with RIN-MAR, together with the tax regime available within the scope of the International Business Centre of Madeira for maritime transport companies have kept Portugal on the map as regards countries that should be considered by national and international shipowners, and they have resulted in a gradual increase in the number of ships that fly the Portuguese flag to a total of 523 commercial vessels registered with the RIN-MAR at the start of 2019.
It is expected that the legislative changes introduced over the course of 2018 will bring new vigour to this sector, adding to the advantages of the IBCM that will continue to be available, at least until end 2027.
Introduction of the tonnage tax in Portugal
In fact, in 2018 the European Commission approved the creation of a new tonnage tax regime for Portugal, together with the publication of Decree-Law 92/2018 of 13 November, which implemented a special regime that determines taxation base in accordance with ship tonnage, a specific tax and contribution regime for crew members, along with a simplified register of ships and vessels.
Under this Decree-Law, companies with their head office or permanent management in Portugal that are in the business of transporting goods or passengers or involved in some related activities can benefit from the special regime that determines the taxation base.
Under this special regime, the taxation base is calculated by applying the following daily values to each eligible vessel:
|Net tonnage||Daily taxation base per 100 net tonnes|
|Up to 1,000 net tonnes||€ 0.75|
|Between 1,001 and 10,000 net tonnes||€ 0.60|
|Between 10,001 and 25,000 net tonnes||€ 0.40|
|Greater than 25,001 net tonnes||€ 0.20|
There is expected to be a 50% and 25% reduction in the taxation base determined during the first two years of business, along with a 10% to 20% reduction for vessels with a net tonnage greater than 50,000 net tonnes that fulfil some environmental requirements.
The taxation base that is thereby determined shall be subject to the general tax rate stipulated in the Corporate Income Tax Code, which is currently 21% on mainland Portugal, 20% in Madeira and 16.8% in the Azores. Specific conditions have been determined for deducting costs and losses, carrying forward tax losses and calculating the special payment on account; however, opting for this regime does not hinder application of the Corporate Income Tax Code in relation to other matters, namely with regard to general rules related to transfer prices, autonomous taxation, settlement and payment rules, among others.
Taxation and contribution regime of crew members
Similar to the benefits granted to crew members of ships registered with the RIN-MAR, this legislation seeks to provide personal income tax exemption and a special contribution regime for crew members of ships or vessels registered in the conventional Portuguese register or in another Member State of the European Union or EEA and which are used by entities that opt for this special regime for determining taxation base.
Such crew members shall be covered by the general social security regime and shall be entitled to parental, unemployment, illness, occupational illness, disability, old age and death benefits, subject to a contribution rate of 6% (4.1% paid by the employer and 1.9% by the crew member).
In order to benefit from personal income tax exemption the crew member must remain aboard the ship at least 90 days during each taxation period.
Eligibility and application requirements
Payers of corporate income tax may opt for the tonnage tax regime if their head office or permanent management is located in Portugal and their main commercial activity is related to maritime transport of goods and people and they legally exercise it, and the simplified regime for taxation base determination does not apply to them.
The regime only applies to income from activities performed using ships that fly the flag of an EU or EEA member State, ships that are strategically and commercially managed from an EU or EEA Member State (presupposes control and risk of the maritime activity) and that are used to perform the activities listed in the legislation, namely the transport of goods and passengers and some additional activities, such as the sale of products for onboard consumption, the supply of services directly related to the activity, returns on short term investment of working capital, advertising and marketing of advertising spaces onboard ships, shipbrokerage, strategic, commercial, technical, operational and crew management, among others.
Shipowners and charterers can benefit from this regime, including those who have ships registered outside the EU under certain conditions.
Fifty percent (50%) of the crews must be made up of members who are Portuguese, from EU and EEA Member States, or countries whose official language is Portuguese.
Duration of the regime and period for remaining within it
The tonnage tax shall be valid for 10 years and it may be renewed for identical periods, provided that the European Commission authorises the renewal. The minimum period for remaining within this regime is 5 years and the option may be selected at the start of the activity or by the end of the taxation period during which the special regime is to be applied.
Tonnage Tax and the IBCM and RIN-MAR
Taxpayers who opt for this special regime shall not receive any other tax benefits or incentives of the same type. As such, the reduced Corporate Income Tax rate provided for within the scope of the International Business Centre of Madeira (IBCM) shall not apply to income that is subject to this special regime.
Notwithstanding, companies that opt for this special regime may still benefit from all other tax benefits applicable to companies licensed within the scope of the IBCM.
Likewise, companies that opt for this special regime may also register their ships with the RIN-MAR, which is a reliable and efficient register that offers all the guarantees and security that shipowners seek.