Ireland boasts a very attractive tax regime for shipping operations known as the tonnage tax regime. It is designed to ensure that shipping businesses based in Ireland pay tax on a nominal profit which is based on the tonnage of a vessel as opposed to on actual profit generated by the business. When the tonnage tax regime is combined with Ireland's low corporate tax rate of 12.5%, the result is an extremely low effective rate of tax for shipping businesses located in Ireland.
The main advantages of Ireland's tonnage tax regime are:
Possibility to determine taxable profits upfront combined with a low 12.5% corporate tax rate on such fixed profits, thereby resulting in a low effective tax rate; No crew training requirements; No requirements regarding where the ship is registered; No Irish flag requirements; No capital gains tax ("CGT") on the disposal of a ship; Permanent tax saving (as opposed to deferral of tax) to participating companies; and Profits from ship management activities also qualify i.e. there is no vessel ownership requirement on ship managers. Requirements of the Regime
The regime only applies to qualifying companies. In order to be a qualifying company the company must first fall within the charge to Irish corporation tax. Therefore the company must be Irish tax resident or operate the shipping business through an Irish branch.
The company must also carry on a business of operating qualifying ships. A company will be treated as operating ships if it owns ships, charters in ships or manages ships. A qualifying ship is defined in the legislation as a self propelled seagoing vessel of an adequate size (100 tonnes or more) to engage in reasonable commercial operations and which complies with all requirements for navigation at sea imposed by the competent authorities of any country or territory. Fishing vessels, river ferries, dredgers and recreational vessels are excluded from the regime.
Finally the company must carry on the strategic and commercial management of those ships in Ireland. While the legislation does not contain a definition of what exactly constitutes "strategic and commercial management" of ships, the Revenue Commissioners have provided some guidance in this regard. In their view in order for a company to be considered to be carrying "strategic and commercial management" a company must demonstrate that all elements of management activity relevant to the ships in question take place in Ireland. This means...