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HM Revenue and Customs Brief 04/08


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Issued 12 February 2008

Tonnage Tax Registration of ships in Member States


This Revenue & Customs Brief is relevant to those companies that have elected to have their corporation tax profits from the maritime transport activities of qualifying ships calculated under the rules of Tonnage Tax.

During financial year 2008 companies in Tonnage Tax starting to operate a ship for the first time will have to carry out an additional test to see if the ship qualifies for Tonnage Tax. Companies may find that some ships, not registered in a member state, do not qualify for Tonnage Tax.

Background: registration of ships

When the Tonnage Tax regime was introduced in FA 2000 where a vessel was registered, or 'flagged', did not affect whether or not it was a qualifying vessel for Tonnage Tax purposes.

The Tonnage Tax regime was amended by Finance Act 2005, which introduced legislation on where vessels are registered (Sections 22A to 22F Finance Act 2000). This legislation means that where a ship is registered can affect whether or not it is a qualifying vessel for Tonnage Tax purposes.

There are special rules for tugs and dredgers. Only tugs and dredgers registered in a member state can qualify for Tonnage Tax.

For other ships, where the overall proportion of vessels in Tonnage Tax that are registered on the registers of EU/EEA member states is not decreasing then the legislation allows the Treasury to designate a year as an 'excepted year'. In an excepted year the legislation is not applied on a company by company basis.

In other years, companies and groups have to apply a test when they start to operate a vessel for the first time. If the conditions are met, then the additional vessel is not a qualifying ship for Tonnage Tax purposes and the profits from that ship are taxed under the normal rules of corporation tax.

The financial years 2005, 2006 and 2007 have been designated as excepted years.

Flagging rules for financial year 2008

The growth in the number of ships in Tonnage Tax has continued, but the tonnage of ships registered in member states has grown at a much lower rate than those registered elsewhere.

As a result the overall proportion of ships registered in member states has declined. This means that financial year 2008 will not be an excepted year and, when companies/groups start to operate a ship, where it is registered may affect whether or not it is a qualifying ship for Tonnage Tax purposes.


HMRC is publishing its draft guidance (PDF 61K) on the application of the flagging legislation (PDF 61K).

Where companies in Tonnage Tax or their agents have any comments on the draft guidance, for example where they consider that an aspect has not been covered by the guidance, then they should contact:

Nick Gibb
Liverpool LBS
Regian House
James St
L75 1AA

email: Nick Gibb

Comments should be made by 30 April 2008.

The finalised version of the guidance, incorporating any changes made as a result of the feed-back, will be published in the Tonnage Tax Manual.

About the Author

Crown Copyright 2008.

A licence is need to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs under the terms of a Click-Use Licence. Tax briefs are updated regularly and may be out of date at time of reading.

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Article Published/Sorted/Amended on Scopulus 2008-02-13 17:58:57 in Tax Articles

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