Luxembourg, a traditionally non-Marine
nation, has developed a competitive legal framework for shipping
companies. Among other minor advantages, the merchant shipping status
of Luxembourg offers VAT exemption (EU-wide), an unlimited right
of anchorage in EU waters, tax-free storage of fuel, EU flagging,
advantages of the financial centre of Luxembourg for ship financing
and the following competitive tax regime:
The existence of a favourable rate
of taxation on profits (22.88%);
The existence of favourable depreciation
arrangements, i.e. the normal working life of ships should not
be greater than ten or twelve years, and;
Sliding-scale depreciation must be
allowed;
A favourable regime that permits carrying
forward losses;
Profits from the sale of a ship that
are reinvested in the purchase of another ship or in the modernization
of another ship benefit from exemption of tax;
Finally, the Luxembourg shipping company
is taxed under the general provisions of the Luxembourg Income
Tax Law, and does not benefit from an exempt status. This is
of supreme importance in the context of the application of double
tax treaties particularly with regard to repatriation of dividends
and profits.
Tax credit on investment.
Which vessels may be registered in
Luxembourg?
The Luxembourg law allows the registration of all vessels of at
least twenty-five tonnes which are, or are intended, to be used
on a regular basis for the sea transport of persons or things, for
fishing, towing or any other gainful form of shipping activity.
The law lays down an age limit of fifteen (15) years for an initial
registration.
By derogation from the tonnage limit laid down in the law, passenger
ships may be entered in the Luxembourg public shipping register
provided that they satisfy the provisions of the 1974 International
Convention on the Safety of Life at Sea, as subsequently amended.
Yachts should be over 24 meters (loadline) for registation in the
maritime register.
Who are authorised to register
a ship?
Those ships that are more than 50% onwned by residents of the European
Union or by commercial companies that have their registered office
in a member state of the Union, and those chartered by such persons
or companies, provided that in all such cases all or part of the
management of the ship in question is carried out from Luxembourg
territory.
Tax Regime
Rate of Taxation (Corporation Income Tax)
Revenue earned by a Shipping company from the operation of Ships
is subject to income tax (Impôt sur les Revenus de Collectivités,
IRC) at a rate of 22. % plus a 4% of 22. % as employment tax (taxe
pour l'emploi): that amounts 22.88%. Shipping companies are exempted
of municipal business tax.
In addition to Corporation Income Tax, a wealth tax is levied at
a rate of 0.05% on the net wealth.
There are tax credits for investment made in an establishment located
in the Grand-Duchy and intended to remain there permanently and
which are physically in evidence on Luxembourg territory and which
are other than buildings. On the question of supplementary investment,
the law provides for a tax credit equal to 8.4% of the said investment
relating to a given operating year. " Supplementary investment "
is taken to be the difference between the book value of the assets
in question at the end of the operating year and the arithmetical
average of the respective book values of these same assets at the
end of five previous financial years. This amount is increased by
the depreciation operated on the eligible assets in the year of
the investment.
In addition there also exists a further credit granted as a function
of the gross investment. This credit (in respect of a given operating
year) is fixed at a 4.2% of the acquisition price for that part
that does not exceed Eur 150,000 and at 1.4% for the part above
Eur 150,000.
Rules governing depreciation
Sliding-scale depreciation is permitted. There are two kinds of
depreciation which are accepted: linear depreciation and accelerated
depreciation.
Linear depreciation: The purchase price of the ship may be depreciated
over a minimum period of 12 years OR on the basis of a percentage
of the order of 8% of the purchase price.
Accelerated depreciation: it may be adopted at a maximum rate of
24% (three times the linear rate of depreciation) until such time
as the amount written off according to this latter method is less
than the amount applying under linear depreciation, whereafter the
amount resulting from the application of linear depreciation may
be adopted.
Carrying forward of losses
A company's trading losses may be carried forward indefinitely.
Therefore, losses may be used to offset future profits.
Provisions concerning large-scale
repair and maintenance work on ships
Those are fully deductible.
Tax treatment of capital gains
on the sale of ships
Tax on capital gains on the re-sale of a ship owned by a Luxembourg
company for at least 5 years is deferred (tax deferral) provided
the proceeds of the sale are reinvested (within 2 years) in certain
classes of fixed assets, e.g. ships, real estate, shares held as
participations in either Luxembourg or foreign companies.
Tax treatment of dividends
received
Dividends received by a Luxembourg company and distributed by a
Luxembourg or foreign subsidiary shall be exempt from tax (privilege
of parent companies and subsidiaries) on the following conditions:
the participations must have been
held since the beginning of the year and for at least twelve
months or there must be a compromise to hold them for one year
since the date of acquisition;
it must represent at least 10% of
the capital of the other company, or the acquisition price must
have been at least Eur 1,200,000;
the company paying the dividend must
be a Luxembourg resident company which is fully liable to local
tax or a non-resident company which is subject to a comparable
tax to Luxembourg income tax.
In order for the tax rate in question to be " comparable ",
the Luxembourg tax authorities consider 15% to be the minimum
rate of tax.
Tax treatment of capital gains on
disposal of participations
Capital gains on disposals of participations in companies limited
by shares are free of tax on the following conditions:
the participations must represent
at least 10% of the capital or the acquisition price must have
been at least Euro 6 million;
the company must hold or commit itself
to hold the participation of a minimum of the 10% of the share
capital to be sold for a period of at least 12 months;
the subsidiary must be a Luxembourg
resident company which is fully liable to local tax or a non-resident
company subject to a comparable tax to Luxembourg income tax.
15% is the minimum rate required to make the tax comparable.
Value-added tax (VAT)
Article 43/1 (f) of the 6th EU directive states that services to
the shipping industry shall be exempt from VAT. Indeed, Luxembourg,
differently to other EU states that have not fully applied the "
spirit " of the directive above mentioned, exonerates VAT in advance.
In other EU states, such as France, Spain, or Italy, it is very
difficult, if not impossible, to get the VAT that has been already
paid back. In Belgium, it will take around two years.
The taxation of Seamen/ Social
security
In general, the rate of a seaman's tax is fixed at 10% of 90% of
gross earning, plus a lump sum abatement of LUF 35,000 a month (or
LUF 1,400 a day throughout the duration of the contract of employment).
This flat rate tax is not applicable to seamen who are resident
in Luxembourg, but only to non-resident seamen. Social security
is in accordance with EU Directive 1408/71 or bilateral agreement
or private insurance
The place of actual management
In general, in order to ensure that a shipping company will be treated
as resident in Luxembourg and will thus be granted all the advantages
provided for by double taxation agreements, the company in question
must actually be managed from Luxembourg, that is to say, the place
where the Board of Directors and the Shareholders' AGM actually
meet, the place where the accounts are kept and where the company's
offices are located and that where the company is actually managed.
Dividends, interest and royalties
received by the Luxembourg company
These various types of income that may be received by a company
operating ships engaged in international trade are subject to Luxembourg
tax but may also be subject to a limited withholding tax in the
country in which they originate. In absence of a double taxation
agreement, this withholding tax is likely to be much higher.
Dividends, interests and royalties
paid out by the Luxembourg company
Luxembourg does not levy any withholding tax on interest.
As far as dividends are concerned, the standard rate of withholding
tax is 20%. In the case of a participation in the Luxembourg company
of at least 25%, the rate of tax varies from 5 to 10% according
to the different tax agreements. The dividends paid by a Luxembourg
company to its parent company established in another EU member state
are no longer subject to any withholding tax if the participation
is at least 10% and is held at least for a period of 1 year. Royalties
to be paid by a Luxembourg company to a foreign company, e.g. rent
also to be paid under the terms of a leasing agreement, are subject
to withholding tax rate of 12%. This rate is reduced to 0%-10% under
tax agreements.
Mortgages
Luxembourg has ratified the 1926 Brussels Convention on Liens and
Mortgages. There is only a limited fee for the Register
Luxembourg law provides effective protection to mortgagees and other
holders of liens and/or security interests.
There is no fee for registration of mortgage deeds on ships.
Is parallel registration permitted
?
Yes, Bareboating in and out is authorised.
Port facilities
As a member of the EU, Luxembourg flagged ships benefit from agreements
and arragements concluded by the EU with third countries concerning
freight taxes or similar dues.
Who to Contact
If you are interested in more information regarding mega yacht registration
in Luxembourg, please contact Gianni di Bari at OCRA (Luxembourg)
S.A.
LUXEMBOURG
SENIOR
CONSULTANT
Gianni Di Bari
Gianni is responsible for a portfolio of intermediary
and other clients
LANGUAGES SPOKEN: English, French, Italian and German
