20 September 2004
Colleagues reacted with surprise when, as an established shipping litigation lawyer practising at one of London’s leading law firms, I recently decided to leave London to practise in Dublin. What logical reason could one have to move from London (the centre for shipping disputes) to Ireland, a country not immediately associated with shipping litigation?
The economic revival of the Irish economy – the ‘Celtic Tiger’ – has secured Ireland’s recognition as a leading European location for financial services. Government plans have provided for large-scale investment in infrastructural projects and the focused development of Ireland as a base for multinational export-orientated companies.
The Irish government recognises that the development of the shipping industry and attracting international shipping business is desirable to an island where 99 per cent of its imports and exports travel by sea. Under the auspices of the Irish Maritime Development Office (IMDO), the aim is to develop Ireland as a competitive location for international shipping and shipping service companies.
Significant investment has already been made in the expansion and upgrade of Irish ports. €53.5m (£36.5m) will be invested over the next five years into the construction of a new and modern container port facility at Foynes on the Shannon Estuary. A comprehensive overhaul of the 1955 Mercantile Marine Act, spearheaded by the IMDO, has also received ministerial approval.
Further reforms are therefore afoot to the Irish ship registry, which will ensure its place among the most modern ship registries in the world.
An important fundamental legislative development has been the introduction of the Irish tonnage tax regime. The regime, like other tonnage tax regimes, is based on a notional profit per tonnage. All qualifying income will be covered by this notional profit figure as opposed to a tax on the actual income of the company. The advantage Ireland has over its European partners is the unique corporate tax rate of 12.5 per cent applied to the notional profit.
Ireland has the lowest corporation tax rate in the EU (the UK has a corporation tax rate of 30 per cent).
Some of the key points of the regime are:
Shipowners, bareboat charterers and ship managers can all avail themselves of the regime provided that they operate a “qualifying ship”, they are a company subject to Irish corporation tax and a company that undertakes the strategic and commercial management of those ships in Ireland. Notably, therefore, there is no ownership requirement under the regime for ship management companies. They can elect to have their profits taxed under the same criteria as shipowners. Management will include services such as technical management, commercial management, crewing services and sale and purchase services.
A qualifying vessel is defined in the relevant legislation as a self-propelled seagoing vessel (including a hovercraft) of 100 tonnes or more gross tonnage. Certain vessels are expressly excluded, for example: fishing vessels; dredgers; recreational vessels; a harbour, estuary or river ferry; an offshore installation; and tugs that are incapable of operating outside territorial waters.
All of a company’s owned or bareboat chartered tonnage will qualify for the regime provided they are “qualifying vessels”. In addition, a company can charter-in up to three times its owned tonnage on a time-charter basis. The income generated will be qualifying income.
Unlike other tonnage tax regimes, there is no requirement that the qualifying vessel be registered in Ireland.
No training requirements
The Irish regime does not contain any burdens with regard to seafarer training, unlike for example the commitments to training imposed under the UK regime. The Irish government has, however, invested considerable sums of money in the establishment of state-of-the-art maritime training facilities.
Period of time in regime
Qualifying companies must elect into the regime for a period of 10 years. One of the most notable differences between the Irish tonnage tax regime and some of the European regimes is that a company can elect to stay in the Irish regime for a further 10 years at any time while in the regime.
Direct income, income from shipping-related services and ancillary income are all qualifying incomes under the regime. Direct income includes income from the carriage of passengers and cargo, income from towage and salvage, and chartering income where the company retains control over the operation and crewing of the vessel. This will therefore include time charter income as opposed to bareboat charter income, the latter being excluded and accordingly taxed at the standard rate of Irish corporation tax of 12.5 per cent if Irish income, or 25 per cent if not.
Income from shipping-related services includes income from ship management operations, for example income from the provision of crew. It will also include income derived from commercial management, for example the booking of cargo or passengers, income derived from the loading and unloading of cargo and income from the rental of containers.
A further advantage of the Irish tonnage tax system, and possibly a key feature of the system for ferry operators, is the inclusion of ancillary income such as income generated by bars and shops etc on board passenger ferries.
The tonnage tax regime, combined with the other proposed reforms and investment, creates the right culture to ensure that
the Irish shipping industry continues to experience its recent growth.
The Bank of Ireland has recently set up its own ship financing division, a clear indication that there is a growth industry.
For international shipping companies considering their fiscal position, Ireland must be a strong contender for their business. There is an old Irish song that begins “If you ever go across the sea to Ireland…”.
Well, if you cross the sea now with your shipping business in tow, and with the ballast of the euro, a shipping company can reap the fiscal benefits.
As for the shipping lawyer, the reason for moving to Ireland must be clear. If the Irish tonnage tax does not float your boat, the Guinness is good and the shopping is even better.
Helen Noble is a senior associate specialising in marine litigation at Mason Hayes & Curran