- Why choose Luxembourg?
- Which vessels may be registered in Luxembourg?
- Who is authorised to register a ship?
- Luxembourg Tax Regime
- Registration of the mortgage
- Is parallel registration permitted?
- What are the Port facilities?
- Who to contact?
Why choose Luxembourg?
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.
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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 registration in the maritime register.
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Who is authorised to register a ship?
Those ships that are more than 50% owned 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.
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Luxembourg 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 Euro 150,000 and at 1.4% for the part above Euro 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, where after 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 Euro 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.
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Registration of the 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.
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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 arrangements concluded by the EU with third countries concerning freight taxes or similar dues.
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Who to Contact?
If you are interested in more information regarding the registration of your ship in Mauritius, please contact Levi WEISZ, Managing Director of Australia-Offshore:
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