The favorable Dutch Tax Regime for Shipping Companies

With Rotterdam as one of the largest ports in the world, it harbors a well-developed maritime industry, which includes shipping, offshore, shipbuilding, dredging, seaports, fisheries, and services/supply industries. Also, the logistical sector, like shipping agents, freight forwarders, logistics, warehousing, and transport, is well represented.

The shipping companies and charterers with a significant presence in the Netherlands are the center of this maritime industry.

Also, easy access to the Dutch capital market is a relevant factor. It includes tax-facilitated fundraising from the Dutch private market (the so-called CV structures), the main factor being the presence of specialized shipping banks, among the most sophisticated in the world.

The Dutch tax regime contains specific tax incentives for qualifying shipping companies.

The Dutch tax facilities for the shipping industry 

 The Netherlands provides a very favorable tax regime to attract the maritime to the Netherlands.

The most significant tax facility likely is the special corporate income tax regime for shipping companies, referred to as the Tonnage Tax Regime. The nature of this tax regime is that the qualifying exploiter of a ship is not subject to Dutch corporate income tax for its actual book profits but on a fictitious basis relating to the tonnage of freight of the ship(s) under management.  

Other incentives for the maritime industry are, for instance, the corporate tax exemption for qualifying foreign shipping companies, a VAT exemption for shipping in the EU, various forms of accelerated deprecations for oceangoing ships, and a labor cost subsidy for qualifying seafarers.  

The Dutch Corporate Income Tax Act regulates the Tonnage Tax Regime, the corporate tax exemptions, and accelerated depreciation through a special decree for oceangoing vessels. The Wage Tax Act regulates labor costs subsidy, and the Dutch VAT Act the VAT exemption.   

There is an overlap in the legislation in the manner that cross-references are made, and certain conditions are imposed for multiple facilities.

The incentives will be briefly described hereunder, and a general overview will be provided because the underlying legislation is complex and detailed. Contact us for a more detailed review of the exact conditions and the tax consequences if you consider utilizing one of these tax incentives.

The corporate tax exemption for foreign-based shipping companies

Foreign shipping companies will, in most cases, not be taxed in the Netherlands on income, profits, and gains from the operation of ships in international traffic traveling to and from Netherlands harbors. Special rules apply for inland transportation and the storage of goods.  

This will be the case if either: 

• The Netherlands has concluded a tax treaty with the country from where the ships are managed or 
• The foreign country from where the shipping company is being managed does not tax the income, profits, and gains derived from the operation in international traffic of ships by shipping companies that are residents of the Netherlands (principle of reciprocity).

Most general tax treaties allocate the right of taxing shipping profit to the country from the shipping company being managed. It is noted that the wording of a treaty article is not standard and that it should be verified case by case whether or not a treaty exemption can apply. An overview of the tax treaties concluded by the Netherlands is included in our online Dutch tax treaty database.  

Apart from the general tax treaties, the Netherlands also has concluded specific shipping (sometimes combined with aircraft) treaties with several countries, such as Argentina, China, Estonia, Latvia, Greece, Hong Kong, Panama, Poland, the USA, and Venezuela.    

When no treaty is applicable, there is a safety clause for shipping companies established in countries that, based on their domestic legislation, do not tax Dutch shipping companies (reciprocity). 

The 0% VAT rate for sea-going vessels

The Dutch VAT law provides a 0% VAT rate for transferring a qualifying sea-going vessel. All services received or rendered for such qualifying sea-going vessel or its cargo qualify for the 0% VAT rate.  

A qualifying sea-going vessel is a vessel that operates for 70% or more on high seas (being outside the ‘nautical twelve-mile zone’) and must be used entirely (i.e., 100%) for commercial purposes (i.e., not for private purposes).  

For the 0% to be applicable within the Dutch/EU jurisdiction (services and supplies are subject to VAT in the EU), the operator of the vessel should provide the IMO number of the vessel to be put on the invoice and provide a statement that the vessel is actually used for more than 70% for navigation at sea and is fully commercially exploited for activities as prescribed by law. 

The operator can demonstrate in another way that the ship is suitable for full use at sea, like handing over a copy of the sea certificate (and the statement on the 70% use referred to above) if the vessel does not have an IMO number.

There is no prescribed format for the statement other than that the name and address, details of the operator, year to which the statement relates, and which calculation method was used to calculate the 70% criterion should be included. The calculation method should be based on historical data related to the distance sailed, the number of routes, sailing time/operational time, or a weighted average for five years according to one of these methods. If the historical data is missing, related substantiated intentions and expectations of the operator can be used. 

As of January 1, 2023, primarily statutory installations no longer qualify as oceangoing vessels, particularly installations like jack-up rigs. Also, floating platforms, dredging vessels, pipe-laying vessels, and similar installations for which seafaring is an auxiliary activity will still be entitled to the 0% rate.

Tonnage tax regime

The requirement to qualify for the tonnage tax regime is that the profits must be derived from the operation of sea-going vessels active in international sea traffic (explicitly defined by law). The tonnage tax regime includes cable and pipe laying, research, and crane vessels.

Profits earned from transporting persons or goods in international maritime traffic are eligible for the tonnage regime. The profits can include profits resulting from non-transport activities, such as entertainment and leisure on cruise ships, income from dredging for a working ship ("non-transport activities"), etc., which may not exceed 50% of the total annual profit realized from the ship. If this should happen, the profit must be split between transport activities (covered by the tonnage tax regime) and non-transport activities (covered by the regular corporate tax regime).

A shipping company is considered to 'operate a vessel' if the shipping company conducts the (commercial or technical) management and control in the Netherlands of a vessel which it:

• owns or co-owns, except for ships chartered out on a bareboat charter basis or
• holds under a bareboat charter.

If the shipping company conducts the commercial management of a ship owned by another company or if it operates a ship in time or voyage charter, it may still qualify for the tonnage tax regime, provided the shipping company also owns a specific volume of net tonnage itself through ownership or co-ownership of the vessels or ships under bareboat charter. The annual net daily tonnages of ships held in time or voyage charter that do not sail under the EU/EEA flag may not exceed 75% of all ships registered for the tonnage regime. 

Management and control include strategic, commercial, technical-nautical, and crew management.

Ship managers carrying out the entire crew and technical management for another party may also be eligible for the tonnage regime. Ships managed by ship managers must also comply with the flag requirement, although an exception still applies for ships already owned by the taxpayer on December 13, 2019.

Registering ships in the Netherlands (under the Dutch flag) is not required, but as of January 1, 2020, the fleet of the taxpayer must include at least one ship sailing under the EU/EEA flag when a new ship is taken into use.  

If a shipping company elects to be taxed based on the net tonnage of the qualifying vessels (rather than based on the actual taxable profits), the taxable profit generated by each vessel is calculated for a book year according to the following scale.

Application of the tonnage tax regime will (among others) imply that qualifying shipping activities can never result in tax losses, tax depreciation of the vessels is not allowed, and a capital gain or loss incurred with the vessels is tax neutral. It should be considered that ceasing Dutch shipping activities within the first ten years may have adverse tax consequences. 

A request must be filed with the Dutch tax authorities to apply the tonnage tax regime that will apply for ten years if granted. The shipping companies (recently established) or existing foreign shipping companies moving the effective place of management to the Netherlands should file the request during the first year in the Netherlands. An advanced ruling based on the intention to start shipping activities in the Netherlands before the shipping activities are conducted in the Netherlands is possible and, in many cases, recommended.

Every ten years, a shipping company may decide to opt for or continue the application of the tonnage tax regime or return to the "normal" corporate tax regime.

If, during the ten years, the requirements mentioned above are no longer satisfied, the tonnage tax regime will cease to apply.

Accelerated tax depreciation of vessels 

According to Dutch GAAP, the general rule for tax depreciation for vessels is that the cost price of the vessel reduced with its expected residual value must be depreciated over the useful life of the vessel. A vessel is a complex asset in depreciation terms (comprising various individual components for which different depreciation methods or rates may be appropriate) for which the Dutch GAAP prescribes the so-called component method. Other depreciation methods must be applied to distinguish relevant components, similar to IFRS depreciating assets consisting of multiple components.

For Dutch tax purposes, the law allows a vessel to be depreciated as one asset based on generally accepted depreciation methods for Dutch tax purposes. Under certain conditions, the law also allows certain forms of accelerated tax depreciation, either in the declining balance sheet value method or the random depreciation method. For applying either form of accelerated tax depreciation, it is required that the taxpayer exploits the ship in such a way that it could qualify for the tonnage tax regime. Still, it does not opt for the tax regime to apply.  

In the case of the declining balance sheet method, the depreciation is to be calculated using a formula that sets the residual value at 15% of the purchase or construction price and the deemed life expectancy at 15 years for new vessels. For vessels older than one year, deviating life expectancies and residual values are prescribed by law. The depreciation percentage is determined using the R/A coefficient (i.e., the residual value divided by the purchase price) that matches a depreciation percentage. 

The random depreciation method allows an annual depreciation of a maximum of 20% of the cost price of the vessel, less the estimated residual value. This accelerated depreciation replaces the standard rules, but the random tax depreciation can only be effectuated to the extent that the depreciation charges for that year are covered by profits from operating the vessels. If the annual profit cannot absorb the 20% depreciation, the unused part can be carried forward to the subsequent years.

When a shipping company no longer complies with the requirements of the accelerated depreciation method within ten years after the year in which the investment in the vessel was made, the book value of the vessel will be set at a value that would have been achieved in case the shipping company had not applied the accelerated depreciation method but the standard tax depreciation rules.

Energy Investment Deduction (EIA) and Environmental Investment Deduction (MIA)  

To the extent separate components of the ship can be distinguished that meet the legal requirements, the taxpayer can claim special tax deductions in the form of the EIA and MIA. For more information about these special tax deductions, please consult The Dutch Corporate Tax Regime.   

Labor cost subsidy for qualifying seafarers: reduction of wage tax

In addition to the above-mentioned corporate income tax incentives, the law provides a labor cost subsidy for qualifying seafarers. This facility reduces the labor costs for the employer of the seafarer.  

Under this regime, the employer can retain part of the wage taxes withheld from the salaries paid to qualified maritime staff ("seafarers"). A 'seafarer' is (defined as) a captain, ship officer, or shipmate. Furthermore, beware of some exceptions, the following conditions must be met:  

• The employee works on a ship that is registered in the Netherlands and sails under the Dutch flag;
• The Seafarers Act applies to the ship;
• The ship is provided with a certificate of registration; 
• The ship is mainly operated at sea by a company for certain transport services, exploitation of natural resources, and dredging. A vessel used for other activities, like pilotage services or sailing, does not qualify. 

The part of the wage tax that the employer may retain amounts to:

• 40% of salary (for wage tax purposes) for employees who are living in The Netherlands or the EU/ EEA and who are subject to Dutch wage tax;
• 10% of salary (for wage tax purposes) for employees not living in The Netherlands but who are subject to Dutch wage tax;
• 10% of salary (for wage tax purposes) for employees subject to Dutch social security.

This reduction may be applied with partial tax exemptions for which the employee may be eligible based on his working days outside the Dutch territory.

What can we do for you? 

We work for clients in the maritime and shipping sector, both from Dutch and foreign origin, with relevant expertise and experience with the applicable Dutch fiscal and tax treaty provisions.     

Our services can include:  

• advice on the Dutch tax regime and special facilities for shipping companies,
• preparation and filing ruling requests, 
• application for the tonnage tax regime, and providing support with the handling of the ongoing administration, reporting, and filing requirements about it,   
• dealing with registration requirements,
• handling ongoing tax compliance matters.

If you are interested in our services, contact us via e-mail or call our office in Rotterdam at +31 (0) 10 2010466 or our office in Amsterdam at + 31 (0) 20 5709440.