Tonnage tax taxation system
Taxation system based on tonnage for commercial vessels.
Like a lot of European countries, France set up a specific taxation system in 2004 based on the tonnage of vessels. Under the terms of article 209-0 B of the CGI, this system applies to companies where at least 75% of the turnover comes from the use of commercial vessels.
Where this system is elected, the taxable income coming from operations directly linked to the use of eligible vessels is determined by applying the following scale to each vessel and each net tonnage measurement of 100 units of universal tonnage (UMS):
| Tonnage in UMS | in €/100 UMS |
|---|---|
| up to 1,000 | 0.93 € |
| from 1,000 to 10,000 | 0.71 € |
| from 10,000 to 25,000 | 0.47 € |
| more than 25,000 | 0.24 € |
The scale even applies during the periods when the vessels are unavailable. The taxable income is increased by a certain number of items, in particular the profits or losses from the sale or re-evaluation of the eligible vessels. These gains or losses are reduced, however, up to the existing ratio between the holding period during the period covered by the option and the total holding period.
Example
A vessel is purchased and operated by a company on 1st January 2010.
On this date the company does not fulfil the eligibility conditions for the tonnage tax system (less than 75% of its turnover coming from operation of the vessel).
This condition is fulfilled from the 2015 financial year and the company therefore elects the tonnage tax system as of 1st January of that same year.
The vessel is sold on 1st January 2025 and the profit from the sale is €12 million.
This profit will be subject to an allowance equal to the ratio between the period of operation under the tonnage tax taxation system (10 years) and the total holding period (15 years), i.e. 2/3 so that only a third of the profit will be taxable, or €4 million in this example.
By applying this rule the profit or loss pertaining to the sale of a vessel purchased and sold during the option period will enjoy an allowance of 100%.
The option is set out for an irrevocable ten-year period; it can be renewed at the end of this period. The tonnage tax taxation system is a valid option for as long as the company undertakes over the ten-year period to maintain or increase the proportion of net tonnage that it uses under the flag of a Member State of the European Union.
Eligibility for this system is reserved for commercial vessels:
that have a gross tonnage equal to or greater than 50 UMS;
that are either owned completely or co-owned with the exception of those vessels on a bareboat chartered basis to companies that are neither directly nor indirectly affiliated, nor to affiliated companies that have not themselves opted for the system, or that are bareboat or time chartered;
that are allocated for transporting passengers or goods, towing on the high seas, sea rescue, or other maritime assistance activities or the exercise of any other activities that need to be provided at sea:
that are managed from France from a strategic and commercial point of view (this condition is deemed to have been fulfilled if the vessel flies French flag);
that have not been purchased from companies that are either directly or indirectly associated during the period that the system has been applied and that have not themselves opted for this system.
The tonnage tax taxation system ceases to apply as soon as:
the company no longer possesses or charters an eligible vessel,
the company no longer fulfils the condition for the percentage of the minimum turnover from operating commercial vessels,
the company becomes a member of a tax group where the eligible member companies have not exercised the option.
In the event of an exit from this system during the option period, then except for specific situations, the company’s taxable income is increased by an amount equal to the sum of the profits ascertained in applying the scale. This provision amounts to a doubling of the flat-rate tax due in application of the scale.
This tonnage tax taxation system based on the tonnage can be combined with the vessel financing system described in the section on financing (art 39 c).
Source: study carried out with the assistance of Stéphane Salou and Alain Gautron of Stephenson Harwood - Paris