[Taxation] Marine Transport Tax System to Adopt Twin-track Approach

The “Tonnage tax regime” provision of the Income Tax Law, as recently approved by the Executive Yuan, allows the taxation of marine transport income to be switched to a tonnage tax. Once the new system is implemented, it will be highly beneficial to large shippers and is thus expected to prompt ships to return to Taiwan registry as well as to stimulate development of the domestic maintenance and other peripheral industries. The Ministry of Finance indicates that the present method of taxing marine transport income is based on a shipping company’s actual operating income. Neighboring countries such as Japan and Korea, however, use “derived profit” in calculating income from marine shipping as a means of encouraging international shipping firms to invest and set up companies in those countries. Taiwan’s new rules will strengthen the competitiveness of its own shipping industry by allowing shippers to choose between a tonnage tax or profit-seeking enterprise income tax when calculating income from marine shipping. The draft bill on tonnage tax that has been sent to the Legislative Yuan for deliberation divides derived profit into four brackets based on the net tonnage. For ships with a net tonnage of 1,000 tons or less, derived profit will be set at NT$57 per 100 tons per day; for ships with net weights of 1,001 to 10,000 tons, daily derived profit per 100 tons will be NT$42; for ships having net weights of 10,000 to 25,000 tons, the derived profit will be NT$27 per 100 tons per day; and for ships over 25,000 tons, it will be NT$12. In regard to the applicability of the tonnage tax, the MOF and the Ministry of Transportation and Communications (MOTC) are discussing the setting of a ratio of the tonnage of Taiwan-registered ships owned by a shipping company to the total tonnage of all ships under the company’s ownership as the threshold of applicability. Related regulations are being negotiated by the two ministries. Shipping companies that qualify will be able to choose between the profit-seeking enterprise income tax or the tonnage tax; once the choice is made, however, it will be binding for 10 years. Further, shipping firms that choose to enter the tonnage tax regime will not be eligible to apply offsetting between profits and losses or other tax incentives. The MOTC points out that adoption of the tonnage tax will help enhance the competitiveness of Taiwan’s marine shipping industry and encourage ship owners to bring their vessels back and register them in Taiwan. It will also create job opportunities and boost incomes in related industries.