The Danish Parliament has passed the Danish Tonnage Taxation Act, which introduces a relatively low taxation level based on the total tonnage operated by a shipping company. The Danish tonnage tax regime, including the level of taxation, is competitive and similar to the regimes already incorporated in the Netherlands, the United Kingdom, Germany etc. In accordance with the scheme, the normal taxable income of shipping companies is replaced with an assumed, calculated income, based on the tonnage of the shipping company. Therefore, shipping companies have to pay tonnage tax regardless of income and regardless of whether the companies have earned a profit or not.

1. Companies included in the tax scheme

The tonnage taxation regime can be used by shipping companies registered in Denmark, by EU shipping companies with a permanent establishment in Denmark and all companies where the management is located in Denmark, provided that the company is liable to corporation tax in Denmark.

Shipping companies can choose to be taxed on the basis of the total actual tonnage they operate, or alternatively their ordinary taxable income.

2. Options and limitation

Tonnage taxation is optional, and it is up to the individual shipping companies to decide whether they wish to commit themselves for a period of ten years. This applies to companies that choose to pay tonnage taxation, but also to companies that pay taxes under the ordinary corporation tax system.

Qualified companies are obliged to choose either corporate tax or tonnage tax before they fill in their tax return for the year in which they qualify to use the tonnage taxation system.

All qualified shipping companies within a company group, have to choose the same taxation system. However, individual companies with separate and independent management, and clearly different business activities can apply for separate taxation.

3. Income subject to tonnage taxation

Transport of goods and passengers and related activities are considered to be shipping activities. Only income derived from shipping activities and associated activities can be subject to the tonnage taxation system. Associated activities include administration fees, leasing of space on board ferries, passenger terminals, containers, ticket offices and other related office facilities. Total income from licensed transport services is also included.

Activities not qualifying for the tonnage taxation include activities concerning extraction of hydrocarbons, fishing and dredging – and engineering ships.

The tonnage income is derived from the company’s own fleet, chartered ships and bareboat chartered ships of 20 GT or more. Chartered-out vessels are not regarded as a shipping business and may only occasionally be covered. The business has to be operated from Denmark.

Time-chartered tonnage may be included in a 1:4 ratio in terms of its own tonnage; including vessels that have been chartered as well as time-chartered vessels. If the total gross tonnage of chartered vessels exceeds the total gross tonnage of the company’s own ships by more than a 1:4 ratio, the income will be taxed as ordinary income.

4. Tonnage income

Tonnage income is a deemed income which is subject to the normal tax rate. The calculation is per 100 Net Ton (NT) per 24 hours the ship is at the disposal of the shipping company in accordance with the following:

NT per day - Calculated income in DKK per 100 NT operated

< 1,000 NT DKK 8.97
1,000 NT - 10,000 NT DKK 6.44
10,000 NT - 25,000 NT DKK 3.85
> 25,000 NT DKK 2.53

Expenses relating to the tonnage income are non-deductible, and assets included in the tonnage tax scheme cannot be depreciated. However, profits from sale of vessels are included in the tonnage tax and therefore not taxed separately.

5. Financial income

If the company’s financial net income is positive, this income will be taxed according to the normal tax system. If the net financial income is negative, the financial expenses are allocated with regard to the ratio of the book value of the shipping companies’ assets which are included or excluded in the tonnage tax system.

Gains and losses related to currency fluctuations are independent of the net result and are always allocated between either tonnage tax activities or ordinary taxation activities.

Gains and losses from forward contracts are taxed as the activities to which they concern.

6. Deferred taxation

Under the Danish tonnage tax system, existing deferred taxation will not be abolished after a period of time as for example in the United Kingdom. The shipping companies which choose the tonnage tax scheme after they have been using capital allowances under the ordinary tax system in Denmark, will have to keep a special system of accounts related to the ships that have been depreciated under the ordinary tax system, and ships acquired later. As long as the shipping companies do not change the level of shipping activity significantly, no deferred tax allowances will actually be taxed. New shipping companies can choose the tonnage tax without keeping special accounts as they have never received capital allowances under the ordinary tax system.

7. Flag requirement

The Danish tonnage tax system is blind to flags and includes as such all a company’s vessels. However, in line with EU regulations for State aid, the shipping company must maintain the relative share of EU tonnage it had when it entered into the system.