Parliament passes law aimed at bringing ships under Estonian flag

Muuga Harbour. Source: AS Tallinna Sadam

The Riigikogu on Tuesday adopted a law aimed at making flying the Estonian flag attractive for cargo ships again, giving a boost to the Estonian onshore sector and restoring the international reputation of Estonia as a maritime nation.

The law specifies the special income tax regime for companies of the shipping sector and brings it into accordance with EU state aid rules. The special income tax regime was created with a law adopted in the Riigikogu on February 13 last year, with which zero percent was established as the rate of income tax on the remuneration of the personnel of cargo ships, as well as of passenger ships making international trips outside the EU, the Riigikogu said.

While the main principles of the special tax regime were not changed, individual conditions were specified. Specifically, the law unequivocally lists the main activities, auxiliary activities and other activities in international transport by sea eligible for support, to the income from which a more favorable tonnage-based income tax regime can be applied. 

In the case of income from auxiliary activities, the tonnage-based income tax regime can be applied, provided the income received does not exceed 50 percent of the total income of the international transportation of goods or passengers. 

Besides, a rule is set out for cases where a ship operates trips both in Estonia and elsewhere. In such case the tonnage-based arrangement can be applied when the number of Estonian port calls makes up less than 50 percent of the total number of port calls.

The law also makes it clear that in the case of a group of companies, the tonnage-based income tax regime can be applied not just to one company, but to all companies of the group which meet valid conditions.

A physical person whose income is taxed based on a fixed tax base will in the future not be eligible to any of the deductions permitted by law under the regular regime, such as deduction of the costs of the acquisition of pension fund units. The restriction applies only to the income earned as a ship crew member.

The law is to step into force on July 1, 2020.


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Editor: Helen Wright

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