AN ALTERNATIVE LOCATION FOR SHIPPING BUSINESS

The shipping industrie is going through major changes.

New corporate strategies and processes are required to deal with an industry which is being reshaped through market consolidation and shifts in the balance of world trade. As a result shipping companies are looking for effective ways to align their corporate, operational and tax structures.

The Luxembourg regulatory, tax and legal environment seeks to address the complexity and evolving needs of the hipping industry. Even though the industry still includes private or family-owned companies, some players have increasingly been turning to capital markets for funding. The investment examples are new investment funds geared towards the shipping industry have emerged on the Luxembourg marketplace. Their novelty lies in the fact that they enable investors to realise their assets at any time (open-ended funds) instead of them having to wait until the transaction is completed (closed-ended funds).

In Luxembourg, the tax and legal issues related to shareholding arrangements vary according to whether the shareholders are national or international, whether they consist of one or several families, of stock exchange investors or investment funds.

Your Shipping Company is easy to put in please by a specialist. A relevant financial structure need to be implemented to ensure that the assets of your Shipping Company can be managed in the most flexible and tax neutral manner. In this context, the family wealth management company SPF (société de gestion de patrimoine familial) may be used to have tax exoneration in Luxembourg over the company’s profit.

Or perhaps in your case, we shall explain you the SPV (Special Purpose Vehicle), by means of which the Shipping Company’s cash flow shall increase and the risks connected to all types of assets and property that your Shipping Company has, shall be transferred to the SPV. Even future cash flow of your assets can be securitised.

Shipping companies have also been branching out. Major household names have been investing in related lines of business, both upstream and downstream from the actual shipping activity itself. While certain countries have opted for a preferential tax system which applies to qualifying shipping activities (commonly referred to as the “tonnage tax” system), others apply the general provisions of their tax legislation. This is the case of Luxembourg which offers an advantageous tax regime including the possibility of accelerated depreciation and tax credits for investment.

Finally, with particular relevance for the part of the shipping group’s operations that cannot benefit from preferential tax regimes such as tonnage tax regimes, financial or intellectual property structures can contribute to managing the group’s taxation and make it more efficient. Luxembourg has a proven track record in this area and its expertise is known the world over. This brochure aims to provide a general overview of the Luxembourg regulatory, tax and legal environment. It contains information based on Laws and regulations in force on February 1, 2007.

Maritime Luxembourg

During the eighties the tiny Luxembourg inland navigation sector expanded its activities towards the seas and the need arose for a maritime legislation. This was achieved trough the 1990 Maritime Act. For a landlocked country like Luxembourg, the main purpose of introducing the legislation was to develop a jurisdiction of choice for maritime business and to encourage the development of spin-off activities related to the maritime sector.


Memorandum of understanding with the industry

In order to reconfirm their commitment to pursue common goals of excellence, the Luxembourg Government, represented by the Minister of the Economy and Foreign Trade, has signed a Memorandum of Understanding with representatives of the Luxembourg Shipping Sector in 2005. The common goals of excellence aim at ensuring full compliance with all relevant and applicable rules and regulations issued by the competent international organisations (European Union, International Maritime Organisation, International Labour Organisation). In particular the following goals were mentioned:

  • To increase maritime safety
  • To continue to protect the environment
  • To ensure good working and living conditions of the crew, as this is linked to operational safety and efficiency
  • To develop Luxembourg as a shipping jurisdiction of choice, through a full and sustained corporation between the local parties
  • To maintain the current social standards and to continue the social dialogue
  • To provide easy and quality-oriented access to the Luxembourg Maritime Register, based on a careful and objective risk assessment and the screening of the application files submitted, in accordance with EU rules (This process takes into account all key factors such as the ownership of the vessel, its maintenance record, its Port State Control record, etc.) While quite a number of the measures proposed by “Round table of the Maritime Sector” have been implemented speedily in 2005 and 2006, this is obviously an on-going process.


    Flag State Performance

    The objective of the Luxembourg authorities is to maintain a quality fleet and to offer a quality service for the users of the maritime administration’s services: the administration has decided years ago to publish its policy statement.
    The issues and standards that a Flag State has to deal with are mainly a result of international conventions.
    Luxembourg nevertheless applies a comprehensive approach when adopting its working procedures and tries to limit the burden of national requirements wherever possible.
    The maritime administration is one of the few administrations that maintain a quality management system leading to ISO 9001: 2000 certifications. Luxembourg has participated to the IMO Flag State audit scheme (self assessment form) in July 2000 and is a volunteer for the new audit scheme.

    In 2002 the Luxembourg fleet ranked between the first ten countries to benefit from the American Qualship 21 label. Luxembourg is also on the White List of the Paris MOU. In 2004 and 2005 the maritime administration was the only public administration to participate in a national quality management competition and to obtain a distinction each time. The administration continues its efforts of benchmarking with best practice and actively participates in the national e-government program promoting the use of online procedures.


    The Luxembourg Maritime Company
    Setting up a Shipping Company

    The maritime Act of 1994 applicable to Luxembourg Shipping companies defines the latter as any person or legal entity whether of Luxembourg or foreign nationality, which undertakes the following activities: “the buying and selling, the chartering in and chartering out as well as the management of seagoing ships, and the financial and commercial operations that relate directly or indirectly to such activities”.
    The regime does not limit in any way the choice of the legal form of the company, which can be set up within the framework the Company Act of 1915 as amended (even if in practice most shipping companies incorporated are joint-stock companies).

    Incorporation

    The incorporation is undertaken before a Luxembourg public notary. It comprises a single document: the company’s articles of association. Notaries will require a proof that the subscribed and paid-up capital is freely at the disposal of the new company. In practice, he will require a certificate of deposit from the company’s bank. The company capital may be expressed in any currency, including the EURO. The minimum capital amounts to EUR 12.500 for a S.à r.l. (equivalent to a UK Ltd company) and EUR 30.000 for a S.A. (equivalent to the UK PLC)

    Accreditation of the Shipping company

    A Shipping license will be granted by the Minister in charge of the Maritime Affairs, currently the Minister of Economy and Foreign Trade. Any shipping company seeking a shipping licence must comply with the following requirements:

  • The shipping company must secure the services of a person or legal entity capable of fulfilling the duties of the company’s shipping manager (hereafter “dirigeant maritime”) or representative, • The shipping company must issue a clear power of attorney stating the powers of the dirigeant maritime, • The shipping company must supply to the Ministry all the required documents and information (articles of association, details on the shipping manager, name of the company’s external auditor, place where the company accounting is kept).

    Accreditation of the “Dirigeant Maritime”

    In order to fulfil the role of a dirigeant maritime, the person or legal entity must be accredited by the Minister in charge of the Maritime Affairs. His exact functions within the shipping company must be defined by contract.
    Any shipping manager must fulfil the following conditions:

  • he must provide satisfactory evidence of personal probity and professional experience,
  • he must elect his professional residency in Luxembourg,
  • he must possess a clear power of attorney stating his duties and responsibilities.
  • A shipping manager may be appointed to manage several shipping companies.