AN ALTERNATIVE LOCATION FOR SHIPPING BUSINESS

Taxation of investors

Dividend withholding tax

Under Luxembourg law, dividends distributed by a Luxembourg company are subject to dividend withholding tax at a rate of 15% of the gross amount of the dividend. The withholding tax could be reduced by the tax treaties signed by Luxembourg. In addition, no withholding tax on dividends is imposed under the following conditions:

  • the distributing company must be a fully taxable company resident in Luxembourg;
  • the recipient is one of the following:
  • a resident capital company fully subject to tax;
  • an undertaking which is resident in another EU state and is mentioned in the Article 2 of the EC Parent-Subsidiary directive; or a Luxembourg branch of a company resident in a state with which Luxembourg has entered a double tax treaty;
  • the recipient must, at the date of payment of the dividends, directly hold the participation during a continuous period of 12 months. The 12-month period does not need to be completed at the time of the distribution of the dividends if the recipient commits itself to hold the participation for the required period;
  • the recipient must hold, during all the holding period, a participation of at least 10% of the share capital of the distributing company. The condition will be also fulfilled if the purchase price of the participation has amounted to at least EUR 1.200.000.

    Interest withholding tax

    Interest paid by a Luxembourg company to a corporation is not subject to withholding tax except for certain profit participating instruments. The same applies for individuals that are not resident in an EU or EU affiliated country. Interest paid by a Luxembourg company to an individual resident in a EU or EU affiliated country may be subject to withholding tax in Luxembourg in case the conditions of the EU Savings Directive are fulfilled. In such a case, the withholding tax would be 15% until 2008 and will then be raised to respectively to 20% in 2011 and to 35% in 2014. No withholding tax will be levied if the beneficiary provides the Luxembourg paying agent with a statement from the tax authorities of its countries of residence with the details of the beneficiary, the paying agent and the bank account of the beneficiary.

    Royalty withholding tax

    Since 2005, Luxembourg does not levy any withholding tax on royalties paid by a Luxembourg company except in the case of payments to artists and sportsmen for performances exercised in Luxembourg.

    Capital gains on the sale of shares

    Capital gains realized by a non-resident on the sale of an important participation in a Luxembourg company (i.e. representing at least 10% of its share capital) are in most cases not subject to tax in Luxembourg.

    Luxembourg Ship Registry

    At the end of 2006, 143 ships were registered in Luxembourg. It is a diversified fleet with an emphasis on Commercial Cruising Vessels (Commercial Mega Yachts).
    As a matter of fact Luxembourg was a pioneer in that sector when it developed its technical code for that category of vessels in 1993. Today a number of Luxembourg based companies offer full management services for those types of vessels. Although the maritime sector is quite young in Luxembourg, a number of banks, accounting firms and lawyers with long standing traditions and an international background are prepared today to offer dedicated services to the maritime industry.

    Eligibility
    All ships of at least 25 tons and less than 15 years old which are carrying out commercial shipping activities can be registered in Luxembourg. The Minister may grant an exception to the age limit, provided that the ship has undergone significant design changes and on condition that it conforms to the standards applicable to new ships, as laid down in the international conventions to which Luxembourg is a party.

    Ownership
    The law requires that these ships are more than 50% owned by EU nationals or by commercial companies that have their registered seat within the EU.

    In practice certain non resident ship-owners chose to register their vessels directly in the name of a foreign EU company. In which case, they chose an authorized representative to carry out a number of commercial, technical or administrative functions.
    Most commonly however, the ship-owner sets up a Luxembourg corporate entity (Maritime Company) which is then granted a license from the Minister of the Economy and Foreign Trade.

    Types of registration
    In order to fulfil the complex and ever changing needs of the shipping industry, Luxembourg has introduced a flexible legal regime. For example, it is well possible for a Luxembourg shipping company to own vessels that are neither registered nor flagged in Luxembourg. At the same time a Luxembourg registered or flagged ships not necessarily need to be owned by a Luxembourg company.
    Furthermore, a Luxembourg registered ship can well be flagged in a foreign jurisdiction under certain circumstances. A provisional certificate of registration valid for a maximum of one year may be issued for a ship that is still under construction, or in cases where it has not been possible to supply all the information required by the application of registration. Nevertheless it is to be understood that the ownership structure of the vessel has to be clearly documented. The Luxembourg Register allows full registration as well as bareboat in or bareboat out registration. The applicable forms indicate the information and documents that need to be provided.
    An operator may also apply for full registration in his own name, of a vessel owned by a third party, provided that he has been expressly authorized to do so by the owner of the vessel and provided that he is willing to accept responsibility for the ship and for her crew in accordance with the provisions of Luxembourg Law and on the same terms and in the same manner as the owner of the ship would have, if the vessel had been registered in the owners name.

    Certification of Ships

    Although Luxembourg has its own network of Flag State inspectors, certification of Ships has been delegated to the following Classification Societies:
    ABS, BV, DNV, GL, LR, NKK, RINA.

    The following certificates and documents are issued by the Maritime Administration itself:
  • Registration certificat
  • Registration cancellation certificat
  • CLC certificate
  • CSR certificate
  • Document of Safe Manning
  • Exemptions

    Mortgages

    The law applicable to mortgages and maritime liens, was introduced in 1990 and is largely inspired by the Belgium framework. The Belgium system was praised at the time as best meeting the needs of a modern shipping industry. For instance all acts of conveyance or transfer inter vivos of a ship, or a ship under construction, whether in return for a consideration or otherwise, are exempt form all pro rata transfer and registration fees. Furthermore the recording of maritime mortgages are also exempt, save for a nominal amount which goes towards the salary of the registrar of mortgages. The legal regime of mortgages and liens is described in detail in Title 1 Chapter 2 of the Maritime Act.
    The Maritime Administration issues a Safe Manning Document. The procedure leading to the issuance of such a certificate is part of the registration procedure. The application has to take into account the guidance set out in IMO Resolution A.890 (21) as amended by IMO Resolution A.955 (23) as well as the requirements laid down in the STCW Convention and the European directive 1999/95/CE on hours of work or rest.

    Registration costs

    Certain registration fees are due upon registration for commercial purposes.