In order to promote the maritime sector and to set an equal playing field for Swiss-based companies internationally, the Federal Council published its dispatch and draft legislation to introduce a tonnage tax in Switzerland. The tonnage tax will allow maritime companies (subject to certain conditions) to determine the taxable profit at a flat rate based on tonnage, i.e., the loading capacity, instead of the profits determined based on the otherwise applicable standard Swiss tax laws, which may allow Swiss maritime companies to reduce their corporate tax burden.
The tonnage tax is a simplified method to determine the taxable profit of companies in the maritime sector which is calculated on the net tonnage volume (load capacity) per ship rather than on operating profits. The flat rates per net tonnage volume would be fixed and can result in a potentially lower tax basis for certain maritime companies. A similar taxation method is applied in several other jurisdictions (including 21 European Union (EU) Member States). The main focus of this simplified calculation method is to increase the location attractiveness for businesses in the maritime sector. In Switzerland, the maritime sector is considered of high relevance to the economy as the majority of imported and exported goods by volume are shipped by maritime transport. Furthermore, Switzerland is ranked among the top maritime nations worldwide when measuring the tonnage of Swiss-controlled fleets. To strengthen Switzerland as an international business location for the maritime sector and other related industries, the Federal Council published its draft legislation to be discussed in Parliament.
The draft legislation follows the principles of the EU tonnage tax guidelines and practice to prevent disadvantages for Swiss-based companies and also includes inputs of private and public stakeholders of the consultation process.
Swiss-based entities and individuals (independent of legal form) who are operating and/or managing maritime vessels for various purposes (e.g., freight, passengers, chartering, rescue services, marine research) can voluntarily apply for tonnage taxation. Furthermore, services provided by management companies in the maritime sector such as maintenance, safety checks, recruiting or training of employees and bareboat charter can also be opted for tonnage tax. Unlike in other jurisdictions, there is no set flag criterion requirement. Based on the draft legislation, tonnage tax can be applied for maritime vessels owned by Swiss-based companies or individuals that are registered in the Swiss ship registry or in a country that has ratified the international conventions MARPOL, SOLAS, STCW and MLC.
Application and duration
The use of the tonnage tax can be applied for single or multiple vessels and has to be individually requested with the authorities. Once applied, the vessel would be subject to tonnage taxation for 10 years (tax periods) which can be extended. If the fixed period is terminated prematurely, tonnage tax for the same vessel can be reapplied the earliest in the sixth tax period following the termination.
Determination of tax basis
The tonnage tax would cover taxable profits of ships (excluding land-based services), sales of vessels as well as ancillary services on board (if 50% of operating profit of the vessel is not exceeded). The taxable profit for concerned vessels is calculated on a fixed rate per net tonnage (NT) of a ship and the days of operation per tax period. Losses occurring during the period when tonnage tax is applicable cannot be taken into consideration. The calculated taxable profit per vessel will be added to the remaining taxable income not covered by the tonnage tax which will be subject to Direct Federal and Cantonal/Communal corporate income tax. The proposed rates per net tonnage and day of operation are:
Per 100 NT to 1’000 NT: CHF 1.09
Per additional 100 NT to 10’000 NT: CHF 0.80
Per additional 100 NT to 25’000 NT: CHF 0.52
Per additional 100 NT over 25’000 NT: CHF 0.26
For ship management companies, the taxable net income would equal 25 % of the calculated tonnage tax net income base.
In order reduce the pollution of air and water by vessels on the sea, the draft legislation also provides incentives for ships that meet certain environmental criteria (e.g., use of modern propulsion system, lower level of environmentally harmful emissions) which would allow reductions of the determined taxable net income of up to 30%. The details regarding the set of criteria and corresponding proofs would be specified on an ordinance level at a later stage.
The introduction of a tonnage tax would strengthen Switzerland as a business location by establishing a level playing field for Swiss-based maritime companies. In addition, the legislation takes environmental aspects of the industry into account and provides specific incentives for companies to reduce their emissions. During the consultation process, the introduction of the tonnage tax received largely positive responses of the various public and private stakeholders. The dispatch with the draft legislation will be forwarded to Swiss Parliament for debate and to enact the required tax law changes. A date for the discussion has yet to be announced.
These developments should be monitored in parallel with the Swiss maritime strategy roadmap being prepared under leadership and coordination of the Federal Department of Foreign Affairs. Said strategy will be presented to the Federal Council by autumn 2022. The draft amendments to the legislation on the Swiss flag will be submitted to the Federal Council in spring 2023. This strategy will aim to make Swiss shipping more competitive and sustainable.
For additional information with respect to this Alert, please contact the following.
Ernst & Young Ltd, Zurich
Ernst & Young Ltd, Geneva
Ernst & Young LLP (United States), Swiss Tax Desk, San Francisco
Ernst & Young LLP (United States), Swiss Tax Desk, New York