shipping registration

Ship Registration – The Options for an Owner

14 Oct 2020 News

Ships are registered in the country of an owner’s choice and the options are many. Traditionally a shipowner would register his ships in his country of business identity as a matter of national pride. As recently as the 1960’s this resulted in close to half of the world’s merchant fleet being registered in the UK as a direct reflection of where the fleet was controlled. However, in the last half-century, national ship registration has declined in favour of a number of “Open Registries” which incentivize third-party ship registration. The most popular of these are Panama, Liberia, Marshall Islands, Hong Kong, and Singapore.

“Closed (national) Registries” may require that a ship be domestically owned and built, also to be fully or partially crewed by its own citizens. These requirements can have a significant impact on construction and operating costs, a prime example being the United States which country has consequentially seen a dramatic and continuing decline in the size of its merchant fleet.

As can be seen from the below pie chart for 2017, Panama is the flag of choice for many owners. The first transfer of ships to the Panamanian register is believed to have occurred in 1922 and involved two U.S. passenger ships seeking a loophole to serve alcohol to passengers during the years of alcohol prohibition. More followed as U.S. shipowners sought relief from taxes, high wages and employment conditions imposed by stringent U.S. legislation further supported by the Jones Act. The trend accelerated after World War II with U.S. owners also being largely responsible for the development of the Liberian and Marshall Islands registers while Asian owners threw their wight behind the Hong Kong and Singapore registers. About 75% of ships are now registered under the flag of a country other than that of its domiciled owner(s). In the case of Panama, best known for its Canal linking the Atlantic and Pacific oceans, the one third of a billion tonnes deadweight of ships is now under registry which generates around half a billion dollars for the economy in fees, services and taxes.

In today’s world where around half of the merchant fleet is controlled by Asian owners, a common perception voiced by those who are opposed to and campaign against Open Registers is that owners are seeking to operate their vessels to lower standards, however, the evolution of Port State Control regimes across the world has largely ensured that this is not the case. Flag states are themselves required to inspect vessels under their registry at least annually for condition and compliance with a wide range of international conventions. They are also obliged by SOLAS to conduct investigations into marine casualties are report the findings to national authorities and the IMO. It may for example be recalled that the Italian flag state came under heavy criticism for the delayed publication of a report into the loss of the cruise ship Costa Concordia in 2012 and whose Master was eventually sentenced to 16 years in prison, further upheld by an Italian appeals court.

In order to attract vessel registrations, a number of countries have also established Tonnage Tax regimes with the objective of improving flag state competitiveness. Under these schemes, tax is simply levied on the total net tonnage of the company’s fleet registered under a particular flag without direct reference to that company’s operating revenues (or losses). The first country to introduce a tonnage tax was Greece in 1957 but tonnage tax rules are now applied in many countries, including 17 EU countries and the UK with a view to maintaining and expanding registrations.

Taking the UK as an example, In place of real income, gains, expenses, losses or profits, a shipping company is deemed to earn a daily profit based on the tonnage of its fleet and that assumed profit becomes subject UK corporation tax. This means that a company’s tax liability from its shipping activities is stable, predictable and straight forward to calculate. The assumed profit figure is low, such that tonnage tax creates a close to zero tax environment but shipping companies with losses in a given tax year will still be liable for the tax. In return for favourable treatment, a company must “operate” ships from the UK and must “strategically and commercially manage” its fleet from the UK but does not have to fly the UK merchant flag (Red Duster) and also does not have to employ UK officers or crew providing there is sufficient commercial management activity in the UK. An important concession for some companies is that technical management does not need to be in the UK, however it is the only regime which obliges tonnage tax companies to train cadets which is of course an additional operating cost.

This article would not be complete without mention of Singapore which given a complete lack of natural resources long ago recognized financial services, tourism, aviation, shipping and its strategic geographical location as key economic building blocks. With strong and enlightened government support since gaining national independence in 1965, Singapore has emerged as arguably the world’s most innovative, connected and successful shipping hub. Singapore’s maritime ecosystem comprises around 140 of the world’s leading international shipping groups, employs more than 170,000 people and contributes around 7% to the country’s GDP. All this in the context of also being the world’s second-largest container handling port (after Shanghai) and being the fifth largest ship registry with 4,400 vessels of 96 million gross registered tons. Less enlightened governments should take note.

Search

+