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Government to make exceptions in tax system for shipping sector

The Estonian government has decided to make exceptions in the tax system for the shipping sector and seafarers as well as establish digital information systems, including an e-register for ships accessible to e-residents as well.

At the end of August, the government reached an agreement that an exception can be made in Estonia’s previously uniform tax system for the shipping sector and seafarers, ERR News writes.

The government found that the taxable base should be €750; it must now decide whether it should tax that €750 the typical 20 percent or 11.6 percent, which is the local government rate.

The state also wants to implement an exception for labor taxes as well, calculating social tax based on a €750 tax base ceiling and leaving the remainder untaxed.

Regarding social tax, the government proposes that, going forward, employers pay only pension insurance for their employees at the current rate of 20 percent, with the employer paying another four percent and employee two percent into the employee’s second pension pillar.

Employers would not pay for health insurance, which is 13 percent; only seafarers would be given the opportunity to purchase state health insurance for themselves.

The government also decided that a tonnage tax will be introduced as an alternative to corporate income tax for shipping companies. While this would be exceptional in the Estonian tax system, it is already commonplace elsewhere in Europe. Shipping companies could thus decide whether to pay the typical 20 percent tax on withdrawn profits or a tonnage tax at a yet undetermined rate based on a vessel’s gross tonnage.

E-register to allow e-residents to register ships

The government has also decided to create modern, paperless digital information systems that would be accessible worldwide.

One example is an e-registry for ships, which would allow e-residents of Estonia to register ships remotely, without the owner of the ship having to physically travel to Estonia to do so and without the requirement of a physical representative in the country.

As the supervision of ships and issuing of certificates must be done very operatively, the goal is to gradually switch to electronic ship and crew certificates as well, said Estonian Maritime Administration communications director Priit Põiklik.

According to Põiklik, the government’s decision is based on the fact that vessels registering under the Estonian flag would in turn spur growth in the shore sector servicing them. Ships bring in money for Estonia via registration fees, but these sums pale in comparison to the growth potential in the shore sector.

As a result of legislative changes, 300 ships are expected to be sailing under the Estonian flag by the year 2029. Current decisions regarding the matter are being made based on large cargo ships with a gross tonnage of 500 or more serving international shipping lanes as well as passenger ships with a gross tonnage of 500 or more serving routes outside of the EU.

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