The establishment of the Norwegian International Ship Register (NIS) and the introduction of a comfortable tax climate for foreign ship owners, has contributed to the expansion of the country's maritime community as a whole. Among the members of this community are some of the world's largest shipbroking firms; highly experienced banks and finance houses; a marine insurance market second only to London in size, with institutions specialising in maritime research and development; ships' gear manufacturers; and the Norske Veritas, the ship, industrial and offshore classification society.
In 1992, the Norwegian government created a tax haven for foreign international shipping companies. The aim was to make it clear that foreign ship owners would not be subject to Norwegian taxation if they leave the operation of their vessels to Norwegian management. The tax law provisions stipulate that individuals and companies resident in a foreign country will not be taxed in Norway for income which can be attributed to owning or operating vessels in international traffic, even though the vessels are managed from Norway. The same applies to drilling ships or construction vessels operating internationally.
Irrespective of how extensive the power of attorney the Norwegian manager has concerning the operation of the vessels, this factor alone will not be enough to constitute tax liability to Norway. The exemption also covers income from renting out the vessels, or capital gains from the alienation of such vessels.
The term "international traffic" is to be interpreted in accordance with the definition of Article 3 of the OECD Model Tax Convention. This means that any vessel transport not solely carried out between Norwegian ports is included.
On the other hand, the exemption does not apply if:
- the foreigner is a resident of a country with which Norway has a double taxation convention, and Norway, according to the convention, is given the exclusive right to tax income from vessels in international traffic;
- the foreigner is a company with limited liability when more than 34 per cent of the company directly or indirectly is owned by Norwegian residents; or
- the vessel or drilling ship is engaged in activities which are taxable to Norway in accordance with the Petroleum Tax Act. Hence activities carried on offshore on the Norwegian continental shelf in connection with the exploration or exploitation of the seabed and the subsoil and their natural resources, are not covered by the exemption.
In order to obtain the tax exemption, the foreigner must prove that the conditions are fulfilled.
Under the new legislation, it is possible for Norwegian and non-Norwegian interests to jointly own an international shipping company, and avoid paying Norwegian tax even though the ships are managed from Norway. If the Norwegian owns not more than 34 per cent of the shipping company which is i.e. a resident of a tax haven, he may avoid paying any taxes at all until the day he chooses to bring the profits back to Norway in the form of dividends.
It is believed that the new legislation will fulfil the intention of attracting foreign capital to international shipping under Norwegian management.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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