Shipping Industry Almanac 2014 Shipping Industry Almanac 2014 Shipping Industry Almanac 2014 About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst &Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. © 2014 EY All Rights Reserved. Table of contents Introduction i Argentina 1 Australia 11 Barbados 33 Belgium 39 Brazil 59 Canada 73 China 91 Curaçao 103 Cyprus 111 Denmark 117 Dominican Republic 125 Estonia 137 Finland 145 France 151 Germany 163 Greece 173 Hong Kong 183 India 191 Indonesia 205 Ireland 213 Isle of Man 223 Italy 233 Japan 239 Luxembourg 245 Malaysia 260 Malta 267 Mexico 279 The Netherlands 285 New Zealand 297 Norway 305 Panama 315 Philippines 331 Poland 353 Portugal 357 Russia 379 Singapore 379 Spain 389 Sri Lanka 397 Sweden 403 Taiwan 409 Thailand 417 Turkey 423 United Arab Emirates 433 United Kingdom 441 United States of America 453 Ernst & Young shipping industry network 459 Shipping Industry Almanac 2014 Introduction The Shipping Industry Almanac (the “Almanac”) is published annually by EY’s global shipping industry network, which comprises of shipping industry professionals in more than 50 EY member firms. The Almanac has been keeping you informed and updated for the last 17 years since our first edition was published in 1998. It provides a summary of the local shipping industry infrastructure and regulatory, corporate and tax environments for more than 40 countries. The information in each country chapter was researched and prepared by resident EY shipping industry professionals. A directory of EY shipping industry executives across our four service lines of Assurance, Tax, Transactions and Advisory is located at the back of the Almanac, and highlights our in-depth local knowledge and our global reach. The content is based on information current as of 1 January 2014, unless otherwise indicated. For more information, please visit us at ey.com or contact us at [email protected] or call your local EY office. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. Shipping Industry Almanac 2014 i Argentina 1. Tax Argentina does not have a specific tax law for shipping companies. Shipping companies must comply with general tax regulations. In Argentina, companies are subject to federal taxes (such as income tax and value-added tax, among others), provincial taxes (such as turnover tax and stamp tax) and municipal taxes. However, some guidance regarding shipping activity may be found in the federal and provincial legal systems. 1.1 Income tax For Argentine residents, income tax is levied on all income earned in Argentina or abroad. Income tax paid on income from activities abroad may be claimed as a tax credit. For nonresidents and foreign beneficiaries, income tax is levied exclusively on Argentine-source income. Nonresidents become residents if they have a permanent establishment in Argentina. In general, Argentine-source income arises from assets located, placed or used in Argentina, from the performance of any act or activity in Argentina and from events occurring within Argentina. The income tax rate is 35% and is applicable to the net income of companies residing in Argentina and the net presumed income of foreign beneficiaries (in some cases, net-income basis applies). The following items may be deducted from gross income to assess taxable income: • In general, all expenses necessary to earn it or to maintain and keep its source • The amortization or depreciation of construction, equipment and other assets, in general, based on their estimated useful life • The net operating losses (NOLs) from previous fiscal years (carryforward is allowed for five years; there is no carryback system) The Income Tax Law has many specific requirements regarding tax deductions for foreign loans when the lender is a related company. Section 18 of the Income Tax Law establishes the timing of the deduction of interest on foreign intercompany loans. Interest derived from loans granted by foreign related parties or from tax havens (i.e., non-cooperative countries) may only be deducted in the same tax year the payments are made or in the period of accrual, but only if actual payment takes place before the due date for filing the tax return for the tax year in consideration. If the lender is not a related company, then the deduction of interest is allowed on an accrual basis. If the lender is a related party, thin capitalization rules must also be considered. Thin capitalization rules are applicable when interest is paid to a foreign lender that controls the Argentine borrower company, except for those cases when interest payments are withheld at 35%. Interest paid where the liabilities exceed two times the amount of the company’s equity at year-end becomes nondeductible and are taxed like dividends. In other words, the excess interest will become a permanent difference between the book and tax basis. Transfer pricing rules follow Organisation for Economic Co-operation and Development (OECD) guidelines and apply on transactions with related parties or with entities in tax havens (i.e., non-cooperative countries). Additionally, there is no tax consolidation system in place. Dividends paid in excess of net income, which is assessed using the general provisions of the Income Tax Law and accumulate as of the prior fiscal year-end through the date of payment, are subject to a 35% withholding rate. The 35% rate may be reduced if the foreign beneficiary is a resident of a country with which Argentina has entered into a double taxation agreement, as long as applicable treaty requirements are met. Per the last Income Tax Law modification (September 2013), dividend distribution is taxed in Argentina at a rate of 10% when the payment is made by a local company to a foreign company or individual or local individuals. 1 Shipping Industry Almanac 2014 Earnings from the sale of shares of an Argentine company owned by a foreign shareholder are taxed at a 15% rate. Taxation is made through withholding, which can be calculated by applying the tax rate to the real income or to the presumed income (90% of the sale price). 1.1.1 Shipping industry considerations The Income Tax Law establishes that, for Argentine shipping companies, all income related to transportation, either in Argentina or abroad, is considered Argentine-source. For foreign shipping companies, Income Tax Law presumes (without admitting evidence to the contrary) that any company providing transportation or carriage between Argentina and foreign countries has Argentine- source net income equal to 10% of the total amount of freight and passenger transport earnings from such trips (with a 3.5% effective rate). Further, 10% of all payments made by local companies to foreign shipowners for charter services are also considered Argentine-source net income. Foreign companies in the container business that provide transportation in Argentina or from Argentina to other countries are presumed to have Argentine-source net earnings equal to 20% of the gross income for this activity (with a 7% effective rate). These presumptions are relevant because when an Argentine company makes any kind of payment to a foreign company providing any of the services mentioned above, it must withhold 35% of the Argentine- source presumed income and submit it to the fiscal administration. 1.2 Double taxation treaties In order to avoid double taxation, Argentina has entered into treaties with the following countries: Australia, Belgium, Bolivia, Brazil, Canada, Denmark, Finland, France, Germany, Italy, the Netherlands, Norway, Russia, Spain, Sweden, United Kingdom and Uruguay. A rg In all of these treaties, except for the one signed with Uruguay, Section 8 establishes the provisions related to e n navigation and shipping, as well as air transportation. tin a According to these treaties, international shipping income may only be taxed by the country where the company is located, established or where its Board of Directors is located, as appropriate. Some treaties also include charter activities among the company’s benefits, subject to these provisions. Argentina has also entered into other treaties (or exchanged notes) exclusively related to international transportation (by sea, air and/or land, depending on the country). The following are the signatory countries: Chile, Colombia, Cuba, Ecuador, France, Greece, Iran, Israel, Italy, Japan, Malaysia, Mexico, the Netherlands, Norway, Panama, Paraguay, Peru, Portugal, United Kingdom, United States and Venezuela. Each treaty determines whether double taxation on sea, air or land transportation may be avoided. Although there are some variations among the countries, the main implication is that international transportation income will only be taxed by the country where the company is established. In these cases, the presumptions used to determine Argentine-source net income (refer to section 1.1) would not apply, due to the treaties in force. 1.3 Minimum presumed income tax The minimum presumed income tax is complementary to income tax. The minimum presumed income tax base comprises the asset value of certain taxpayers (for example, Argentine artificial persons, branches of foreign companies) in compliance with the law in force. This tax rate equals 1%. Applicable exemptions include: • Investments in shares of other entities subject to the minimum presumed income tax • Taxpayers’ assets located in Argentina when the value thereof (according to regulations) does not exceed ARS200,000 (if assets exceed ARS200,000, the total asset value is subject to taxation) Investments in new fixed assets are not computable — except for automobiles — and investments in real estate Shipping Industry Almanac 2014 2 construction are not subject to the minimum presumed income tax during the fiscal year the investment is made and its immediately subsequent year. The annual income tax may be offset against the minimum presumed income tax for the same year. However, if in any given year the minimum presumed income tax is assessed and it is not fully absorbed by that year’s income tax, the tax effectively paid could be credited against income tax —subject to certain conditions — over the subsequent 10 years. Tax credits resulting from the payment of similar taxes abroad on taxable assets may be computed. 1.4 Tax on personal assets for corporations Based on the presumption regarding indirect ownership by foreign individuals, foreign companies holding business interests in Argentine companies are subject to taxation on personal assets. Taxes on personal assets are also levied on the branches of foreign companies established in Argentina. The personal assets tax should be calculated and paid by an Argentine company as a substitute taxpayer. However, it is entitled to claim tax reimbursement from related shareholders. The taxable base is assessed on the value of the local entity’s equity as disclosed in the last financial statement as of December 31. The applicable tax rate is 0.50%. 1.5 Value-added tax Value-added tax (VAT) is a general tax that applies to the sale of goods, the provision of services and the importation of goods within Argentine territory, including: • Sales of personal property • Services provided by any natural or artificial person performing business activities • Final import of goods for consumption • Services provided from abroad to be used in Argentina, provided the beneficiary is a registered VAT payer VAT is applied to the goods or services net sales price (tax debit). It is assessed on a monthly basis, and at present, the tax is computed by including it in the purchase invoices of the different vendors (tax credit), deducting it from the amount of tax debits in order to assess the payment amount. If tax credits exceed tax debits, it results in a technical tax credit, which may be used to offset future tax debits or, as the case may be, a freely available tax credit that may be recovered through cash reimbursement, used against other taxes or transferred to third parties. Applicable VAT rates are: • 21% for general goods and services • 27% for certain services, such as telecommunications, electricity, gas and water supply • 10.5% for particular transactions, such as the final purchase or import of certain capital assets Exports are VAT exempt, but exporters may compute the tax amount they were billed by vendors as a tax credit to offset the tax amount owed for other transactions subject to VAT at the local market. If such computation results in an unabsorbed tax credit surplus, that amount is eligible for reimbursement, may be used to offset other federal taxes or may be transferred to third parties. Shipping industry considerations In connection with the shipping industry, the VAT law includes some tax exemptions for international shipping and related activities. Specifically, under the VAT law, international passenger and freight transportation is tax exempt and must be considered an export. This means that any tax credit may be recovered, transferred or used to offset other taxes. Charter services are also tax exempt when the vessels are used for international transportation. This exemption only applies if the lessor is an Argentine shipowner, and the lessee is a foreign company. These operations will also be considered exports. There is also a tax exemption for aircraft built for passenger or freight transportation, as well as the those 3 Shipping Industry Almanac 2014 envisaged for defense and national security (in the latter case, its parts and components are also tax exempt). Ships and vessels are also VAT exempt, as well as their parts and components, as long as the purchaser is the Argentine government. 1.6 Tax on bank account transactions This tax is levied on bank account transactions, equivalent transactions, on cash, and generally on all movement of funds made on one’s own account and/or on third-party accounts within the Argentine territory at a general rate of 6%. An amount equaling 34% of the tax withheld over credit transactions in levied accounts may be computed as a credit against income tax or minimum presumed income tax (prepayments and/or tax return amount). 1.7 Turnover tax Turnover tax is a provincial tax charged by tax authorities in each of the 24 jurisdictions (including the 23 provinces and the autonomous city of Buenos Aires). This tax is levied on revenue resulting from traditional profit-making activities, such as business, industry, professional activity, employment or service contracts, regardless of the outcome, the nature of the service provider or the place where the activities are carried out. The following exemptions, inter alia, may vary according to the jurisdiction involved: • Transactions with securities, certificates and other documents issued by the federal, provincial or municipal governments • Transactions with shares and dividends • Interest and/or indexation on savings accounts and fixed-term and checking account deposits • Sale of fixed assets • Exports Turnover tax rates vary according to the jurisdiction and the activity involved — 4% is the average rate A applicable to the services rendered. rge n Companies subject to turnover tax that perform activities in more than one province have to allocate the tax tin a base among the respective jurisdictions pursuant to an agreement they have entered into for this purpose. Shipping industry considerations With regard to the shipping industry, the turnover tax is a jurisdictional tax, and therefore, the operations taxability will depend on each jurisdiction. Some jurisdictions, such as Buenos Aires or Mendoza, include a tax exemption for international transportation in their fiscal codes. In many other jurisdictions, although shipping activity is taxed, there is a provision in the fiscal codes that foreign companies from countries with double taxation treaties with Argentina will not be taxed on income derived from this kind of activity (international transportation). When performed within Argentina’s boundaries, freight and passenger transportation can only be taxed by the jurisdiction where the trip originates. 1.8 Stamp tax According to the respective provincial regulations, the stamp tax is levied on public or private instruments granted within the provincial territory or, if the instruments are executed abroad, the tax is paid insofar as the agreement has effects in Argentina. Conversely, as stated by the respective provincial laws, if the transactions are formalized using the offer letters set by one party and then tacitly accepted by the other party (i.e., without actually stating the legal implications of such document), the tax may not be triggered, regardless of the jurisdiction where it may be executed. In general, the applicable rate is 1%, with certain exceptions listed in the respective provincial tax codes. Depending on the arrangement of the agreements entered into for the transactions analyzed, the stamp tax may be levied in the jurisdiction where the mentioned agreements are entered into and/or in the jurisdiction Shipping Industry Almanac 2014 4