In a constant effort to maintain its status as the leading Merchant Marine worldwide and aware of the competitive environment these days, the Panama Maritime Authority has been promoting and lobbying with members of the National Assembly for approval of a package of tax incentives to offer the Shipping Community attractive discounts on taxes when enrolling its vessels under the Panamanian Flag while at the same time seeking to lure the attention of the most attractive market of newbuilding vessels.
Today these efforts have been materialized into Law No. 25 of June 3, 2002, which modifies and supplements Law 36 of 1995. This legislation enables ship owners to obtain discounts of:
up to fifty percent (50%) on the Registration Tax which is settled when enrolling a vessel in Panama
up to thirty five percent (35%) on the Annual Tax corresponding to each vessels for a four (4) year period; and
up to fifty percent (50%) on the Annual Consular Tax corresponding to each vessel, for a four (4) year period.
WHO ARE ELIGIBLE FOR TAX DISCOUNTS?
Groups of at least three (3) vessels, under same ownership or economic group will be eligible to apply for the Registration Tax discount when applying for enrollment in Panama, irrespective of the age of each vessel.
Groups of at least four (4) vessels, under same ownership or economic group will be eligible to apply for the Annual Tax and Consular Tax discount when applying for enrollment in Panama, which are both granted for a period of four (4) years, provided that these are newly constructed vessels (newbuildings).
A quick glance at above will reveal then that groups of newbuildings will be eligible to apply for all three discounts (above a, b and c) so far as they constitute a minimum of four (4) vessels.
HOW MUCH DISCOUNT WILL YOU BENEFIT FROM AS OWNER OR REPRESENTATIVE OF A FLEET OF VESSELS?
This will depend on the fleet’s gross tonnage summed up altogether and in cases of Annual Tax and Consular Tax vessels must be newbuildings also.
Tax discounts have been divided and classified according to each applicable tax, on scales that are solely based on tonnage represented by applicants, to wit:
Registration Tax discount scale (for groups of no less than 3 vessels)
gross tonnage ranging between 30,000 and 50,000 may apply for a discount of up to twenty percent (20%);
gross tonnage ranging between 50,000 and 100,000 may apply for a discount of up to thirty percent (30%);
gross tonnage exceeding 100,000 may apply for a discount of up to fifty percent (50%).
Single Vessel Special Discount
Similarly, a tax relief has been created for vessels whose gross registered tonnage exceeds 100,000. They may apply for a fifty percent (50%) discount over its Registration Tax.
Annual Tax discount scale (for groups of no less than 4 newbuilding vessels)
gross tonnage ranging between 50,000 and 100,000 may apply for a discount of up to twenty five percent (25%);
gross tonnage exceeding 100,000 may apply for a discount of up to thirty five percent (35%).
Annual Consular tax discount scale (for groups of no less than 4 newbuilding vessels)
gross tonnage exceeding 50,000 may apply for a discount of up to fifty percent (50%).
Note that while the Registration Tax is paid when enrolling a vessel in Panama Annual Tax and Annual Consular Tax are both settled each year and Law 25 grants discount benefits for these taxes not just for the first year but for the first four (4) years.
Whilst the Directorate General of Merchant Marine has discretionary powers to set the percentage amount of discount for each applying fleet, there is a minimum guaranteed by law, provided applicants fulfill requisites of tonnage, quantity of vessels and newbuilding tonnage in the case of Annual and Consular taxes.
In addition, the Directorate General of Merchant Marine is authorized to consider the waiving of the amount of taxes already settled at the current registry, applicable towards partial or full payment of first year’s taxes of each vessel, applicable to those groups of vessels representing more than 100,000 gross tonnage. (e.g. a shipowner decides to change its fleet’s flag to Panama, but when assessing the costs realizes that he has to pay US$5,000 per vessel for their first year’s taxes in Panama and that he has already settled US$4,500 per vessel to cover annual taxes with his current Registry. He might think it twice before changing flags as there may be an overlapping period of the current fiscal year where the shipowner will be settling taxes in both registries. In those situations, to assist shipowners in coping with costs associated with the changing of flag, Panamanian Merchant Marine Authorities are now empowered by law to consider application of those taxes per vessel, towards clearing of Panamanian’s tax and registration duties for the entire first year. In this example, they will pay only US$500 per vessel, so long as the fleet is entered in Panama at some point on the same fiscal year where those taxes were advanced at the previous Registry).
Moreover, in special cases of groups of vessels representing a registered gross tonnage of 150,000 or no less than fifteen (15) vessels, already registered in the National Merchant Marine, the Director of the Directorate General of Merchant Marine may consider arrangements with vessel’s owners or representatives, for the payment of annual taxes and other obligations in special time schedules which shall not exceed of the current fiscal year, without incurring in surcharges or interests of any kind.
The same benefit shall be granted to shipowners of any nationality in cases of economic or financial crisis, declared by any Country where the Republic of Panama has Merchant Marine Consulates, irrespective of their registered gross tonnage or fleet’s size. This benefit shall be expressly requested to Panama and payments shall be settled at such Consular Office.
It must be noted that application for any of above tax discounts or benefits granted in Law 36 must be duly requested before or at the time of enrollment, through a Panamanian licensed attorney and they will be granted by motivated resolution of the Directorate General of Merchant Marine.
For reference of all users of the Panamanian Flag, new registered vessels will enjoy by law guaranteed same taxes up to a period of 20 years after registration. This means that even though annual taxes may be raised with time, the increase in taxes shall not affect already registered vessels and that is guaranteed for 20 years.
This information is issued in order to provide our clients and friends with information that our firm considers to be of interest. It should not be considered in any circumstance as a legal opinion issued by ISM Shipping Solutions Ltd.
© 2002 Maria Dixon – ISM Shipping Solutions Ltd.