I hope that when you read these lines in June all about COVID19 shall be remembered just as a bad nightmare and that airports, ports and marinas will be definitely open and everything coming back to normality. That is why instead of writing an update about all confusing corona information, alerts, permissions, restrictions, de-escalation phases, etc, – which in several weeks would be surely changed and surpassed by new ones – and I would prefer to deal with another totally different topic: the ship registration in the Canary Islands.
The Special Registry of Ships and Shipping Companies was created by Law 27/1992 of 24 of November, of the State Ports and Merchant Marine Act (Ley 27/1992, de 24 de noviembre, de Puertos del Estado y de la Marina Mercante) in order to promote a national fleet competitive with respect to other neighbouring countries and extend the economic shipping activity in the Islands, and also as an intent to fight against the extended use of flags of convenience like Panama, Liberia, Zyprus, etc by Spanish ships. Said Act provides those technical and legal conditions that allowed the registration of ships in it. Therefore the Canary Government e developed and implemented the state Canary Islands Economic and Fiscal Regime Act (Ley 19/1994 de 6 de julio de modificación del Régimen Económico y Fiscal de Canarias) with some measures to attract companies and entrepreneurial to record their ships and crafts in the Canary Registry. For the such recording the following requirements must be matched:
- The companies must have their effective center of economic activities and the effective control of the ship or the craft in the Canary Islands, or in case of having it outside they must have a branch or permanent establishment in the Canaries (however the appointment of a legal representative is enough)
- The companies must be the legal owners of the ship or vessels to be recorded or have at least must have a valid lease, rental or charter agreement which gives them the right of managing the vessel from the maritime and legal perspective
- The ships or vessels must be over 100 GT ( ships more than 24 m LOA excluded fisheries) and must be affected to international navigation and if they were previously recorded in other Ship´s registry they must show evidence that they fulfill all the national and international classification, certificates an Safe & Manning regulations. That is only mega yachts
- The crew must have at least one skipper and first officer of EU Member State or European Economic Area nationality; the rest of the crew must be at least 50% EU citizens
- Safe & Manning: : Prior to registration and at the request of the company applying, the Maritime Authorities will establish the composition of the minimum crew, according to the characteristics of the ship.
- Labour and Social Security Regulations applicable to non-national workers: These will be governed by the laws, to which the parties freely enter into, as long as they comply with that issued by the ILO. Conventions, STCW, and failing agreement, by the Spanish Laws on such matters
The most important tax and social security savings are briefly summarized:
- No Transfer Tax applicable to the contracts and acts related to the vessel.
- Income Tax: 50% income tax relief for the earnings of the crew
- 90% Corporate Tax relief
- 90% exemption in the crew social contributions
- Matriculation Tax exemption Although we must say that the Balearic Custom & Excise Office do not always respect said exemption and tries to assess the Mat Tax. As far as we know there are several cases at the Regional Financial Court and as soon we have a definitive answer in a Court resolution we cannot say it is completely there is no tax exposure although the Law is clear
In any case in order to recommend the appropriate structure there are other important aspects to observe like the VAT /IGIC – Canary Islands is no VAT territory and has its own IGIC similar taxation –, or the fiscal look through, the flag of the vessel and tax domicile for tax purposes of the owner, the final use of the vessel – real and bona fide charter or just own use – before deciding in its case the use of a Canary Islands Special Ship´s Registry structure.
One of the most attractive possibilities is the so called “abanderamiento provisional” or temporary registration which allows the change of Ship´s Registry from the old registration to Canary Islands Special Ship´s Registry but keeping the original Ship´s Registry (underlying registry) for private law effects (for example mortgages, charges and encumbrances provided an existing international charter agreement).
The ship would be totally under Spanish jurisdiction – all Spanish applicable certifications, classification, Safe & manning, inspections and permissions – and so she would be Spanish for all effects except for private Law ( charges and encumbrances , mortgages) that would be still be in Germany and would have the Canary Islands special tax and economic trade benefits as per Ley 19/1994.
The most important requirement is that the old registration by issuing certificate of deletion authorises the temporary registration in the Canary Islands Special Ship´s Registry for a certain period of time, normally the duration of the charter agreement. This period might be extended and there is no need the ship is in Spain (although at request of the Spanish Maritime authorities a surveyance should be done being in that case the owner or the charter to assume the travel expenses of the surveyor sent).
Our Firm collaborates with local tax and legal advisers on the Canary Islands with expertise in the Canary Islands registration that might help you for the setup of aid structure.
By Carlos Espinosa