Changes in the Norwegian tonnage tax regime

The existing tonnage tax regime was approved by the ESA until 1 July 2017.

In a letter dated 24 May 2017 the Ministry of Finance notified the ESA of a continuation of the exiting tonnage tax regime until 31 December 2016. The letter introduces some very important limitations and one extension.

The Ministry accepts that it is necessary to introduce some limitations in the regime to ensure that it is in compliance with the EEA rules. No actual proposals for changes to relevant law and regulations have been finalised.  Thus the changes are at this stage only described in said letter from the Ministry to the ESA.

It is expected that proposals for actual changes to relevant law and regulations will be presented in connection with the annual budget in the autumn of 2017. Below we have summarized the changes based on the letter to the ESA. It must be pointed out that the final rules may introduce limitations and/or clarifications that are not reflected in this newsletter. 

Limitations in the ability to charter vessels in and charter vessels out

Bareboat charter contracts in and out

The existing tonnage tax regime allows for both the charter in and out in bareboat term. Charter in will still be allowed without limitations, but charter out is suggested restricted as further described below.

  • Bareboat charter out is limited to 50 percent of total tonnage in the tonnage taxed companies in the same group of companies. The ratio shall be measured annually based on the daily chartered tonnage. It is suggested that the ratio may be measured on a four year basis to avoid unreasonable effects of a high bareboat rate over limited period of time.  
  • Strategic management and control of vessels chartered out on bareboat terms must be carried out in the EEA-area. This typically and mainly includes management at BoD and Managing Director-level.
  • Bareboat charter out contracts may not exceed five years, plus options for three years.
  • Group-internal bareboat charter parties are not subject to limitations.

The Ministry defines bareboat charter as the chartering of vessels without a crew, but it is emphasized that any charter contract must be considered on a case by case basis. A bareboat charter contract where another company in the group is providing crewing of the vessel will not be considered a bareboat contract in relation to the tonnage tax rules. Such structures are common in some jurisdictions, notably the offshore sector in Brazil.

Charter in on time and voyage charter contracts

The chartering in of vessels on time- and voyage charter terms of vessels that are not registered in an EEA-jurisdiction will be limited to 90 percent of total tonnage calculated at group level. The chartering out tonnage shall be calculated annually based on tonnage chartered in per day. 

The Ministry defines time- and voyage charter contracts as charter with crew, but it is emphasized that any charter contract must be considered on a case by case basis. 

Exemptions for exiting charter contracts

The limitations for charter in and charter out shall as a main rule only apply to new contracts. However, this does not apply to existing bareboat charter contract with a term of more than five year. It is likely that this will apply to and disqualify existing contracts with a term of more than five years, where less than five years remain at the time the changes become effective. 

Transparent entities

The letter from the Ministry does not mention transparent entities. If and how bareboat charter out from transparent entities will be addressed is thus unclear. It is fair to assume that the changes will be given effect to investments in transparent entities. 

Effective date

 Even though the new rules are likely not to be formally passed by Parliament until the autumn of 2017, it is expected that the rules will take effect as of 1 July 2017. It may be worthwhile trying to adjust to the new rules already now.

Companies that today charter out vessels on bareboat contracts with a term in excess of five years should evaluate if changes are possible to avoid breaching the rules. A shortening of the contract term is a possible approach. It may be considered to argue that the extended grace period in the existing rules should be applied, although this is in no way certain. 

Windmill farm vessels

The Ministry's letter includes the expansion of the tonnage tax regime to include certain types of windmill farm vessels. This relates to an expansion that was decided in 2016 but where the effective date was postponed in anticipation of the ESA approval. Assuming the ESA approves it, the expansion will be effective form 1 January 2017.


Vessels that are not self-propelled

Vessels that are not self-propelled will not be allowed in the tonnage tax regime if they mainly operate in forei8gn inland waterways. This change is likely to be effective from 1 July 2017.