Threatened with abrogation by numerous amendments submitted by opposition MPs during the examination of the Finance Bill for 2024, the French tonnage tax regime has finally been saved. Indeed, the Government decided to rely on its power under Paragraph 3 of Article 49 of the Constitution, to force through the contested bill without a vote and without any of the contemplated amendments.
As a reminder, the French tonnage tax system introduced in 2003 is specially adapted to maritime transport activities, which are international by nature, and therefore particularly subject to tax competition between states. Under this system, the tax paid by shipowners is not calculated on the profit generated by their activities, but by applying a lump-sum tax on the net tonnage of the ships they operate. This form of taxation is widely spread across EU countries, including the United Kingdom, Greece, Norway, and the Netherlands.
The regime is subject to strict legal and operating conditions, which are aimed at ensuring that French-based shipowners retain a fighting chance against their European and worldwide competitors. To be eligible to the irrevocable 10-year period French regime, amongst other criteria, a company needs to source at least 75% of their gross revenues from the operation of commercial vessels. Eligible vessels will need to exceed a minimum gross tonnage and their management must be carried out from France.
Beyond shipowners, the preservation of this tax is also welcome news to the companies involved in French tax leasing structures, including banks and financial institutions. Tonnage tax has a lot of synergies with tax leasing, which involves a French resident entity integrated in a wider corporate income tax group both purchasing from and leasing back a vessel to an operator. For example, under the right circumstances, a tonnage tax regime will provide favorable exit options at the tail-end of the tax lease period.