India’s shipping companies have starting registering their vessels in foreign ports to escape tough local regulations.
However, the same firms are still hoping to benefit from the federal tonnage tax, a levy based on the cargo capacity of ships that reduces the tax burden on operators.
Mercator Lines, India’s second biggest private shipping firm, is the latest to join the trend, which is already common among shipping firms in other countries.
The company recently registered four dredgers in the Comoros, an island nation in the Indian Ocean. In June it registered a new crude tanker in the Marshall Islands. All the ships have been registered outside India directly, without opening foreign subsidiaries.
Under rules introduced in 2004, ships and dredgers registered outside India are not eligible to claim tonnage tax as a substitute for corporate tax. More than 90% of the global shipping fleet operates on tonnage tax, where the tax burden is just 1-2% of the operating revenue.
But while tonnage tax benefits are available only to ships registered in India, an Indian ship owner can claim tonnage tax on ships hired from within India or abroad, subject to a ceiling not exceeding 49% of their owned shipping capacity.
“The licensing norms of the regulator say Indian ship owners can hire foreign-registered ships, so Mercator can hire its own ships registered abroad even though the registration was done without floating a subsidiary,” said A Majumdar, a partner at shipping law firm Bose & Mitra & Co.
Under India’s regulations, locally registered ships must be crewed by Indian nationals.
By registering abroad, shipping firms are seeking to cut costs by hiring staff from other countries. In July, India’s Directorate General of Shipping, the industry regulator, eased the clause on hiring only Indian nationals but set strict limits on the employment of foreigners.
