FAS, Undir Bryggjubakka 29, 110-Torshavn, Faroe Islands
Tel + 298 351 500

The tonnage tax system

A company covered by the Tonnage Tax System (TTS) will not be taxed based on its net income. Taxation is based on its available tonnage.

Normal tax-depreciations are not permitted to establish the taxable income.

A company will be taxed, based on a ‘fictitious’ taxable income that is again based on the net tonnage available to the company – regardless of whether the available tonnage is used or not. The Faroese TTS system is available for vessels larger than 100 GT. Operations closely linked to ship-handling may be included in the system.

The Faroese TTS may encompass a company’s own tonnage and tonnage chartered by the company. No restrictions are placed on chartered tonnage requiring, e.g., 1) the registration of tonnage in the Faroe Islands, 2) the flying of the Faroese flag, or 3) maintaining a specific ratio with regard to flag.

The Faroese TTS is a voluntary system, however, companies transferring from the general tax system to the TTS may not switch back to the general tax system for a period of 3 years. Companies using the calendar year as their fiscal accounting year may wait until the submission date of the tax return (30 June) to decide whether to transfer (the preceding year) to the TTS.

Only Faroese companies may use the TTS system. However, there are no restrictions regarding the ownership of a Faroese company.

The ‘fictitious’ taxable income is calculated on available tonnage according to the schedule below:

 

 Net Tonnes (NT)
Amount
0 – 1,000:
6 DKK per day per 100 NT
1,000 – 10,000:
4 DKK per day per 100 NT
10,000 – 25,000:
3 DKK per day per 100 NT
Above 25,000:
1 DKK per day per 100 NT

 

The calculated taxable income is taxed at the corporate tax rate in the Faroe Islands.  As at November 2008, the corporate tax rate is 18%.

When a vessel registered initially in the system is sold to a company not covered by the TTS system, the profit realized is not taxed. This makes the TTS more flexible than comparable systems. However, tax regulations regarding ships originally registered under the general tax system in the Faroe Islands sold to companies not covered by the TTS do apply.