Global shipping companies in the Tonnage Tax regime will be offered tax breaks from April 2022 if they fly the UK's historic merchant shipping flag, the red ensign, Chancellor Rishi Sunak announced.
In his Autumn Budget last week, the Chancellor announced the tax breaks as part of a wider reform of the Tonnage Tax regime "to make it simpler and more competitive" for the UK's shipping industry to perform.
Introduced in 2000, the arrangement allows shipping companies to use an alternative method of calculating corporation tax profits, letting shipping firms pay more predictable and lower taxes than usual.
Sunak said Brexit had allowed the Government to offer the new red ensign tax incentive as, under EU rules, "ships in the Tonnage Tax regime were required to fly the flag of an EU state".
The reforms "aim to increase the number of firms basing their headquarters in the UK", the full Budget document explained.
Tonnage tax reforms will also reduce the period that firms are locked into the scheme from ten to eight years, and allow companies into the scheme outside of the initial window of opportunity, when there is good reason.
Gavin Simmonds, policy director at the UK Chamber of Shipping, welcomed the reforms that he said will "enhance the attractiveness of UK ships and the UK as a global centre for shipping business".
Given that the focus of reforms are on simplification, however, the Government admitted they will not have "any significant economic impacts".
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