All posts by Manuel Liberal Jeronimo

About Manuel Liberal Jeronimo

Email: [email protected]
Tel: +351 22 607 47 00
Manuel Liberal Jerónimo is a senior associate of the firm. He mainly focuses on commercial and corporate law, mergers and acquisitions and exports & international trade.
Manuel Liberal Jerónimo has a postgraduate degree in company law from the Coimbra University Law School, has attended a programme on finance for non-financiers at INEDEM (Oporto) and is currently studying on a master’s course in corporate law and business at the Portuguese Catholic University (Oporto). He is also a lecturer on several courses, seminars and conferences on themes related to his areas of expertise.

The Madeira International Ship Register (“MAR”)

  1. INTRODUCTORY NOTE

Portugal is a country of sea and seamen. We are known for that. Our credentials go back hundreds of years and to Portuguese sailors like Vasco da Gama, the first to sail from Europe across the West African coast, through the cape of Good Hope so named by the Portuguese, and then to India in 1498 or Fernão de Magalhães the first to circumvent the world in the XVI century.

Over the last few years the Portuguese Government decided to focus a lot of its attention in the development of our sea resources, both regarding the economic exclusive area and our economic rights of the Exclusive Economic Zone, which limits Portugal is seeking to adjust.

It is a colossal area of sea spanning from continental Portugal to the Azores in the middle of the ocean between Europe and the US and almost to the Madeira islands. Portugal will take over a tremendous responsibility of managing and developing those resources.

One of the angles of that strategy has been the development of the Madeira International Business Centre (Centro Internacional de Negócios da Madeira – CINM) and, within that scope, of the Madeira International Ship Register (Registo Internacional de Navios da Madeira, known and referred to here as “MAR”), set up by Decree-Law no. 96/89 of 28 March. It is now the second Portuguese ship register alongside the one known as the classic or conventional register.

MAR was created when other second ship registers were proliferating in a number of European States such as France, Norway, Denmark and Germany. The considerable increase in “flags of convenience” and the widespread decline in merchant navies, led a number of European countries, above all those with a greater maritime tradition, to feel the need to create their own second ship registers that were more modern, secure and efficient than the conventional, traditionally more bureaucratic ones.

The objectives of these States were, on the one hand, to recover the levels of national tonnage that had existed previously and, on the other, to offer national and international ship owners more attractive economic and operational conditions (without, however, ignoring such important matters as work, environmental and navigational safety).

In Portugal specifically, MAR was set up to combat the process of flagging out, to capture foreign fleets, investment and know-how, and to recover and rebuild a Portuguese merchant navy. Naturally, it was also set up to create a new source of revenue and jobs for Portugal via activities related to sea transport.

In 2014, as a result of a naturally competitive approach (as we will see below), MAR was the European ship register with the highest growth, being today the third largest international register in the European Union in terms of ships registered (after Malta and Cyprus)[1].

  1. CHARACTERISTICS OF MAR

MAR is characterised as an open, selective and double register:

  1. Open because it allows the registration of ships owned by Portuguese or foreigners, individuals or legal entities. Under the legal framework established, any non-resident entity, in a legal position to do so, may register its ships with MAR, as long as such entity maintains a form of representation in the Autonomous Region of Madeira with all necessary powers. It must also ensure its full representation before the state and regional public and private bodies and authorities;
  2. Selective to the extent that it excludes fishing vessels from its scope. Note that the notion of “ship” established for the purposes of applying MAR rules covers “all commercial or leisure vessels that operate on the sea, including fixed or floating platforms, auxiliary vessels and tugs”. It therefore leaves out fishing vessels;
  3. Double because it implies two levels of registration and the involvement, in this context, of two distinct entities: MAR (through its Technical Committee) and the private Commercial Registry Office of the Free Zone of Madeira.
  • OPERATIONAL AND TAX ADVANTAGES

MAR offers specific operational advantages as well as attractive tax rules that apply both to the ships registered and to the companies licensed at the Madeira International Business Centre (CINM). We highlight some of these advantages below.

  1. Sale and Purchase and Mortgages of Ships Registered with MAR

When it comes to the transfer of title or ownership, Portuguese law provides that the sale and purchase of ships registered with MAR is not subject to any state authorisation. It also establishes that any sale and purchase can be made simply by a bill of sale. The Seller’s signature must be certified and an apostille or some other form of certificate if it is executed outside Portugal (Decree-Law no. 96/89 of 28 March 1989) may also be needed.

When it comes to mortgages, MAR has a truly innovative system. Firstly, when it comes to their creation, it is sufficient for the document to be signed by the owner of the ship, again the signature has to be certified, to be able to create, amend or discharge a mortgage or any right equivalent to it. Secondly, the MAR system allows the parties to designate the law applicable to the mortgage or equivalent right, without prejudice to the application of the rules of international conventions that bind the Portuguese State. As such, non-portuguese ship owners and financing banks may elect another applicable law to the mortgage over a ship registered with MAR other than Portuguese. This is a special, innovative rule with no equivalent in the Portuguese legal system, and it is an example of the competitiveness and modernity of MAR.

  1. Crews

 As far as crews are concerned, the rules establish that the captain and at least 50% of the crews of ships registered with MAR 50% must have (i) Portuguese nationality or (ii) the nationality of an EU Member State or (iii) the nationality of a Portuguese speaking country. However, the legal framework allows for an exception to this rule upon express authorisation of the member of the Government responsible for the area of sea transport, in properly justified cases.

  1. Tax Framework

Ships registered with MAR enjoy a broad set of tax benefits, essentially established in Decree-Law no. 96/89 of 28 March and in the Tax Benefits Statute (Estatuto dos Benefícios Fiscais – EBF).

There are also tax benefits available to companies that carry on sea transport activities in the Free Zone of Madeira and to crew members registered with MAR.

As far as the benefits granted to companies are concerned, the rules establish that income from licenced activity – except income from the transport of passengers or cargo between Portuguese ports – can benefit from a reduced rate of corporate income tax (IRC) of 5% up to 31 December 2027, subject to compliance with certain requirements. Firstly, the company must begin its activity within one year of the date it is licensed. It must also create between one and five jobs in the first six months of activity. Finally, it must make a minimum investment in the acquisition of fixed tangible or intangible assets of EUR 75,000, in the first two years of activity. This final requirement can be waived if more than six jobs are created in the first six months of activity.

The benefits to be granted are subject to ceilings for the maximum tax base that can benefit from the reduced rate. The ceilings or caps depend on the number of jobs created and range between EUR €2.73 million for the creation of up to two jobs and EUR 205.5 million for the creation of more than 100 jobs.

These companies also enjoy other benefits including exemption from withholding tax on interest paid to non-residents, exemption from stamp duty and exemption from municipal property tax (IMI), when the properties or part of the properties are directly used for carrying on the activity of the company.

Besides having these special tax benefits, companies that carry on commercial activity on the high seas also benefit from an exemption from value added tax (VAT).

Double taxation agreements ratified by the Portuguese State may also apply.

The crews of ships registered with MAR are exempt from personal income tax (IRS) in relation to the income earned in this capacity, without prejudice to the fact that exempt income is aggregated for the purposes of determining the rate to be applied.

The MAR rules also provide that crews and companies that own ships registered with MAR are not required to discount social security contributions. However, this is without prejudice any social security systems provided for by international conventions in the Portuguese legal system.

Finally, commercial registry acts, for both companies that carry on sea transport activity in the Free Zone of Madeira and for ships registered with MAR, are exempt from any registration taxes or fees.

  1. CONCLUSION

As we have already mentioned, MAR is an important factor in bringing dynamism and competitiveness to Portugal.

Essentially, MAR has been achieving the objectives it targeted initially. Today, it is internationally recognised as a solid, credible and high quality register, and this statement is corroborated by the fact that MAR was the European ship register that achieved greatest growth in 2014 and is already the third largest international register in the European Union[2].

The operational advantages and, above all, the tax benefits associated with MAR have contributed a great deal to this growth.

The future prospects associated with this registration system are, naturally, of growth, and it is hoped that MAR can contribute to consolidating Portugal’s position as a leading maritime player on a global level.

***

[1] For this purpose, we do not consider the international ship register of Gibraltar, due to the particularity of this territory (and of its status) within the European Union.

[2] Please refer to the footnote above.