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HMRC internal manual

Tonnage Tax Manual

Qualifying companies and ships: Flagging - introduction

FA00/SCH22/PARA22A to FA00/SCH22/PARA22F

The term ‘flagging’ is commonly used to refer to where a vessel is registered.

One of the intentions behind State aids for the maritime sector, such as tonnage tax, is to encourage ship operators to register their vessels on the register of an EU/EEA Member State.

For vessels other than tugs and dredgers, whether the flagging rules apply depends on whether the overall proportion vessels registered on the registers of member states is increasing or not.

Where, in a particular financial year, the proportion of ships in tonnage tax as a whole that are flagged in a member state is stable or increasing, then the Treasury may, by order, make that year an excepted year so that companies and groups do not need to consider flagging on a company or group basis.

In other years, when a company starts to operate a vessel then they have to consider where it is registered in order to determine whether or not it is a qualifying ship for tonnage tax purposes.

Qualifying tugs and dredgers must be flagged on the register of a Member State.