Introduction to Shipping Law in Portugal in 2024

Portugal continues its consistent growth as a dependable and modern flag state. The annual growth in the registration of vessels under the Portuguese flag is expected to persist, with the number continuing to rise each year. The International Shipping Register of Madeira (MAR) is critical in elevating Portugal’s standing within the global shipping industry. Being a European flag state, Portugal offers a reliable and stable regime, combined with a competitive operational framework.

Moreover, Portugal provides a compelling background for ship-owners through the synergies between MAR and the Madeira International Business Centre (MIBC). The latter offers a range of tax advantages, making it an attractive choice for those looking to conduct shipping-related business in Europe.

The collaboration between a high-quality flag state and a business-friendly environment is key to Portugal’s success in the shipping industry, with Madeira playing a crucial role. As one of Portugal’s autonomous regions and an outermost region of the European Union (EU), Madeira has been revitalised by the creation of the MIBC in 1980 and the MAR in 1989, both contributing significantly to the development and diversification of the emerging Madeiran economy.

Designed to attract foreign investment, the MIBC and the MAR have successfully stimulated the regional economy and revived industries that were previously dormant. Although the MIBC allows for the incorporation and operation of companies in sectors beyond shipping, it is particularly well-suited for the shipping industry.

In alignment with EU Regulations, both the MIBC and the MAR prioritise transparency, substance, and commitment. Over the years, these regimes have undergone substantial reforms, in line with international and EU standards and evolving legal concepts and procedures.

The MIBC Regime

The Portuguese State Budget for 2024 has extended the deadline for issuing new licences to operate within the MIBC until December 2024.

In addition to extending the issuance of new licences, the initiative also extends the regime for one more year, until December 2028.

As the major tax advantage, the MIBC regime allows companies to benefit from a corporate income tax of 5%. The access to this reduced rate requires companies to meet specific eligibility criteria. Indeed, companies are required to meet one of the following substance requirements:

• hire one to five local employees in the first six months of activity and make an investment of, at least, EUR75,000 in tangible or intangible fixed assets in the first two years of activity; or
• hire six or more local employees in the first six months of activity.

The 5% corporate income tax rate is limited up to ceilings placed upon the annual taxable income, depending on the number of local employees created by the company, as follows.

• 1 to 2 employees – EUR2,730,000.
• 3 to 5 employees – EUR3,550,000.
• 6 to 30 employees – EUR21,870,000.
• 31 to 50 employees – EUR35,540,000.
• 51 to 100 employees – EUR54,680,000.
• More than 100 employees – EUR205,500,000.

Higher benefits will be awarded to companies with higher involvement with local communities.

The creation of local employment is the result of the policies of a regime designed at boosting the local economy. The underlying idea is to encourage local employment by creating wealth and minimising the risk of migration of young people.

Today, the law expressly states that the number of employees is determined by reference to the number of people earning income from related employment (ie, under an employment contract), paid by the company, provided that they are (i) tax residents in Madeira or (ii) employees or seafarers on board vessels or recreational yachts registered with the MAR. The law also establishes that part-time or intermittent employees are considered proportionally to the full-time employees in a comparable situation, measured in number of annual work units.

From a shipping company perspective – owning vessels registered with the MAR and employing seafarers directly – the compliance of the above-mentioned criteria is inherent to the regular activity of the company. Moreover, as part of the set of advantages linked to the MIBC and the MAR regimes, special tax advantages are granted to the seafarers in terms of personal income tax (IRS) and social security.

The MIBC regime provides for a full exemption of IRS in what concerns wages received by seafarers on board vessels registered with the MAR. On the other hand, the MAR regime provides for a particular social security regime, according to which:

• Portuguese seafarers or seafarers residing in Portuguese territory must be (mandatorily) covered by the general social security system for employed workers, being the contribution rate of 2.7% (2% to be paid by the employer and 0.7% by the employee); and
• foreign/non-resident seafarers may be covered by any social security scheme (either in Portugal or abroad).

Considering this legal framework, Madeira presents itself as a competitive jurisdiction for shipping-related business, offering a comprehensive set of tax incentives.

As a generic background requirement, access to tax incentives depends on the creation of an effective and consistent (physical and human) structure in Madeira. Although the need for substance is intrinsic and traditionally associated with the regular development of any business activity, the MIBC regime expressly requires companies to develop their activity in and from Madeira, through a dedicated and proper structure established in the region.

As such, only gains and income arising from the activity developed in Madeira, through an appropriate structure, can benefit from the reduced corporate income tax rate. From a shipping company perspective, this means, regardless of the number of (eligible) employees on board on vessels registered with the MAR, the company must establish a proper structure in Madeira, from which business is conducted.

Finally, as ancillary tax benefits (but no less important in the context of an operational shipping company), the MIBC regime comprises the following main benefits:

• exemption from withholding tax on dividends and interest paid to non-resident shareholders – either individuals or corporations (exception made to entities resident in low tax jurisdictions); and
• exemption from withholding tax on interest paid to non-resident lenders, provided that the loans are intended for the normal functioning of the company.

For entitlement to the above tax benefits, proof of the non-resident status of the above-mentioned entities (shareholders and lenders) must be provided to the tax authorities, if and when requested.

The MAR Regime

In spite of the advantages linked to the incorporation of a company within the MIBC seeming clear, registration of a vessel with the MAR does not require incorporating a company within the MIBC. Any non-resident entity can register an (eligible) vessel with the MAR, provided that (i) it appoints a local representative to ensure full representation before the state authorities, the regional authorities and third parties, and (ii) it chooses a special private domicile for these purposes.

The MAR regime defines vessel as any commercial or recreational vessel operating at sea, including fixed or floating platforms, auxiliary boats and towing vessels. As such, excluding fishing vessels, all types of vessels are, by law, eligible for registration. However, when assessing eligibility, the Technical Commission of the MAR – a body forming part of the maritime administration responsible for the fleet registered with the MAR – takes into consideration certain criteria, namely:

• the vessel’s age;
• the Port State Control performance; and
• the performance of the International Safety Management Company.

Documents and procedures underlying the registration of a vessel with the MAR are in line with those internationally practised. Considering that, in most cases, the documents submitted for registration with the MAR are produced abroad, they must comply with certain formal requirements, such as notarisation and legalisation.

MAR accepts provisional registration based on copies of the relevant documents. Provisional registration is valid for a period of 90 days, during which time the ship-owner must submit with MAR the original documents to accomplish permanent registration. MAR also allows for bareboat charter in and bareboat charter out registration.

Significant deviations vis-à-vis the general rules applicable to the registration of vessels in the Portuguese Conventional Register have been introduced.

In view of MAR’s international nature, specific rules have been established to streamline and speed up the registration process, namely:

• the possibility of submitting and confirming registrations outside office hours, Saturdays, Sundays and public holidays;
• the enshrinement of the principle according to which the confirmation of registrations is urgent in nature and therefore takes precedence over others;
• the possibility of consular intervention in the registration process; and
• the reciprocal duty of collaboration between interested parties and the MAR, which results in the pre-clearance of documents relevant for registration.

Proof of registration is provided by means of an Ownership Registration Certificate in e-format. MAR is a paperless Ship Register based on a swift, efficient and cost-effective system, where e-certificates are provided as a standard approach. Hard copies of some certificates may be available upon request, if needed for specific routes or port calls.

As part of the tax incentives linked to the MAR, no registration fees are due upon registering a vessel or other facts subject to commercial registration, namely mortgages. Likewise, no notarial fees apply provided that deeds are executed at the MAR’s dedicated Notary’s Office. Fees are, however, due to the Regulator of the MAR – the Sociedade de Desenvolvimento da Madeira S.A. (SDM) – calculated according to the net tonnage of the vessels.

MAR is a 24/7 service register, permanently available for any matters concerning:

• maritime emergencies;
• seafarers’ matters; and
• registration of vessels, mortgages and other liens.

Crew Requirements

The MIBC section above addressed the role of seafarers in the context of the employment requirement imposed under the MIBC regime and the tax incentives granted. As a summary, seafarers on board vessels registered with the MAR, when employed by a shipping company operating within the MIBC, are deemed eligible employees for the purpose of the employment requirement. Also, those seafarers qualify for exemptions in terms of tax and social security.

The MAR regime establishes certain conditions in respect to the nationality of the crew, whereby at least 30% of the crew must be European citizens (EU or non-EU countries), or from Portuguese-speaking countries, such as Angola, Brazil, Cape Verde, Guinea Bissau, Mozambique, São Tome and Principe, East Timor and Equatorial Guinea.

To cater for the unfortunate but continuous lack of crew in Europe, MAR created an exception to the above rule, based on which a “nationality exemption statement” can be obtained in duly justified cases. The exemption is valid for one year and is renewable on an annual basis, provided the reasons underlying the exemption remain.

The lack of seafarers is a serious problem across Europe. Portugal, with a continuous growing fleet, is committed to playing a role in attracting young people to the shipping industry in order to support the growing demand. The regional government of Madeira launched a pilot project named “Maritime Education – Thrive with the Sea” aimed at:

• encouraging the young generation to embrace the maritime industry;
• creating awareness of professional opportunities; and
• stressing the contribution of seafarers to the global economy.

The project also aims to enhance maritime education and training in Portugal.

Maritime Arbitration Centre

In September 2022, Associação Concórdia (Concordia Association – Centre for Conciliation, Conflict Mediation and Arbitration) has applied to the Ministry of Justice for authorisation to set up an international arbitration centre, specialised in maritime disputes, called Centro de Arbitragem Marítima de Lisboa (CAM – Lisbon Maritime Arbitration Centre).

In November 2023, the Secretary of State for Justice authorised the operation of the CAM through Order No 11527/2023.

With a clear international vocation, the CAM has jurisdiction to settle disputes relating to activities falling within the economy of the sea, namely concerning maritime transport, liability for damage caused or suffered by ships or resulting from their use at sea, shipbuilding contracts, repair, purchase and sale of ships, insurance contracts, mortgages and other privileges on ships, collisions and casualties, towage and pilotage contracts, wreck removal, maritime salvage and assistance, maritime pollution, and any other disputes that the parties agree to submit to arbitration, conciliation and mediation of disputes.

Besides managing maritime arbitrations, the CAM also aims to instigate legal knowledge within the field of maritime law, by promoting seminars and congresses and publishing periodicals on maritime legal topics.

The advantages linked to arbitration are clear and unquestionable. From a procedural to a speed perspective, arbitration offers a system that clearly better meets the needs of international trade. The level of expertise, the lower costs and the high confidentiality level of specialised arbitration centres are key elements underlying the success of arbitration, as an alternative dispute resolution system. The creation of the CAM is an important achievement for shipping in Portugal and promises to be a strong tool in the context of MAR’s competitiveness.

Conclusion

Portugal stands out as a highly competitive jurisdiction for businesses related to shipping. The nation has strategically formulated and enforced regimes that provide substantial tax incentives and operational benefits, prioritising the confidence and security sought by diligent investors in their business endeavours. The MAR remains a pivotal player, solidifying its position at the heart of the shipping industry in Portugal and attracting a diverse range of stakeholders.

Recent data provided by SDM indicates that the number of vessels registered in 2023 increased by approximately 12%, totalling 1,001 vessels as of 31 December 2023, 871 of which being commercial vessels. This growth is attributed to the political and legislative measures implemented over the years, as well as promotional efforts by SDM as the concessionaire of the MIBC and the MAR. Notably, the strategic partnership formed with Euromar in December 2014 has been playing a key role in promoting and developing the MAR.

From a Portuguese strategic perspective, it is critical for national and regional governments to collaborate in order to sustain and enhance the existing MIBC and MAR regimes. This is vital to meet the continuously evolving demands and complexities of the shipping industry.