GMS Shipping Office

Participation in a Dutch private limited
Shipping C.V

You may have been heard about an advertisement in the newspaper, or heard friends talking about it: participation in a shipping CV. But what exactly is that? Is it like investing in shares? This part of the site explains briefly what participating in a shipping CV involves.

What is a CV?

CV is an abbreviation of the Dutch for a Limited Partnership. This is one of the legal forms used for a company. A CV comprises one or more general partners, and one or more limited partners, also called silent partners. The general partners manage the business and also assume any legal debts and obligations.

The limited partners contribute cash to finance the business. They are also entitled to some of the company’s capital, in other words to share in the profits of the company (proportional to their investment). Limited partners are also entitled to vote on important company decisions. The type of decision this applies to is often described in the CV contract. Limited partners are not liable for any losses that might occur. The maximum risk run by a limited partner is therefore the amount of money they have invested. If you participate in a shipping CV, you become a limited partner in a shipping company. This usually involves the purchase, exploitation and sale of one or more ships.


Different types of CV:

There are two sorts of CV: private ("closed") and public ("open").

In a closed CV, (“closed” limited partnership), you require the permission from the other partners in order to sell your interests in the partnership. Private investors with one or more interests in shipping CVs who invested before January 1st 2001, may not participate in more than three different shipping CVs without fiscal disadvantage. There is no restriction for limited companies. If you take part in a closed CV, any profit you make is taxed in Box 1. Companies that take part as limited partners pay corporate tax on the profits. However, by making use of the Dutch tonnage tax scheme (see also paragraph below on tax), the amount of tax that has to be paid is extremely low.

In an open CV, (“open” limited partnership), your interests are freely transferable and there is no limit to the number of interests you may have. If you take part in an open CV, the open CV pays the corporate tax on profits (making use of the tonnage tax scheme). It is also important to note that individual investor’s income is taxed in Box 3. If the total amount in Box 3 exceeds the tax-free allowance, you will be required to pay a 1.2% wealth tax levy on the excess.

Limited companies that take part in open CVs are obliged to pay corporate tax. However, limited companies may be exempt from paying corporate tax (participants exemption) if their interests amount to at least 5% of the open CV’s total capital.


Tax

Shipping CVs dating from before January 1st 2001 are entitled to certain tax benefits including a significant investment allowance, with which a large proportion of the invested capital is regained in the first year through tax. There is also discontinuation relief, in which tax is not paid on a significant amount of the capital when the CV ceases to exist. This used to make “old” shipping CVs a low-risk investment, and ensured that they still made a good profit. However, these tax benefits were abolished in January 2001. What does remain is the tonnage scheme, or tonnage tax. This tax measure dates from 1996 and was introduced in order to stimulate the Dutch shipping business. Shipping CVs founded after January 1st 2001 welcome this measure with open arms.

Using the tonnage tax scheme, tax paid on profits is calculated according to the net tonnage of the ship, and not on the actual profit. This usually amounts to a very low tax bill in practice. An application must be submitted to the tax department in order to make use of the tonnage tax scheme. Universal Marine will provide you with a standard form, which you can use to apply to your tax department. The tonnage tax scheme remains valid for 10 years after which a new application must be submitted.




Financial returns

Perhaps you are still wondering about the financial returns? The financial yield depends to some extent on favourable tax conditions. The rest comes down to good entrepreneurship. Market knowledge and the right contacts are essential. The ship itself is important, of course. Is it a sought-after ship? At what speed does it sail? Can it load and unload quickly and easily? What is its fuel consumption? Is it easy to maintain? An important factor affecting profit is the daily proceeds. If the shipping company manages to gain contracts with which the daily proceeds are equal to or exceed those predicted, your profit margin is on the right track. Another important factor affecting profit is the sale price of the ship. This depends on various factors including supply and demand of that particular type of ship at the time of sale, and the physical condition of the ship.

Most CVs yield an average one-time return. This is calculated annually by dividing the sum of the annual profits by the number of years.
Discontinuation

How can you discontinue your participation in a shipping CV? The most favourable option is to remain in the CV until it ends, in other words to wait until the ship is sold and the CV is dissolved. The sale often yields good financial returns for the limited partners. Ships are usually sold after around 10 years, but some CVs are put on the market sooner. A sale might also be arranged sooner if a good offer is made unexpectedly.

Another option if you wish to discontinue is to sell your interests, although with a closed CV this does require permission from all the remaining partners. Selling interests is easier in an open CV. It is often sufficient just to inform the managing partner of your decision. What is more difficult than finding a buyer is agreeing a sale price. At present, there is no market to link sellers and purchasers, and no guidelines with which to determine the value of interests.

GMS Shipping offers its participants assistance when selling interests.