With the U.S. government`s decision to terminate this bilateral agreement, the tax exemptions granted by the United States and HK to Hong Kong and U.S. shipping companies, which are commercial in each other`s territories, are no longer universally available. The Maritime Tax Agreement specifically refers to Section 883 and cooperates effectively with section 883. Unlike a comprehensive, independent income tax agreement, the Shipping Tax Convention is only one way to comply with section 883 (from a U.S. tax perspective). The Maritime Tax Agreement generally exempts the taxation of time, travel income and cash chartering, ancillary revenues from container leasing, pool revenues and revenue from the sale of a vessel. As a result, a Hong Kong-based company eligible for Section 883 benefits was generally exempt from U.S. income tax for most U.S. marine revenues. Section 883 of the U.S. Internal Income Code provides a generalized exemption from U.S.
tax on income collected by a non-U.S. person from the international operation of a ship. In the absence of the Section 883 exemption, a non-U.S. corporation that is treated as a corporation for U.S. tax purposes and generates maritime revenues in the United States is generally subject to a gross freight tax on income from travel to or from the United States or, in certain circumstances, a net income tax on the revenues of ships that is actually related to its trade or activity in the United States. The gross freight tax also applies to non-U.S. individuals and non-U.S. business owners who are treated as tax-transparent for U.S. tax purposes. Tax is levied at a rate of 4% on income from the U.S. source, which typically corresponds to 50% of the income of a trip to or from the United States (which is why the tax is often considered a gross tax of 2% on all income from travel to the United States or from the United States). In principle, this can be technically correct.
Hong Kong shipowners operating Hong Kong-flagged vessels generally do not pay income tax on maritime activities in Hong Kong and may benefit from other tax incentives available to Hong Kong`s maritime industry. In the United States, shipping companies generally do not receive such preferential treatment from the U.S. government for their marine revenues (except in the case of U.S.-flagged vessels subject to the U.S. ton tax).