Section 226
Section 226: the tonnage tax scheme
Section 226 sets out the operating mechanics of the tonnage tax scheme introduced by Section 225 - what it means for a company to "operate" a ship or inland vessel, why the tonnage tax business is treated as a business separate from everything else the company does, and what happens once a company opts into the scheme.
This explanation is AI-assisted and pending review by our CA/CS team. It is general information, not professional advice - always cross-check against the bare law text above or talk to our tax team for guidance specific to your situation.
What counts as "operating" a ship
A company is treated as operating a ship or inland vessel if it operates any ship or inland vessel, whether owned or chartered by it - including where it has chartered in only part of the ship or inland vessel, such as under a slot charter, space charter or joint charter arrangement.
A company is not treated as operating a ship or inland vessel that it has chartered out on bareboat charter-cum-demise terms, or on bareboat charter terms for a period exceeding three years.
Separate business treatment
A tonnage tax company engaged in operating qualifying ships computes the profits from that business under the tonnage tax scheme, and the tonnage tax business is treated as a business distinct from all the company's other activities or businesses. Its profits are computed separately from profits and gains of any other business.
The scheme only applies if opted for
The tonnage tax scheme applies only if the company has made an option to that effect under Section 231. If a company operating qualifying ships is not covered by the scheme, or has not exercised the option, its profits from that business are computed under the Act's other provisions in the ordinary way.
Effect once opted in
Once the scheme applies, the tonnage income (computed under Section 227) is deemed to be profits chargeable under the head "Profits and gains of business or profession", while the "relevant shipping income" referred to in Section 228(1) is not chargeable to tax.
Frequently asked questions
Does chartering out a ship long-term still count as "operating" it?
No. A company is not treated as operating a ship it has chartered out on bareboat charter-cum-demise terms, or on ordinary bareboat charter terms for more than three years.
What if a company operates qualifying ships but never opts for the scheme?
Its profits from that business are then computed under the Act's other (ordinary) provisions, not under the tonnage tax rules.
Related sections
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Talk to our tax team about the tonnage tax schemeLast updated 9 September 2026