MTT45610 - Particular entities and adjustments: Shipping: International shipping exclusion - Overview
Source: gov.uk (2025-08-05)


Revenue generated and costs incurred in international shipping activity are excluded from the effective tax rate (ETR) calculation. The exclusion may apply to any international shipping activity conducted by a member of a qualifying group. It is not necessary for the member of the group to have international shipping as their main business.

This exclusion was introduced to reflect the special treatment of the shipping industry by corporate tax regimes. Shipping enterprises are generally taxed under an alternative regime, such as the UK’s tonnage tax regime.

International shipping activity is divided into two categories:
- core international shipping, profits from which are excluded in full.
- ancillary international shipping, profits from which are excluded up to a cap of 50% of the core international shipping profits for the territory (see MTT45635 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt45635)).
The exclusion is set out in sections 156 to 158 of Finance (No.2) Act 2023.

Strategic and commercial management condition

A member of the group will only qualify for the international shipping exclusion for a period if, in that period, the strategic or commercial management of each ship used in international shipping is effectively carried on from the territory in which the member is located. See MTT18000 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt18000)+ for guidance on locating entities.

This condition is met if either the strategic or commercial management of each ship is effectively carried on from that territory.

Note that the test is applied to all ships under the control of the member, whether owned, leased, or under any other arrangement.

Example

Ferry Ltd is a member of a qualifying multinational group that is located in the UK. Its business consists solely of transporting passengers by ship from one territory to another.

In the period ending in 2035, Ferry Ltd had ten ships that were used in its trade.

The strategic management of six of these ships was carried on within the UK. The commercial management of three of the other ships was carried on within the UK. Neither the strategic nor the commercial management of the tenth ship was carried on within the UK.

Ferry Ltd is not eligible for the international shipping exclusion for the 2035 period because:
- the strategic management of one of its ships was not carried on from the territory in which it is located,
- the commercial management of that ship was not carried on from that territory, and
- that ship was used for international shipping by Ferry Ltd in that period.
Meaning of ‘international shipping’

International shipping is defined as the transportation of passengers or cargo by ship between different territories.

Towing and dredging are specifically excluded from the definition.

Interaction with substance based income exclusion (SBIE)

When determining the SBIE amount, amounts that have already been excluded from adjusted profits under the international shipping exclusion cannot also be included in the SBIE amount. This includes both payroll costs and the value of tangible assets attributable to the generation of core or ancillary international shipping profits.

See MTT32070 (https://www.gov.uk/hmrc-internal-manuals/multinational-top-up-tax-and-domestic-top-up-tax/mtt32070) for guidance on the interaction between the international shipping exclusion and the SBIE amount.