In the spring of 2023, a cargo ship flying the flag of Gibraltar was re-registered under the flag of Estonia in one day. The ease of transition is the result of efforts launched in 2020 by the Estonian government. The country is known for its electronic solutions, and the goal was to create a system that would be just as efficient for registering ships.
"It took time to collect the documentation for the vessel in advance," says Kristian Truu, head of the maritime department of the Estonian Transport Authority. "But when everything was done, the vessel was registered, inspected by inspectors and the classification society, certificates issued, and the flag changed, all in one day."
Shipowners spoke, Estonia listened
In 2020, the Estonian government passed a package of laws to make sailing under the Estonian flag more competitive. With approximately 20 cargo and passenger ships registered under the Estonian flag, the government has set itself the goal of reaching several hundred ships by 2035. The first step towards this goal was to listen to shipowners.
"We told the shipowners that 'we are listening and we would like to improve our service,'" says Helena Rattus, head of maritime development and competitiveness at the transport administration. The Rattus team has heard that time is money. "The shipowners told us that it all depends on the service. They need 24/7 service, quick response, constant cooperation and support. They want a ship-to-flag state partnership."
Tax solutions, personalized solutions
To lay the foundation for 24/7 service, Estonia first had to make the overall maritime environment business-friendly. It created a new structure for the registries and proposed two tax schemes, the first option being a standard national system of zero tax on reinvested profits. “There is no income tax until you withdraw the income from the computer", says Truu, "which makes it an ideal environment for the company to grow rapidly."
The second option is a tonnage tax system for owners, operators or charterers of cargo vessels, which allows a certain percentage of the owner's vessels to fly other flags. "We have also received approval from the European Commission for the tax scheme for seafarers. If the vessel sails under the flag of Estonia or any EU-flagged vessel, you pay zero income tax. Social security taxes, unemployment insurance tax and accumulated pension tax are payable at a reduced rate based on the tax base of the crew member's salary of 750 euros.
"But all this is expected of a progressive maritime nation," says True. "You have to have those basic things and then build a personalized service on top of that." This is exactly what Estonia has planned.
electronic solutions
Estonia has attracted international media attention for its electronic solutions for its citizens. Income taxes are automated and filed electronically in minutes. You can renew your driver's license in seconds. Estonia also knew it could apply these technologies and customer service mentality to the maritime sector.
So far, Estonia has launched two digital systems that can be accessed by the shipowner from anywhere in the world. Information system of sailors and ship information system.
"The first supports all the information about the people on board, the sailors, their diplomas, certificates," says True. "The last thing is to register the vessel under the Estonian flag. You can add documents and certificates. Lifetime can be tracked from registration to scrap. In the future, we will even be able to have a digital double of the ship."
"Digital tools combined with a personalized approach is what sets Estonia apart," says Truu. "These tools minimize the shipowner's contact time with our administration — without delays, without days of waiting for an answer. The owner also has a contact person in the administration who deals with their issues. If that person is not qualified to solve a specific issue, they know who to turn to."
"We understand that every hour of a ship's stay in the port is expensive. A quick response from the administration is crucial, says True. "Our internal ambition is to quickly solve these problems and find solutions together with the client."
Bigger ambitions
Estonia's big plan is not to simply transfer ships to its flag. He would like shipping companies to set up offices so that Estonia becomes a regional transport hub.
"We offer digital solutions for all aspects of shipowners' business — quick business registration, simple, transparent taxation scheme. Add to that our established shipbuilding and repair industry and a host of marine startups.”
Truu notes that Estonia is already served by a major ferry company. "The head office of the innovative and promising ferry operator Tallink is located here. Now we want to expand. Estonia is known for its unicorns and as a factory of ideas. I think we have an ideal environment for cargo companies."