US Government Signals Potential Tax Changes For Cruise Industry

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The cruise industry could be facing a major shift following comments from US Commerce Secretary Howard Lutnick, suggesting that President Donald Trump plans to overhaul the tax system – including targeting cruise lines that have long enjoyed exemptions from US taxation.

Overlooking-Port-of-Miami

During an interview on Fox News, Lutnick pointed to the absence of US-flagged cruise ships, using it as an example of companies avoiding taxation.

“You ever see a cruise ship with an American flag on the back?” Lutnick asked.

He went on to explain that most cruise ships register under foreign flags – often referred to as “flags of convenience” – in order to benefit from lower taxes and more relaxed labour laws.

“None of them pay taxes … every supertanker. None pay taxes … all foreign alcohol. No taxes. This is going to end under Donald Trump.”

Howard Lutnick

Lutnick’s remarks triggered an immediate reaction from the financial markets, with cruise stocks tumbling on Thursday morning as investors worried about the potential impact of new tax policies.

  • Royal Caribbean saw its stock fall as much as 9.3% in early trading before settling at a 7% decline by the close of the market.
  • Norwegian Cruise Line and Viking Cruises both dropped 7%.
  • Carnival Corporation, which took the smallest hit, was down 5%.

Despite the market dip, industry analysts were quick to downplay the likelihood of any immediate changes.

Steven Wieczynski, a leisure industry expert, noted that this is not the first time lawmakers have suggested revising the tax structure for cruise lines.

“This is about the 10th time in the past 15 years that a politician has floated this idea, and every time it has failed to gain traction,” Wieczynski stated.

The tax loophole explained

Although major cruise lines, including Royal Caribbean, Carnival, and Norwegian, are headquartered in the US, they are incorporated in foreign nations such as Panama and Bermuda.

This allows them to avoid US corporate income tax on earnings generated outside of the country.

Instead of paying traditional corporate taxes, cruise companies contribute to the US economy through port fees, passenger taxes, and regulatory expenses, amounting to $2.5 billion annually. This represents roughly 65% of the total taxes that cruise lines pay worldwide.

Will cruise passengers be affected?

For now, travellers are unlikely to see any price hikes. Even if tax changes were to be enacted, cruise lines would find ways to offset costs – potentially shifting the burden onto passengers through increased fares or service fees.

Additionally, most business conducted on cruise ships happens in international waters, making it difficult for the US government to directly impose new taxes.

The only US-flagged large cruise ship currently in operation is Norwegian Cruise Line’s Pride of America, which sails in Hawaii.

Due to its US registration, it must comply with American labour laws, making it significantly more expensive to operate than foreign-flagged vessels.

At this stage, there is no official proposal to change the tax system for cruise lines, and Lutnick’s comments have yet to be followed by any concrete policy announcements.

For now, cruise companies and investors alike are likely to monitor developments closely, but unless formal legislation is introduced, it remains business as usual for the industry. But it’s good to be aware that change could be on the horizon.

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Cruise Mummy

Jenni Fielding is the founder of Cruise Mummy. She has worked in the cruise industry since 2015 and has taken over 30 cruises. Now, she helps over 1 million people per month to plan their perfect cruise holidays.

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