The Merchant Marine Act of 1920, also known as the “Jones Act” (46 U.S.C. Section 55102), prohibits vessels from transporting merchandise between points in the United States if any part of the shipment is by water, a combination of land and water, or through a foreign port, unless the vessel is U.S. built, U.S. owned, and coastwise endorsed by the U.S. Coast Guard. On March 17, 2026, the Department of Homeland Security issued a limited waiver of the Jones Act pursuant to 46 U.S.C. Section 501(a). The Jones Act waiver allows foreign-flagged vessels to transport certain specific cargo between U.S. ports.
The original Jones Act waiver covered a 60-day period that expired on May 17, 2026. This waiver was extended for a period of 90 days and expired on August 16, 2026. A second 90 day extension of the waiver commenced on August 17, 2026 and will continue until mid-November, 2026.
The Internal Revenue Service has posted that income of a foreign corporation from the operation of vessels transporting cargo between U.S. ports under the Jones Act waiver is not income derived from the international operation of ships and is thus not eligible for the gross income exclusion under section 883 or treaty benefits related to the operation of ships in international traffic.
A foreign corporation that operates a vessel between U.S. ports pursuant to the Jones Act waiver is subject to U.S. federal corporate income tax at a rate of 21%, plus a 30% branch profits tax on net income from the voyage if the foreign corporation is engaged in a U.S. trade or business or subject to U.S. federal income tax at a rate of 30% on gross income from the voyage if the foreign corporation is not engaged in a U.S. trade or business.
Foreign flag shipowners should be aware of the U.S. income tax implications of engaging in a voyage between U.S. ports under the Jones Act waiver and carefully consider the after-tax implications of these voyages.
