Cyprus is established as a leading international maritime centre, constituting today the biggest third party ship management centre in the European Union with the Cypriot maritime registry being one of the largest in the European Union and the 10th largest worldwide.
The success of Cyprus Shipping is the result of its merchant shipping legislation, the tax benefits, its well founded shipping infrastructure and services as well as its efficient maritime registry.
Shipping Tax System
The Merchant Shipping Law of 2010 extended the scope of Tonnage Tax System and provides:
- Full exemption to shipowners, charterers and shipmanagers from all taxes and imposes tax on the net tonnage of the vessels.
- The tax exemption also covers:
- Distribution tax at all levels
- Interest income relating to shipping activity
- Capital gains from sale of vessel or shipping company
- Wages and other benefits of officers and crews of Cyprus registered vessels
- Withholding tax on dividends/ interest/ royalty on repatriation of income
- Profits from Permanent Establishment (PE)
- No stamp duty on ship mortgages deeds or other security documents
- No inheritance tax
- Additionally it allows:
- Mixed activities within a company/ group. Those falling under shipping activities are taxed at tonnage tax and the non shipping income is taxed at corporate tax at 12,5% on net profit (separate books must be kept)
- Supports an open registry
- Allows split ship management activities
- Applies to ships of third country flags
- Covers also crew management services
The main provisions of the new tonnage tax system are:
- (1) Beneficiaries
The tonnage tax system is available to any owner, charterer or Ship Manager who owns, charters or manages a qualifying Ship in a qualifying shipping activity. The tonnage tax is calculated on the net tonnage of the Ship according to a broad range of bands and rates prescribed in the legislation. The rates applicable to Ship Managers are 25% of those applied for Ship Owners and Charterers.
- (2) Qualifying Ship
A qualifying Ship is any seagoing vessel certified under applicable international or national rules and regulations and registered in the Ship register of any member of the International Maritime Organization and/or the International Labour Organization that is recognized by Cyprus.
- The regime specifically excludes certain types of ships, such as fishing vessels, ships used primarily for sports or recreation, river vessels, non-self propelled floating cranes and tug boats, among others.
Qualifying Shipping Activity
Means any Commercial Business or Activity that constitutes “Maritime Transport” or “Crew or Technical Management”.
Includes (for the first time) Towage and Dredging Activities (with some conditions), Cable-Laying Activities and Ancillary Activities, such as Passenger Ship related Hotel, Catering, Entertaining and Retailing Activities, Cargo Loading and Unloading within ports and others.
The legislations applies to three types of operations
There are three categories of ship owners eligible to be taxed under the TTS as follows:
1. Cyprus flag vessel which automatically fall within the scope of TTS
2. EU flag vessel
- provided that the ship owner is tax resident of Cyprus and
- has opted to be taxed under the TTS
3. Mixed fleet
- ship owners of EU and non-EU flag vessels
- provided that the ship owners are tax resident of Cyprus
- has opted to be taxed under TTS
- at least 60% of the fleet in terms of tonnage must comprise of EU flag vessels. If less than 60% then a share of the fleet must comprise of EU vessels and that share must not be reduced in the three year period (flag share requirement) following the exercise of the option and
- the commercial and strategic management of the fleet is carried out from the EU
Any charterer who charters:
— a ship under bareboat
— demise charter
— time or voyage charter
Is eligible to opt for TTS provided:
— that the ship charterer is a tax resident of Cyprus and
— the tonnage of the ships under time and/or voyage charters do not exceed 75% of the total tonnage of ships chartered and owned for more than 3 consecutive years. The eligibility percentage increases to 90% if the ships chartered are EU ships or their crew and technical management are carried out from the EU. The charterers of 3rd country flag ships must comply with the additional requirements that apply for 3rd country flag ship owners (i.e. flag share requirement).
A ship manager who provides:
- crew management services and/or
- technical management services
Can opt to be taxed under the TTS provided it satisfies the following criteria:
- is a tax resident of Cyprus
- maintains a fully fledged office
- employment of a sufficient number of qualified personnel (51% of whom should be EU citizens)
- at least 2/3 of the management is carried out from the territory of the EU
- at least 60% of the fleet in terms of tonnage must comprise of EU flag vessels
- all vessels and crew under management must comply with international standards and EU law, requirements relating to - maritime security, safety, training and certification of seafarers, the environment, on-board working conditions and so on.
for crew managers there is an obligation for full implementation of the 2006 Maritime Labour Convention and
for technical managers, they must have the ISM Code certification
Any ship owner, charterer or manager opting for the TTS must remain in the system for 10 years. Early withdrawal will result in penalties, calculated as the difference between the amount paid during the period under the TTS and the amount that would have paid had it been subject to corporation tax in the same period. In addition, the right to opt for tonnage taxation until expiration of the 10-year period from the date the option was first exercised is lost.
No tax on income derived from the operation of a Cyprus registered vessel
No tax on dividends paid to shareholders of a Cyprus registered vessel out of profits made from the operation or from the sale of a ship
No tax on interest earned on working capital of a Cyprus registered vessel
No tax on the income or profit made from the sale of a Cyprus registered vessel
No tax on the wages or other benefits of officers and crew members of a Cyprus registered vessel
No estate duty on the inheritance of shares in a ship owning company
No stamp duty on ship mortgage deeds or other security documents
Tonnage tax rates
The following table summarizes the applicable rates for the tonnage tax calculation:
|€36.50 per 100 NT||€31.03 per 100 NT||€20.80 per 100 NT||€12.78 per 100 NT||€7.3 per 100 NT|
Calculation of the annual tonnage tax for a 19.538 net tonnage vessel:
1.000 NT: 1.000/100 = 10 x €36,50 = € 365,00
9.000 NT: 9.000/100 = 90 x €31,03 = €2.792,70
9.500 NT: 9.500/100 = 95 x €20,08 = €1.907,60
38 NT: 38/100 = 0,38 x €20,08 = € 7,63
Annual tonnage tax due = €5.072,93
Note: If the above conditions are not fulfilled to be taxed under tonnage system then the company is taxed under income tax at 10% on net profit.
The tonnage tax system is available to any owner, charterer or Ship Manager who owns, charterers or manages