15 Jul 2021

The setting up of holding companies within the most appropriate structures becomes nowadays an important consideration for all investors who wish to maximize their after tax return on investments.  The global markets are becoming more demanding and the need for choosing the best structures that provide to investors the most tax effective means of consolidating their ownership in different enterprises becomes more imperative. Consequently, the location of holding companies represents an important consideration in any international structure and the investors should consider a number of factors before they finally decide on each holding company jurisdiction in order to achieve optimization of their profits.

The Cyprus holding company regime represents one of the most attractive regimes in the European Union as it provides a number of features to investors for achieving their goals.

The most important features of the Cyprus holding company regime are summarized as follows:

• Tax exemption of dividends received from abroad

Foreign dividends received by a Cyprus company are tax-exempted provided that no more than 50% of the paying company’s activities result directly or indirectly in investment income and the foreign tax burden is not significantly lower than the Cyprus tax burden.

• Tax exemption on disposal of securities

Profits arising from the disposal of securities are tax exempted from any tax in Cyprus provided that securities refer to the list of titles as these are included in the Inland Revenue’s relevant tax circular. Such titles include shares, bonds, debentures, options on titles, swaps on titles etc.

• No withholding tax on dividends paid to non-resident shareholders

Dividends paid by a Cyprus company to its non – resident shareholders are not subject to any withholding tax irrespective of their country of residence.

• Tax credit for foreign tax paid abroad

Tax credit is granted for any income received by a Cyprus company for which tax was suffered abroad provided that such an income is taxable under the Cyprus Tax Law. The tax credit is also provided irrespective of the absence of a Double Tax Treaty. It is noted that credit in respect of tax paid abroad cannot exceed the amount of tax payable in Cyprus in respect of the same source of income.

• Tax losses

Tax losses can be carried forward for setting off with future profits for a maximum period of five years whereas they can also be used for group relief provided that there is at least 75% holding either directly or indirectly.

• No thin capitalization rules.

However, there are certain indirect rules regarding the tax allowance relating to interest expenses associates with the acquisition of certain assets.

• Tax exemption of capital gains arising from the disposal of immovable property held outside Cyprus.

The same applies for any disposal of shares in companies holding immovable property abroad.

• Tax treaties with other countries

Cyprus has a comprehensive network of double tax treaties with more than forty countries whereas a significant number of such treaties are currently under negotiation with other countries thus providing to Cyprus companies an advantageous tax system for avoidance of double taxation.

• Tax free liquidation

No capital gains tax or income tax is payable upon liquidation of the Cyprus holding company itself.

It is obvious from the above, that Cyprus holding companies provide an effective tax vehicle for investors as they provide a favorable package for maximization of return as well as for providing an effective solution for the exit route of repatriation of profits. Setting up a holding jurisdiction is not always tax driven, but also is affected by other factors such as the stability of the business environment, the strategic location and facilities offered by the business system, the excellence and efficiency of the professional services offered as well as the compliance with the European Law and Directives. The Cyprus holding regime comprises all of the above factors thus making Cyprus an attractive jurisdiction for existing and potential investors.

15 Jul 2021

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

Main Provisions

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”.

Maritime Transport
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

Ship owners
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

Charterers
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).

Ship managers
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.

Additionally
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

10-year rule
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.

Economic benefits
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:

Example:

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

15 Jul 2021

The Cyprus Companies Law Cap. 113, allows the transferring of the seat of a Cyprus company out of the Republic at foreign jurisdiction.

There are two steps to be followed in order for a Cyprus company to re - domicile out of its jurisdiction:

• The consent of the Registrar of Cyprus and Official Receiver must be obtained
• The company must apply to a foreign country to continue its existence under the jurisdiction of that country, provided that the laws of that country permit it.

Procedure at the Registrar of Cyprus

An application must be prepared and submitted together with a statement of directors which shall contain:

• The name, incorporation number and registered office of the company
• The activities of the company
• The jurisdiction where the company shall re domicile along with the name and address of the relevant overseas authority
• The proposed name to be used for the continuation of the company outside Cyprus
• The date that it is proposed to establish the seat of the Cyprus company at the foreign jurisdiction.

Important note: The company's Memorandum and Articles of Association must contain a provision allowing the company to re - domicile out of Cyprus. If no such provision exist, then an amendment to the Memorandum and Articles of Association must be filed prior the re-domiciliation process.

Other formalities

The application for re-domiciliation must be approved by a special resolution of the company's members. The same special resolution must also approve the interim financial statements that were presented before the general meeting, showing the market value of the assets of the company.

The above mentioned special resolution together with the interim financial statements have to be filed at the Registrar of Companies in Cyprus. 

A statement of solvency has to be submitted by the directors of the company at the Registrar of Companies confirming that the directors are not aware of any matters that may negatively affect the solvency of the company within a period of three years.

Final steps

The Cyprus company is obliged to publish a notice of the special resolution in two local newspapers. Proof of publication must be filled at the Registrar of Companies in Cyprus within fourteen days from the publication date.

The Registrar of Companies in Cyprus will allow 3 months from the date of the publication prior giving its consent for the re-domiciliation out of the company so that any creditor will have time to submit an objection for the continuation of the company at a foreign jurisdiction.

Finally, the company must submit to the Registrar of Companies in Cyprus the certificate of continuation issued by the foreign country in order for the Cyprus Registrar to delete the company from the registry and issue the certificate of deletion.

As soon as the certificate of deletion is issued, the company is deemed that it is no longer a Cyprus company but acquires the jurisdiction of the foreign country.