Cyprus Shipping and Ship Management companies 25 Aphrodite Street, P.O. Box 26026, 1666 Nicosia Cyprus Tel: +357 22 768 749 Fax: +357 22 761 657 Email: elena.hajiroussou@ehrlawoffice.com
Introduction Cyprus has developed into a major shipping centre and its importance in the shipping world is evidenced by the fact that Cyprus ranks sixth internationally as a Maritime Country and is a member of the International Maritime Organisation (IMO). The double tax treaties concluded by Cyprus and the numerous bilateral agreements as well as the tax benefits given to ship owners, have contributed to the expansion of the Cyprus Shipping Registry, in terms of number of vessels as well as gross tonnage. Furthermore, the accession of Cyprus to the European Union is expected to further boost the registration of vessels in the Cyprus Registry, as Cyprus will effectively be the only Open Registry in the European Union. There are three main ways in which Cyprus is being utilized by the international shipping community, by either establishing: A Cyprus shipping company owning/bareboat chartering Cyprus flag ships and benefiting from a zero taxation regime and a low tonnage tax regime, or; A ship management company offering full management services to ship owners worldwide including chartering, crewing, ship broking and similar activities and benefiting from an option to be taxed EITHER on a 4,25 % tax on their net earnings OR a tax rate equal to one quarter of the tonnage tax rates which the vessels under management would pay if they were under Cyprus flag, or; A Cyprus international business company, generating profits from shipping activities of ships under non-cyprus flag, taxed at 4,25 % ( for the fiscal year of 2005) and 10 % thereafter ( as of 1st of January 2006). The Cyprus Shipping Company The company is registered as a private company with limited liability (limited by shares) under Cyprus Companies Law.
- Tax and other benefits to Shipping Activities: No income tax is payable on the profits derived from shipping activities by a Cyprus shipping company which owns or bareboat charters ships under the Cyprus flag. A very competitive annual tonnage tax (Cyprus is considered to be among the most competitive shipping centers in the world in this respect). For the tonnage tax calculation please see Appendix I. No capital gains tax is payable on the sale or transfer of a ship or shares in a shipping company. No income tax is payable on the salaries of officers and crew of Cyprus ships which operate in international waters. No stamp duty is payable on bills of sale and mortgages on ships and related documents. Ship Management Companies Ship management companies are finding Cyprus increasingly attractive as a base for managing ships under various flags. These companies offer full management services to ship owners worldwide and are engaged in chartering, crewing, ship broking and similar activities. In order to encourage the establishment of ship management companies and other shipping headquarters in Cyprus, the existing legislation grants such companies and their foreign employees various tax advantages and other incentives. - Tax advantages Law 73(I) of 1999 amending The Merchant Shipping (Fees and Taxing Provisions) Laws 1992-1999, introduced a new taxation regime of ship management services rendered by Cyprus ship management companies which applies both to international business companies and local companies. The main characteristics of this new regime are the following: The new taxation regime covers three types of accepted ship management services, i.e. crewing, technical and commercial management of ships, rendered under a contract with the owner or bareboat charterer of a ship, by persons who have an office in Cyprus manned with sufficient personnel in number and qualifications. Ship management companies are taxed in accordance with the provisions of the Merchant Shipping (Fees and Taxing provisions) Law, unless they select to be taxed for a specific tax year in accordance with the provisions of the Income Tax Law.
The interested persons may make the election with a written notice addressed to the Department of Merchant Shipping with a copy to the Commissioner of Income Tax (Department of Inland Revenue). For a specific fiscal year, the notice must be submitted at least 30 days prior to the 1st January of the relevant fiscal year, and will remain in force until withdrawal in the same way. Cyprus ship management companies therefore have the option to choose one of the two tax regimes listed below under which their income will be taxed in any given fiscal year: Either in accordance with the provisions of the Income Tax Law, any income arising from the provision of ship management services is subject to a special tax rate of 4,25%. Or in accordance with the provisions of the Merchant Shipping (Fees and Taxing Provisions) Law, and for the period ending 31 December 2020, any income arising from the provision of the ship management services is subject to a tax rate equal to 25% of the tonnage tax rates of the vessels under management. For the calculation of the tonnage tax please refer to Appendix I. This tax is applicable to all vessels under management (i.e. Cyprus flag or foreign flag vessels) and is calculated based on the annual tonnage tax these vessels would have to pay if they were registered in the Cyprus Register of Ships. This tax on ship management services is not applicable in the case of Cyprus ships which by virtue of section 8(3) (b) (i) of the Law, are entitled to a 30% reduction on the annual tonnage tax payable by their ship owners, provided that their technical and crewing management is entirely contracted to a Cyprus ship management company. In accordance with the same legislation, no tax will be withheld from dividends distributed out of profits generated from ship management activities and no tax is imposed on the recipient shareholders in respect of these dividends.
Appendix I Tonnage tax For vessels other than passenger ships the tonnage tax is calculated as follows: (BASIC CHARGE + GROSS TONNAGE INCREMENT) x AGE MULTIPLIER The basic charge is CY 100 and the gross tonnage increment is calculated as follows: Gross Tonnage Cyprus Cents * For each unit up to 1.600 26 For each additional unit between 1.601-10.000 16 For each additional unit between 10.001-50.000 6 For each additional unit over 50.000 4 * As of October 15th 2004, 1 Cyprus cent = 1.7 Euro Cents The age multiplier is shown below: Age ** Ship Rate Multiplier Up to 10 years 0,75 11-20 years 1,00 Over 20 years 1,30 ** This is calculated by taking the year in which the keel was laid and then deducting it from the year of assessment of the tonnage tax. For Passenger Ships For passenger ships the tonnage tax payable is double that payable for other vessels. Reduction of Tonnage Tax Section 8 of the Merchant Shipping (Fees and Taxing Provisions) Laws, 1992-2003 provides for the reduction and refund of the tonnage tax in the cases listed below. Technical Management And Crewing By Cypriot Companies If the vessel s technical management and crewing is carried out by Cypriot ship management companies operating in Cyprus, a 30 percent reduction of the tonnage tax is allowed provided that the relevant documentary evidence is submitted to the Department of Merchant Shipping in advance of the period for which the reduction is claimed.
Cypriot Crew Members If members of the crew of the vessel are Cypriot citizens, a percentage of the tonnage tax paid by that vessel may be refunded for each month they are employed on board the vessel, as follows: for vessels other than passenger ships - officers and cadet officers: 2,5 percent for each month of actual employment on board, ratings: 1,5 percent for each month of actual employment on board. in the case of passenger ships the above rates are reduced by 50 percent. The Cypriot seafarers employed must be duly qualified for the post they hold on board. The tonnage tax may be refunded on the application of the owner of the vessel who should submit relevant documentary evidence attesting the employment of Cypriot citizens on board his vessel. Laid Up Ships If the ship is laid up for a period of more than 3 consecutive months the tonnage tax payable is reduced by 75 percent for the period during which the vessel is laid-up. The maximum reduction or refund of tonnage tax described above cannot exceed 50 percent of the tonnage tax due. Our Shipping Law Services We have substantial experience in registering Cyprus shipping companies and vessels under the Cyprus flag. For further information, please contact Mrs Elena Hajiroussou Advocate 25 Aphrodite Street Nicosia, 1066 Cyprus Tel: +357 22 768 749 Fax: +357 22 761 657 Email: elena.hajiroussou@ehrlawoffice.com www.ehrlawoffice.com Elena Hajiroussou Law Office 2005 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of Elena Hajiroussou. The information provided in this publication does not constitute legal or investment advice and no responsibility is accepted for any loss occasioned directly or indirectly as a result of persons acting, or refraining from acting, wholly or partially in reliance upon it.