Shipping in Cyprus

• No tax on qualifying shipping activities other than the “Tonnage Tax”
• No tax on shipping profits made from qualifying shipping activities including profits from the sale of qualifying ships
• No tax on dividends paid out of profits made from qualifying shipping activities
• No tax on wages or benefits of seafarers on qualifying Cyprus Flag ships
• Allows split of activity between ship-management activities (crewing or technical)
• Allows mixed activities within a company/ group of companies (shipping subject to TT and the other activity is subject to 12,5% corporation tax)

Cyprus Tonnage Tax System – Rates

	Ship-owners & Charterers	Ship-managers
Units of Net Tonnage	€TT per 100 units	€TT per 400 units
0-1.000	36,50	36,50
1.001-10.000	31,03	31,03
10.001-25.000	20,08	20,08
25.001-40.000	12,78	12,78
>40.000	7,30	7,30

Notes:

The regime covers qualifying persons performing qualifying activities in relation to qualifying vessels.

Qualifying persons are ship-owners, charterers (bareboat, demise, time and voyage) and ship-managers providing technical and/ or crewing services.

Qualifying activity for ship-owners and charterers means maritime transport of goods or people between Cyprus ports and foreign ports/ offshore installations, or between foreign ports or offshore installations and specifically includes towage, dredging and cable laying

 

Cyprus Tonnage Tax System – Ship ownership

• The Tonnage Tax (“TT”) regime applies to any owner of qualifying vessel:
• Cyprus Flag Vessels

EU/ European Economic Area (EEA) flag vessels that exercised the option to be taxed under the TT regime and which are owned by a tax resident company in Cyprus

Fleet of EU/ EEA and non EU/ EEA vessels that exercised the option to be taxed under the TT regime and which are owned by a tax resident company in Cyprus

• The legislation allows non EU/ EEA vessels to enter the TT regime provided the fleet is composed by at least 60% EU/ EEA vessels.

• If the above requirement is not met, the non EU/ EEA vessels may still qualify if certain criteria are met.

• Where an option is exercised to enter the TT system, the ship-owner must be a Cyprus tax resident and the option must remain in force for a least 10 years

The tax exemptions for owners covers:

• Profits from the use of a qualifying vessel
• Profits from the disposal of a qualifying vessel and/or share and/or interest in it
• Profits from the disposal of shares in a shipowning company
• Dividends paid out of the above profits at all levels of distribution
• Interest income relating to the financing/maintenance/use of a qualifying vessel and the working capital, excluding interest on capital used for investments

Cyprus Tonnage Tax System – Ship chartering

• The option applies for ALL vessels (Cyprus/ EU/ EEA/ fleet) chartered under bareboat, demise time, voyage charter, provided the charterer is a legal person and a tax resident in Cyprus.

• If the election is not made, profits are taxable under 12,5% corporation tax.

• The fleet qualifying criteria are the same as for ship-owners and so is the minimum 10-year duration that should be applicable.

The tax exemptions for owners covers:

• Profits from the use of a qualifying vessel
• Dividends paid out of such profits at all levels of distribution
• Interest income relating to the working capital/ qualifying activity provided such interest is used to pay expenses arising from the charter, excluding interest on capital used for investments (interest used for business purposes)

Cyprus Tonnage Tax System – Ship management

• The rates applicable to ship managers are 25% of those applied for ship owners and charterers. If the choice is not made, profits are taxable under 12,5% corporation tax.

• The fleet qualifying criteria are the same as the ship-owners/ charterers as so is the minimum 10-year duration.

• Ship-managers are required to meet some additional criteria, as follows:

The ship-manager is obliged to maintain a fully-fledged office in Cyprus employing personnel with sufficient knowledge/skills and qualifications

At least 51% of all onshore personnel must be EU/ EEA citizens

At least 2/3 of the total tonnage under management must be managed within the EU/ EEA (any excess of 1/3 taxed under 12,5% corporation tax)

All ships 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 etc.

Ship managers performing technical management services must be certified under the ISM code.

• The tax exemption for ship-managers covers:

Profits from technical and/ or crew management

Dividends paid out of the above profits at all levels of distribution

Interest income relating to the working capital/ qualifying activity provided such interest is used to pay expenses relating to ship-management, excluding interest on capital used for investments (interest for business purposes)

The tax exemptions for crew covers:

• The salary or other benefits from the employment of the master, the officers and other crew members of a qualifying Cyprus flag ship (including ships under “parallel” registration) are not subject to tax in Cyprus.

Ship registration

• A ship may be registered in Cyprus once it fulfils one of the following criteria:

More than 50% of the shares of the ship must be owned by Cypriot citizens or by citizens of Member States of the EU or EEA who, in the instance of not being permanent residents of the Republic, will have to appoint an authorized representative in the Republic of Cyprus; or

The total (100%) of the shares of the ship must be owned by corporations which operate in accordance with the laws of Cyprus and have their registered office in Cyprus, or they operate in accordance with the laws of any other EU or EEA Member State and have their registered office, central administration or principal place of business within the EU or the EEA, or are controlled by Cypriot citizens or citizens of a Member State.

In both of the latter cases, they must have either appointed an authorized representative in Cyprus or the management of the ship must be entrusted in full to a Cypriot ship-management company in Cyprus.

An authorized representative (as referred above) may be a Cypriot citizen or a citizen of any other Member State, who is resident in the Republic, or a partnership / corporation / branch established in accordance with the laws of Cyprus, which has its place of business in Cyprus and which employs permanent employees in the state (all non-European owners who wish to register their ships under the Cyprus flag may incorporate a company in Cyprus, which will either acquire the ship in its name, or bareboat charter the ship).

Ship registration fees:

For vessels other than passenger ships:
GROSS TONNAGE	FEES (€)
For each gross unit up to 5.000	0,170860
For each gross unit between 5.001 – 10.000	0,136688
For each gross unit over 10.000	0,068344
The minimum fee is €213,58 and the maximum fee is €5.125,80

For passenger ships:
GROSS TONNAGE	FEES (€)
For  each gross unit	0,256290
Minimum fee	427,15

 

Cypriot Tax System – Overview

• Extremely favorable corporation tax of only 12,5% which is one of the lowest within the territory of EU
• Extensive double tax treaty network (which can provide reduction or exemption from withholding tax over interest payments made to creditor companies established in such countries by debtors of such companies)
• Access to EU Directives
• Bilateral Agreements of Cooperation in Merchant Shipping with 28 countries
• Generally, there is no controlled foreign corporation (CFC) legislation
• No thin-capitalization rules (funding by high debt/ equity ratio possible)
• Tax neutral reorganizations for both EU and non-EU group companies
• Stamp duty exemption on contracts related to Cyprus flag vessels
• Low transaction taxes
• IP Box regime with effective tax rate of 2,5% on qualifying assets
• Tax incentives for non-Cyprus tax residents (expatriates) taking up employment in Cyprus:

20% exemption of the employment income capped at €8.550 for an employee who was non-Cyprus tax resident before the commencement of the employment in Cyprus (applicable for 5 years for employments which started in 2012 and thereafter)

50% exemption of the employment income for an employee whose salary exceeds €100.000 per annum (applicable for 10 years)

• Exemptions from corporation tax:

Dividend income (subject to easily met conditions)

Profits from foreign permanent establishments (subject to conditions)

Profits generated from transactions in titles (including shares, bonds, debentures etc.)

Profits from disposal of vessels

• Exemptions from withholding tax on the repatriation of income in the form of:

– dividends
– interest
– almost all royalties

• ‘Non-dom’ rules introduced for Cyprus tax residents not domiciled in Cyprus, which exempt them for any Special Defence Contribution (SDC) payable on interest, dividends and rental income derived from sources within or outside Cyprus.
• Distribution of profits to non-resident shareholders is completely tax-free
• Tax losses can be carried forward for five years following the end of the financial year under consideration
• Losses incurred abroad by a permanent establishment of a Cyprus company can be offset against profits of the Cyprus Company
• Group relief of tax losses between a Holding Company and its Subsidiaries (subject to certain conditions been satisfied)
• EU Interest and Royalty Directive can provide exemption from withholding tax over interest payments between affiliated EU-companies

Key benefits offered by Cyprus

• The island serves an effective gateway to Europe, Asia, Africa and the Middle East
• EU full membershipwith many essential fiscal benefits
• Fully compliant with EU and OECD rules
• Strong European influence on the values, the cultural, political and social life of its citizens
• A highly respectable and entrepreneurial business environment with fast-growing economy
• Sophisticated financial and business infrastructure
• Stable political environment
• Sound legal framework
• Efficient and reliable audit, accounting, tax, consulting, financial and banking services
• The regulatory environment is transparent and sound
• Highly skilled and educated professionals with specialization in the finance industry
• Comparatively low set-up and maintenance costs for international business entities
• Competitive ship registration costs
• Attractive legislative and operational shipping infrastructure
• Extensive port facilities
• Provision of high quality services by the Department of Merchant Shipping and other related organisations
• Favourable social and financial conditions for people considering relocating to Cyprus
• Enviable quality of life
• Pleasant climate throughout the year
• Well-developed telecoms and infrastructure
• Crime rates are very low and the sense of safety and security is quite high across the country.