Cyprus throughout the ancient and modern history has been one of the most important shipping centers in the world. Cyprus centered geographical position between three continents (Asia, Europe and Africa) has proven over the years to be a convenient hub for ship and shipping company registration.
Cyprus also administers a major international registry within the European Union and controls one of the world's largest merchant fleets. This presently comprises 1.857 ocean going ships of total gross tonnage 21 million.What is the Legal Framework of a Cyprus Shipping Company?
The law governing Cyprus Shipping companies is the Companies Law, Chapter 113, as amended.
The Law governing the registration of ships under the Cyprus flag is the Merchant Shipping (Registration of Ships, Sales and Mortgages) Law 1963 to 2005 (Law No 45 of 1963, as amended), which legislation is essentially based on the English Merchant Shipping Acts 1894-1954. The Merchant Shipping (Masters and Seamen) Laws, 1963 to 2002 (Law No 46 of 1963, as amended) and the Merchant Shipping (Fees and Taxing Provisions) Law 2010 (Law 44(I) of 2010), are the other principal merchant shipping laws.
Cyprus has ratified the major international conventions on maritime safety and security, prevention of pollution of the sea, training, certification and watch keeping of seafarers and limitation of shipowners’ civil liability and conventions on maritime labour. Cyprus is also a party to the Convention on the High Seas, 1958 and the United Nations Convention on the Law of the Sea, 1982.
Cyprus has also concluded a number of bilateral agreements on the avoidance of double taxation and on cooperation in the field of merchant shipping which provide, inter alia, fiscal advantages and incentives for effective tax planning and advantages in the engagement of foreign seafarers on board Cyprus ships.What is the legal status of a Cyprus Shipping Company?
The Cyprus Shipping Company is registered as a limited liability private company under the provisions of the Cyprus Company Law Cap.113 as amended.
A Cyprus Shipping Company can also be registered as a limited liability public company.What is the procedure to incorporate and administrate a Cyprus Shipping Company?
For the incorporation of the company, the filing of the memorandum and articles of association in Greek with the Registrar of Companies is required. The incorporation of the company is evidenced by the issue of a certificate of incorporation by the Registrar of Companies.
The following steps must be taken in order to register the Shipping Company:Memorandum of Association
The memorandum must contain the objects of the company, set out as widely as possible. These are the usual ones of a shipping company e.g. to own and operate vessels, borrow money, mortgage its vessel, etc.Name of the Company
The name of the Company in not necessary to contain the word “shipping” but we often recommend to do so.Shareholders
Minimum one shareholder is required for the incorporation and continued existence of a Cyprus Shipping company. The shareholder may be of any nationality and they may be residing outside the island. Beneficial shareholders
The trust relationship is recognized under Cypriot law both by statute and in equity. If so the client if he/she wishes to have anonymity, may appoint a nominee shareholder, who can be a person or a licensed company to act as the trustee. The relationship is governed through a trust deed which is made between the nominee shareholder and the ultimate beneficial owner (client).Directors
There can be minimum one appointed Director. The Director’s nationality is not relevant to the process.
However, for tax management reasons we always recommend to our clients to appoint as Directors a majority of Cypriot Tax Residents, in order the Shipping Company to be able to have the tax resident status and have the enticing Cyprus tax regime applied. Secretary
A company secretary must be appointed by the directors and can be removed by them. The nationality of the secretary is irrelevant and does not affect the tax residential status of the company in any way. However in order to be able the Company to comply with its annual obligations, it is always advisable the Secretary to be a Cyprus Company or a local person.
For example, this will ensure that all company annual returns are promptly signed and filed with the Registrar of Companies by the secretary and recorded. The director (but not a sole director), can also be the Secretary unless the company has more than one shareholder.How the Cyprus Shipping Companies may be utilized?
The Cyprus Shipping Companies may be used in various ways as described below:
What are the Tax and other benefits that the Cyprus Shipping Companies endure?
- Carry out Shipping Activities such as any commercial activity that constitutes maritime transport, crew management and/or technical management of ships.
- In accordance with the law the definition of maritime transport includes the:
- traditional carriage of goods and passengers, as well as
- ancillary services such as all hotel, catering, entertainment
- and retailing activities on board a qualifying vessel, the
- loading and unloading of cargo, the operation of ticketing facilities and passenger terminals.
- Towage, dredging and cable laying are also eligible for tonnage tax.
- Registration of Ships and small Vessels
- Leasing of Yachts (motor & sailing boats)
Special taxation for shipping companies: Shipowners, charterers and ship managers participating in the Cyprus tonnage tax system, are exempted from the income tax and any other tax or levy on dividends paid to shareholders, on interest earned on working capital and on any profit made from the sale of a qualifying ship.
Tonnage Tax System
- No income tax on the emoluments of officers and crew on board a Cyprus ship.
- No estate duty on the inheritance of shares in a shipowning company.
- No stamp duty on ship mortgage deeds or other security documents.
- VAT exemption for international transport services when the effective use and enjoyment of the services takes place outside the EU.
Cyprus has implemented in 2010 a very favorable new Tonnage Tax System (Law 44(I)/2010). Under this new system, qualifying owners of Cyprus ships are not liable to pay tax under the provisions of the Income Tax Law in force, but are subject to an annual tax referred to as tonnage tax which is calculated on the basis of the net tonnage of the ships they own as prescribed in the table below.
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 Merchant Shipping (Fees & Taxing Provisions) Law of 2010. The rates applicable to ship managers are 25% of those applied for shipowners and charterers.
Tonnage Tax Rates
Sample 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|
What are the provisions of the New Tonnage Tax System? 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 the International Labour Organization, which is recognized by Cyprus. The new tonnage tax system 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 non-ocean going tug boats, among others.Qualifying shipping activity
Any commercial activity that constitutes maritime transport, crew management and/or technical management is considered a qualifying activity.
The definition of maritime transport includes the traditional carriage of goods and passengers, as well as ancillary services such as all hotel, catering, entertainment and retailing activities on board a qualifying vessel, the loading and unloading of cargo, the operation of ticketing facilities and passenger terminals. Towage, dredging and cable laying are also eligible for tonnage tax.Shipowners
Shipowners of Cyprus flag ships automatically fall within the scope of the tonnage tax system. Shipowners of community flag ships and foreign flag ships may opt to be taxed under the tonnage system.
Shipowners of foreign flag ships must comply with certain requirements to qualify for the option to be taxed under the new system.
These include the requirement that a share of their fleet be comprised of EU flag ships, which share must not be reduced in the three year period following the exercise of the option (flag-share requirement) and that the commercial and strategic management of the fleet be carried out from the EU/EEA.
Any shipowner opting for the tonnage tax system 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 the ship owner was under the tonnage tax system and the amount that would have been paid had it been subject to corporation tax in the same period. In addition, the ship owner will lose the right to opt for tonnage taxation until expiration of the ten year period from the date the option was first exercised.
The tonnage tax system covers profits from shipping operations, dividends paid directly or indirectly out of such profits, profits on the sale of the ship and interest earned on funds used as working capital or for the financing, operation and/or maintenance of the ship.Charterers
Any charterer who charters a ship under bareboat, demise, time or voyage charter is eligible for the tonnage tax system provided 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 three consecutive years. This eligibility percentage increases to 90% if the ships chartered are EU/EEA ships or their crew and technical management are carried out from the EU/EEA. The charterers of a fleet comprising EU and non-EU flag ships must also comply with the flagshare requirement.
An eligible charterer may opt to be taxed under the tonnage tax system, but once the option is made, it must remain in the system for ten years. Early withdrawal will result in the penalties outlines above for ship owners.
The tonnage tax system covers profits from shipping operations, dividends paid directly or indirectly out of such profits and interest earned on funds used as working capital or for the payment of expenses arising out of the charter party.Ship managers
A ship manager who provides crew and/or technical ship management services is eligible for the tonnage tax system provided it satisfies certain criteria.
- the maintenance of a fully fledged office in Cyprus, and
- the employment of a sufficient number of qualified personnel (51% of whom should be EU/EEA citizens) and
- at least 2/3 of the management is entirely carried out from the territory of the EU/EEA. Further, and
- a share of his fleet must be comprised of EU flag ships, which share must not be reduced in the three-year period following the exercise of the option (flag-share requirement).
- All ships and crews under management must comply with relevant international standards, in particular those relating to maritime security, safety, training and certification of seafarers, environmental performance and on-board working conditions.
Other specific criteria must be complied with, depending on the ship management service provided (i.e. full implementation ofthe 2006 Maritime Labour Convention for crew managers and the ISM Code certification for technical managers).
The tonnage tax system covers profits from the provision of crew and/or technical ship management services, dividends paid directly or indirectly out of such profits and interest earned on funds used as working capital or for the payment of expenses relating to the management of the ships. The ten year option rule also applies to eligible ship managers and the same penalties apply for early withdrawal.Reduction of Tonnage Tax
Reduction of the tonnage tax is granted in the cases listed below:
Laid-up ships: If the ship is laid up for a period of at least three consecutive months the tonnage tax payable is reduced by 75% for the period during which the vessel is laid-up, provided that the Department of Merchant Shipping is duly notified not later than three months from the commencement of the lay-up period.
Inoperative ships: If the ship is rendered out of use for a period of at least three months due to its judicial arrest, or by act of piracy, or armed robbery, or by force majeure, then the tonnage tax payable is reduced by 75% for the period during which the vessel is out of use.