Cyprus: The new Cyprus Tonnage Tax Scheme Added Benefits to the Merchant Shipping Community

Cyprus today is considered as an ideal centre for the establishment of ship owning and ship management companies. Mainly due to its strategic geographical position and good infrastructure, Cyprus is favoured for international shipping. Currently, Cyprus is ranked among the top ten most competitive shipping centres worldwide in terms of cost. The maritime industry is among the largest of the European Union while Cyprus is the biggest third party ship management centre in the EU. Despite the need to preserve the favourable merchant shipping regime under Cypriot legislation, the need for the revision of the Cypriot legislation arose as to comply with the European Union's guidelines on State aid to maritime transports.

Accordingly, the new tax regime, as pre-approved by the Cypriot Council of Ministers, obtained the green light by the European Commission on March 24. Respectively, the draft bill was unanimously approved by the Plenary Session of the Cypriot House of Representatives on 29 April 2010. The Cypriot Tonnage Tax Scheme aims to contribute towards the enhancement of the competitiveness of the Cypriot Merchant Shipping industry, by the adoption and implementation of motives for a wide range of shipping activities, while preserving compliance with the European acquis communautaire.

The new tax regime deviates from the Cypriot Income Tax Legislation by the introduction of a more competitive tonnage tax scheme. Accordingly, qualifying ship owners, qualifying ship charterers and qualifying ship managers are subject to tonnage tax, which is calculated based on the net tonnage of the vessels that they possess, charter or manage respectively.

In line with the above, qualifying ship owners are the owner of a Cyprus registered vessel, conditional upon the fact that such vessel qualifies as a qualifying ship and is engaged in qualifying shipping activities; the owner of a community vessel who has opted to be subject to tonnage tax, conditional upon the fact that such ship owner is a tax resident of Cyprus and the vessel is engaged in qualifying shipping activities; and the owner of a fleet of EU and non-EU registered vessels who has opted to be subject to tonnage tax, conditional upon the fact that such ship owner is a tax resident of Cyprus and the vessel is engaged in qualifying shipping activities.

Notwithstanding the above, a ship charterer is any legal person engaged in the chartering of vessels belonging to third parties in order to perform maritime transfers, who, among others, charters vessels by way of a bareboat, demise, time charter and so on. Cyprus tax residency and chartering of qualifying vessels engaged in qualifying shipping activities are among the preconditions for a ship charterer to qualify under the tonnage tax regime irrespective of whether such charterer charters Cyprus or EU registered vessels or a fleet of EU and non-EU registered vessels. Moreover, eligibility for the application of the tonnage tax system is also conditional upon complying with the fact that the tonnage of the ships chartered out may not exceed 75% of the total net tonnage of all ships chartered for more than three consecutive tax years. A 90% requirement is imposed where the ships chartered are EU registered and their ship management is exercised from the EU. It should be noted that charterers opting to be taxed under the tonnage tax system, must remain in the system for a period of at least 10 years.

A ship manager is any legal person rendering ship management services, whereby such services include crew management and/or technical management services. Respectively, such ship managers may qualify for the tonnage tax system if a number of preconditions are established, some of which are identified hereunder. Accordingly, the ship manager must be a Cyprus Tax resident rendering its services to qualifying vessels of any flag. Notwithstanding the above, the ship manager must maintain a fully fledged office in the Republic and employ qualified personnel (51% of which must be EU residents). Equally, the application of the tonnage tax regime is dependent upon the fact that at least 2/3 of the total tonnage of the qualifying vessels under management must be exercised from the territory of a Member State, irrespective of whether such ship management is exercised in the form of in-house management or is assigned to other ship management companies. Furthermore, from a tonnage perspective, at least 60% of the vessels under management must be, among others, EU registered and flagged. A qualified ship manager will be liable to 25% of the rate imposed to ship owners and ship charterers.

Furthermore, qualifying ships are the seagoing vessels, which have been certified under the applicable international or national rules and regulations and are registered in the ship register of any state, being a member of the International Maritime Organisation and the International Labour Organisation, which is recognized by Cyprus. A list of non-qualifying vessels is also provided for under the Law.

Qualifying shipping activities include any commercial business or activity which constitutes maritime transport, crew management or technical management of qualifying vessels. In line with the above, maritime transport, by definition, is limited to the carriage of goods and passengers, and includes ancillary services, including but not limited to hotel and catering services, entertainment activities, on board retail activities exercised on a qualifying vessel, and so forth. Activities such as towage, dredging and underwater wiring are also included.

Further to the above, all qualifying parties under the Cypriot Tonnage Tax Scheme, may also enjoy an income tax exemption on dividend income and interest income deriving from qualifying shipping activities, as well as for gains deriving from the alienation of ships.

This revised legislation obtained the prior approval of the European Commission for a 10 year period, on the grounds of state aid to the shipping industry and it complies with the EU regulations. This approval is considered as the most important accomplishment in the shipping area since the establishment of Cyprus. Despite the fact that the revised legislation provides for a more competitive tonnage tax regime, it expressly limits its scope of application to qualifying vessels and activities. Accordingly, nondesignated vessels and/or shipping activities are subject to tax under the ordinary corporate income tax rate of 10%.

In addition to the modernised tax scheme, it is worth mentioning that Cyprus offers a lot of advantages to the shipping industry such as a full exemption from exchange control restrictions for non residents, no taxes on the crew salaries, no stamp duties on mortgage documents, strategic geographic location which makes it easier to contact business, easy accessibility, non discriminating legal system and others.

Such beneficial developments in the area of merchant shipping are expected to increase Cyprus's shipping industry activities as well as the number of ships and shipping companies registered in Cyprus.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.