The Merchant Shipping (Fees and Taxing Provisions) Law of 2010 (the Tonnage Tax Law) left certain issues of detail to be determined by the Cyprus Department of Merchant Shipping. The Department has now issued Notifications setting out the arrangements for payment of tonnage tax by owners of ships on the Cyprus Register, the definition of Community ship for the purposes of the Tonnage Tax Law and the towage and dredging activities which qualify for taxation under the tonnage tax regime.
The Taxation of Owners of Cyprus Ships Notification of 2010
Tonnage tax of Cyprus ships pursuant to section 9 of the Tonnage Tax Law is payable annually in advance to the Department of Merchant Shipping, no later than 31 March in each year. The first annual fee under section 4 (2) of the Tonnage Tax Law is payable to the Department in advance on registration of the ship in the Cyprus Register. For subsequent years the fee is payable together with the tonnage tax of the ship. These arrangements apply to owners of ships on the Cyprus Register, for which the tonnage tax system is mandatory. Arrangements for payment of tonnage tax by other qualifying businesses have not yet been announced.
The Tonnage Tax (Definition of Community ships) Notification of 2010
The Notification defines Community ships for the purposes of the Tonnage Tax Law as comprising ships registered on the primary registers of Member States of the European Union and of the European Economic Area/EFTA States (Norway, Iceland and Liechtenstein) together with ships on the following registers:
- the Danish International Register of Shipping (DIS);
- the German International Shipping Register (ISR);
- the Italian International Shipping Register;
- the Madeira International Ship Register (MAR);
- the Canary Islands Ship Register;
- the French International Ship Register (RIF);
- the Norwegian International Ship Register (NIS);
- the Gibraltar Ship Register.
The Notification makes clear that the following registers are not included as registers of Community ships:
- the Kerguelen Register;
- the Dutch Antilles Register;
- the Isle of Man Register;
- the Bermuda Register;
- the Cayman Islands Register.
The Tonnage Tax (Towage and Dredging Activities) Notification of 2010
Towage and dredging activities qualifying for taxation under the tonnage tax regime are as follows:
- An ocean going tug qualifies for tonnage tax, provided that it is a Community ship and during the length of a particular fiscal year, it spends at least 50% of its yearly operational time in towage or salvage activity at sea. Waiting time in respect of a particular activity is treated as time during which the tug is used for that activity.
- Tugs used exclusively to assist ships or other floating structures into and out of a port or for their movement within the confines of a port area or to tow barges on inland waters or in estuaries do not qualify for the tonnage tax scheme.
- Tugs used for the purposes of raising wrecks and wreckage are qualifying ships. It should be noted that any profits from the sale of salvaged goods will be taxed separately under the Income Tax Laws of 2002 to 2010.
- Anchor handling tug supply (AHTS) vessels will be examined on a case by case basis.
- Self-propelled Community ships constructed or adapted for the carriage of sand or aggregate from the seabed will be eligible for the tonnage tax scheme provided they spend at least half their yearly operational time as a qualifying dredger. The operational time of a dredger includes travelling to the dredge site, winning the dredged material and subsequently transporting it for unloading. The dredge site must be at sea.
- Shipmanagement activities in respect of ocean going tugs and dredgers qualify for the tonnage tax scheme irrespective of the proportion of the vessel's time engaged in qualifying activities.
We shall report on further Notifications as they are issued.
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.
