Cyprus: An Introduction to Cyprus’ Maritime Industry

Last Updated: 8 October 2010
Article by Margarita Hadjitofi

Cyprus has become a leading forum in the international maritime industry mostly due to the attractive tax system for ship owners and ship managers and due to its ratification of major international maritime conventions.

Maritime Authority in Cyprus

The competent authority in Cyprus for maritime activities is the Department of Merchant Shipping within the Ministry of Communications and Works (the 'DMS'). The maritime activities included under the authority of the DMS are, the registration of vessels and registration of mortgages of vessels carrying the Cyprus flag.

Registration in the Register of Cyprus Ships

A vessel registered in the Register of Cyprus Ships will carry the Cyprus flag. A vessel may only be registered in the Register of Cyprus Ships if:

  1. more than 50% of the shares of the ship are owned by a Cypriot citizen or by citizens of another European Union member country who have appointed representatives in Cyprus in the event they are not Cyprus permanent residents; or
  2. 100% of the shares of the ship are owned by one or more companies which have been established and operate (a) in accordance with the laws of Cyprus and have their registered office in Cyprus or (b) in accordance with the laws of any other European Union member country and have their registered office, central administration or principal place of business within the European Economic Area and which will have either appointed an authorised representative in Cyprus or the ship is managed by a Cypriot or a Community ship management company having its place of business in Cyprus or (c) outside Cyprus or outside any other European Union member country but controlled by Cypriot citizens or citizens of European Union member country1 and have either appointed an authorised representative in Cyprus or the management of the ship is entrusted in full to a Cypriot company or a company of the European Union having a place of business in Cyprus.

Types of Registration

Vessels of any size and type may be registered in the Cyprus register of ships or the special register of parallel registration provided they comply with certain requirements contained in Law 45/1963 governing the registration, transfer and mortgages of vessels (the 'Law'). A vessel may be provisionally registered under the Cyprus flag or permanently registered2 under the Cyprus flag. Under the Law, it is possible for a foreign flagged vessel to be registered in parallel in the Cyprus ship register under the Cyprus flag ('Parallel In' registration) and it is possible for a Cyprus flagged ship either provisionally or permanently registered to be registered in a foreign register ('Parallel Out' registration) subject to the laws of the foreign country permitting parallel registration.

Registration of Mortgages

A mortgage for the securitisation of a loan created on a vessel which carries the Cyprus flag (either provisionally or permanently registered) must be registered in the Cyprus register of ship held by the DMS. A mortgage of a vessel registered 'Parallel In' in the Cyprus register of ships may not be registered in Cyprus pursuant to the Law.

Further, in accordance with the Cyprus Companies Law Cap.113 a mortgage on a vessel3 owned by a Cyprus company for the securitisation of a loan must be registered at the Cyprus registrar of companies within 42 days from the date of the creation of the mortgage in order to perfect the mortgagee's interest and to ensure, the mortgage is legally recognised against a liquidator or creditors of the Cyprus company and the mortgagee receives the priority it is entitled to pursuant to the mortgage created.

Tax on Ship Owners

Pursuant to a recent amendment of the tonnage tax regime, the following persons/entities with the exception of owners of vessels registered in the Cyprus register of ships now have the option to select to be taxed either under the Income Tax Law or under the tonnage tax regime:

  1. Ship owners registered under the flag of a European Union country or a country of the European Economic Area member state and are tax residents of Cyprus;
  2. Owners of fleet (being two or more ships belonging to the same company or group of companies) of a country of a European Union country or a country of the European Economic Area;
  3. Charterers of ships or fleets either of a country of a European Union country or a country of the European Economic Area; or
  4. Ship managers providing technical and/or crewing services in respect of qualifying ships.

The owner of a vessel registered in the Cyprus register of ships will be mandatorily taxed under the tonnage tax regime without the opportunity of selecting the regime.

The rates of tonnage tax for owners and charterers of vessels range from Euro 36.50 for every 100 tons for vessels with a net tonnage of up to 1.000 tons and Euro 12.78 for every 100 tons for vessels with a net tonnage in excess of 40.000 tons. Ship managers are liable to pay 25% of the above rates.

Stamp Duty

In accordance with the Stamp Duty Law4, contracts or other documents relating to the sale, transfer or mortgage of vessels registered in the Cyprus register of ships are exempt from payment of stamp duty to the commissioner for stamp duty.

Footnotes

1. The company is deemed to be controlled by Cypriot citizens or citizens of other European Union countries when more than 50% of its shares are owned by Cypriots or citizens of other European Union countries or when the majority of the directors of the company are Cypriot citizens or citizens of other European Union countries.

2. The permanent registration of a provisionally registered vessel must be effected within 6 months from the date of provisional registration.

3. whether or not the vessel is registered in the Cyprus register of ships and therefore carries the Cyprus flag

4. Law 240/1963

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.

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