Cyprus: Cyprus Shipping Industry : Business As Usual. Why Despite Recent Events Cyprus Remains An International Maritime And Major Ship Management Centre

Last Updated: 3 July 2013
Article by Esme Palas

Today, as a member of the European Union, Cyprus remains an optimal business base. It is one of the most attractive locations for foreign investments worldwide. Foreign companies have been given the opportunity to invest and establish business in Cyprus on equal terms with local investors as no distinction is made between foreign and Cypriot companies.

Despite its small geographical size Cyprus has developed into a major ship management centre attracting foreign ship owners and ship management companies through the highly favourable tax provisions available to them on the island as well as many other non fiscal advantages offered to this sector. These shipping entrepreneurs have helped develop the island into a fully-fledged shipping centre combining both a sovereign flag and a resident shipping industry which is renowned for its high quality services and standards of safety.

Cyprus has an open registry allowing non Cypriot citizens to register ships under the Cyprus flag.
The recent agreement reached between the Eurogroup and the Cypriot authorities on the key elements for a future macroeconomic adjustment programme and in relation to the commercial banks in Cyprus, have not affected the Shipping sector. The Department and the Registrar of Cyprus ships have been and will continue to operate as usual according to the Ministry of Communications and Works announcement of the 27th of March 2013.

As the announcement explains, the reason for this is that the Cyprus tonnage tax system is 'locked' for ten years. Unlike the other tonnage tax schemes, the Cyprus scheme is one of the schemes for which the European Commission has determined that it complies with the European Union State Aid Policy. The situation which has emerged has no direct or indirect effect on the Cyprus tonnage tax scheme. The main reason for this is that although the Cyprus flag fleet ranks amongst the 10 largest in the world, the banks in Cyprus, historically, have not been active in ship financing. Thus the recent developments are not affecting and have had no impact on the financing of Cyprus ships.

Advantages of Registering a  Cypriot Shipping Company:

  • An advanced maritime infrastructure with two deep sea multipurpose ports in Limassol and Larnaca;
  • Sound International Relations;
  • The Harmonisation with The EU acquis expedited the modernisation of the Cyprus maritime legislation in the fields of maritime safety and security;
  • Cyprus is fully harmonised with all international instruments currently in force as well as with the regulations and directives of the EU and as a result the Cyprus flag has turned into a flag of quality which has attracted high quality tonnage;
  • Recognition of Competence certificates from many countries.

The Cyprus ship registry which ranks 10th amongst international fleets is continuously upgrading its services in order to offer a high standard of support to international shipping and a reputation of a flag of progress:

  • Easy deletion from the Cyprus Ship Register;
  • Low Ship Registration Fees;
  • Low set up and operating costs of companies;
  • Anonymity of beneficial owners through nominee or trustee shareholder;
  • Low Corporate tax rate at 12,5%;
  • Efficient and modern legal accounting and banking services with highly educated, qualified and multilingual personnel;
  • Availability of competent multilingual local employees;
  • Low operation and construction costs;
  • Cyprus is signatory to numerous international maritime conventions with over 40 double taxation treaties in effect and more under negotiation;
  • There is a liberal foreign direct Investment Regime allowing up to 100% foreign participation in most sectors of the economy;
  • Bilateral Agreements of cooperation in Merchant shipping with 23 countries including major labour supplying countries;
  • Advanced telecommunications network and easy access by air and sea;
  • No exchange control and freedom of movement of foreign currency;
  • VAT exemption for international transport services when the effective use and enforcement of the services takes place outside the EU.

All the above have prompted the establishment by many European entrepreneurs of local companies with fully fledged offices on the Island.

FISCAL INCENTIVES

There is an extremely favourable taxation regime and fiscal benefits available for ship-owners, crew members and ship management companies:

  • No Estate duty on inheritance of shares in a ship owning company;
  • No income tax on the emoluments of officers and crew on board of a Cyprus Ship;
  • No stamp duty on ship mortgage deeds or other security documents;
  • No Capital gains tax for Cyprus registered ships on the sale of a Cypriot vessel or transfer of shares in a Cypriot ship owning Company;
  • No tax on profit from the operation or management of a vessel registered under the Cyprus flag or shares in a ship owning company.

The greatest advantage of Cyprus is considered to be the special taxation regime for shipping companies: Ship-owners, charters and ship managers participating in the Cyprus tonnage tax system are exempted from 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.

The new Cyprus tonnage system for Cyprus Merchant Shipping was approved by the European Commission in March 2010 as complying with the requirements of the EU acquis in accordance with the relevant guidelines on State Aid to Maritime Transport. It has many benefits for ship-owners, charterers and ship managers.

It is a very significant development for the shipping industry because firstly it simplified the tonnage tax system which was approved by the European Commission and secondly Cyprus is the only EU member state with an open registry which has received the approval of such a tonnage tax system. Under this new Tonnage Tax System qualifying owners of Cyprus and foreign ships, charterers and ship managers who opted and are accepted to be taxed under the TTS are subject to an annual tax referred to as tonnage tax which is calculated on the basis of the net tonnage of the qualifying ships they own or charter.

The New Tonnage Tax System provides favourable tax provisions for:

  1. Owners of Cyprus flag vessels;
  2. Owners of foreign flag vessels;
  3. Charterers from any jurisdiction;
  4. Ship managers that provide crew and or technical ship management services.

Provided that they own, charter or manage a qualifying ship in a qualifying ship activity (defined as any commercial business activity which constitutes maritime transport or crew or technical management of a qualifying ship) and are tax residents in Cyprus.
Whoever chooses to enter the Tonnage Tax System is not obliged to pay income tax and they have to pay tonnage tax.

Ship-owners of Cyprus flagged vessels are admitted to the Tonnage Tax System automatically as it is obligatory. Whereas the ship-owners of foreign flagged vessels the charterers and the ship managers have an option either to be admitted to the tonnage tax system or to be taxed on corporate tax currently at 12,5%.  If admitted to the Tonnage Tax system they shall have to remain in it for a period of 10 years from the date of admission.

Tonnage tax is calculated on the net tonnage of the vessel according to a broad range of bands and rates that are prescribed in the legislation. The rates applicable to ship managers are 25% of those applicable to ship-owners and charterers.

When the new Tonnage Tax System is chosen the following income tax exceptions apply that provide that notwithstanding the provisions of the Income tax laws or any other Law in force in the Republic no tax shall be charged, levied or collected upon the following:

  • Income of a qualifying owner/charterer derived from the operation of a qualifying ship in a qualifying shipping activity;
  • Income of a qualifying ship manager from the rendering of crew and /or technical management services (ship management) to a qualifying ship;
  • Profit dividends paid to shareholders directly or indirectly.
  • From the operation/ship management of a qualifying ship or from the sale of a qualifying ship (only the owners).

Bank Interest earned on working capital or shipping revenue provided that the said working capital or shipping revenue is used by a qualifying:

  • Owner to pay expenses for the financing and/or operation and/or maintenance of ship;
  • Charterer to pay expenses arising out of the charter party;
  • Ship manager to pay expenses relevant to the management of qualifying ships.

Income or profit made by a qualifying owner from the sale of a qualifying ship or from the sale of any shares in a qualifying owner entity that is the owner of a qualifying ship.

Given the considerable advantages offered to the Cypriot ship - owners and ship management companies it is not difficult to realise why a small island like Cyprus has grown to be one of the largest third party ship management centres in the world.

With at least 60 ship management companies operating in its territory Cyprus represents a large percentage of the world's ship management market and several of the largest management companies in the world operate out of this small island. In fact Cyprus appears to be amongst the top five countries and territories in the world with the largest number of third party ship management companies in its territory.

It can be concluded from the above that despite the recent challenges facing our small Island the Cyprus shipping industry has a huge potential for greater growth and expansion during the years to come, under the new image of a quality orientated and competitive shipping centre. Despite the limited number of cases where shipping companies have been affected by the banking system "the overall shipping operational and taxation infrastructure in Cyprus remains intact."

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 Mondaq.com.

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

Authors
 
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”

Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (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 www.mondaq.com

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 Mondaq.com’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.

Disclaimer

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.

Registration

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 unsubscribe@mondaq.com 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.

Cookies

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.

Links

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.

Mail-A-Friend

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.

Security

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 webmaster@mondaq.com.

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 EditorialAdvisor@mondaq.com.

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 enquiries@mondaq.com.

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