The Cypriot maritime industry is ranked third in terms of size in the EU and 10th worldwide. Moreover, Cyprus is the biggest third party ship management centre in the EU. Cleo Papadopoulou shipping tax partner, Liakos Theodorou partner responsible for the shipping industry and George Lambrou advisory services partner talk about the new Shipping legislation in this issue of Accounting and Reporting Magazine.
1 Why is Cyprus an attractive jurisdiction for the international shipping community? What advantages does Cyprus present?
Cyprus is an EU member country with highly educated, qualified and multilingual personnel , low set up and operating costs ,advanced telecommunications , modern and efficient legal, accounting and banking services. In addition there is a new specialised tax system for shipping companies which is managed from a dedicated specialised government department, the Department of Merchant Shipping.
The Cyprus Registry has shown significant growth over the last decades, not only in size but more importantly on the quality of the fleet and related services. The classification of the Cyprus flag in the "White List" of the Paris and Tokyo MOUs, as well as its exclusion from the "List of Targeted Flag States" of the US Coast Guard is a proof of this.
2 What advantages does the newly EU approved shipping tonnage tax scheme present? What improvements have been made?
The legislation is a major success for the Cyprus shipping industry and offers new opportunities. It introduces two new TT schemes applicable to shipowners of non- Cyprus flag vessels and for the first time to charterers. It also extends the application of the TT regime (and exemption from profits tax) currently enjoyed by shipowners and shipmanagers; amongst others, it grants exemption of interest received that relates to the working capital of the company and extends the exemption of the profit on sale of ships. Another important change is the fact that shipping companies whose income is all subject top tonnage tax, will now be completely regulated by the Department of Merchant Shipping and not the Income Tax Office.
3 How will this new tonnage tax scheme impact Cyprus as a shipping centre worldwide?
The new legislation places Cyprus in a very competitive position. Cyprus has become the only EU country with an EU approved TT system that:
provides for TT on the net tonnage of the vessels rather than Corporation Tax on the actual profits, regulated by the DMS rather than the Tax Authorities grants total tax exemption of profits tax and distribution tax at all levels allows mixed activities within a company/group (shipping subject to TT and other subject to 10% corporation tax) supports an open registry allows split shipmanagement activities (crewing or technical)
3a How can a shipping company/ group take advantage of the new Cyprus opportunities that have arisen?
Taking advantage of the opportunities offered by the new shipping legislation, does not necessarily entail complex group restructurings and transfers of mortgaged vessels that are difficult to implement. There are ways of achieving substantial tax savings such as changing the flag of vessels, redomiciliation/change of residence of existing companies, or amendment of the existing operations, that are easier and quicker to implement.
3b Can a Cyprus shipping company have non shipping income without affecting its shipping exemption? If yes, how is this taxed?
Absolutely and it is the only EU country that has an EU approved system that allows this. Such income is taxable at the lowest corporate tax rate in the EU (10%). The following general tax provisions in the Cyprus tax legislation, enhance the attractive shipping tax regime and render Cyprus an ideal location for the non shipping activities of shipping groups:
- General corporate tax rate of 10% (lowest in the EU)
- Full tax exemption on disposal of shares and similar titles
- Zero taxation on dividends received (subject to minor restrictions)
- Zero WHT on all payments of dividends, interest and royalties to non residents
- No CFC legislation
- No thin capitalisation rules
- Tax neutral reorganisations for both EU and non EU group companies
- Full adoption of all EU directives
- Extensive double tax treaty network 3c What are the tonnage tax rates?
- The law provides full exemption to shipowners, charterers and shipmanagers from all profit taxes and imposes tonnage tax on the net tonnage of the vessels at the following rates.
3c What are the tonnage tax rates?
The law provides full exemption to shipowners, charterers and shipmanagers from all profit taxes and imposes tonnage tax on the net tonnage of the vessels at the following rates.
4 What is the industry currently doing to stay ahead of competing jurisdictions such as Malta? What challenges do you see for the Cypriot shipping industry over the next year?
Emphasis is given on continuous improvement of the existing infrastructure , the incentives given to individuals and companies operating in the shipping industry and the enhancement of the reputation of Cyprus. Also to increase the number of Cyprus Maritime offices and inspectors, offering services to Cyprus ships worldwide. Cyprus is a signatory to all international maritime conventions and has bilateral agreements on Merchant Shipping with 23 countries and looking for more.
Of course the major challenge facing the industry in Cyprus is the continuous embargo on Cyprus ships by Turkey despite the attempts of the EU to stop this.
5 What services does PwC Cyprus offer to the shipping industry?
How are your services tailored to the needs of the industry? PwC is strategically positioned to understand the kind of changes that have and will profoundly affect the marketplace over the next few years.
We are also uniquely qualified to help you deal or prepare for these changes through our:
- our long and extensive expertise in the shipping industry
- clear market leadership position in Cyprus
- close cooperation with the PwC network across the Globe
Taking advantage of the opportunities offered by the new shipping legislation,does not necessarily entail complex group restructurings and transfers of mortgaged vessels that are difficult to implement. There are ways of achieving substantial tax savings such as changing the flag of vessels, redomiciliation/change of residence of existing companies, or amendment of the existing operations, that are easier and quicker to implement. The opportunities are there and we can help our clients capitalising them. Just give us the opportunity to show you how. We are passionate about our work.
We can help our clients with the provision of services from our industry specialists in the following areas:
- Tax planning, structuring and restructuring (legal, finance and operational structure)
- Registration of shipping companies (shipowning,charterers or shipmanagement)
- Registration of holding and/or finance companies
- Ship registrations, deletions, transfers and mortgages
- Maintenance and full compliance services of Cyprus registered companies
- Audit and assurance related services (IFRS technical advice)
- Floatation of shipping groups
- Operations and quality management for obtaining ISO 9000 certification
- Human resource advisory including full repatriation service for expatriates
- Payroll services and accounting outsourcing
- Provident fund services
- Business advisory services (corporate finance, valuations, mergers & acquisitions)
6 What is your opinion of Cyprus shipping?
Cyprus is already an established international and maritime centre within EU and globally with some of the worlds more prominent shipmanagement companies based and operating from Limassol. Despite Cyprus Ship Registry being an open registry, we have a large number of companies established in the Island with shipping related activities such as marine insurers , brokers ,suppliers etc. All the advantages mentioned above and commitment of the DMS and the private sector for high standard , efficient and qualitative service can only send positive and optimistic messages about the future of Cyprus shipping.
1. How has the recent changes to the investment funds legislation around UCIT's impacted Cyprus as a destination for investment funds, both mutual and hedge funds?
Since the adoption of the UCITS directives, the Cypriot fund market has concentrated its growth on non-UCITS funds based on the ICIS law. The number of UCITS funds has not progressed and assets under management of these funds have not shown any increase while the number of UCITS offered across borders in the EU has reached several thousands of funds.
The UCITS model is considered as 'gold-standard' both inside and outside the EU and UCITS funds have acquired large market share in third-country markets. This global acceptance of UCITS assisted by the safeguards built into the Directive, will need to be fully reflected in Cyprus. The UCITS framework in Cyprus is therefore not currently under strain as there are currently no UCITS funds domiciled in Cyprus. The new UCITS IV Directive will give Cyprus the possibility to start on a blank page and attract UCITS to be domiciled in the Republic. On the other hand, we believe that with the implementation of the new AIFM Directive which will allow remote set-up and "passporting", Cyprus will develop even further its growth in non-UCITS funds (ICIS). The ICIS Law is very competitive compared to jurisdictions like Luxembourg, Ireland or the Channel Islands. Overall, Cyprus has a good package in this respect, but it needs to be marketed/ presented better.
The changing EU legislation is therefore creating a new and more equal-level playing field, one in which Cyprus can provide the ideal 'one-stop shop' solution. The overlay of Cyprus' advantages as described above (tax, regulatory, etc.), are in fact complemented with a lower cost proposition that does not compromise quality or timeliness of service. Cyprus boasts a large pool of human talent, one comprising of English-speaking professionals, largely UK educated and trained accountants, lawyers and other service professionals who can support fund management firms throughout their life cycle. This abundance of quality talent has been pivotal when attracting foreign companies from different industries (e.g. shipping) in the country over the last decade.
2. What advantages does Cyprus present as a destination for the investment fund industry? How will it compete with other successful centre's such as Luxembourg and the Cayman Islands?
Cyprus is an attractive financial centre combining cost and flexibility features while complying with EU regulations and international best practices. The island's strategic location on the doorstep of three continents and its well-educated, English speaking workforce continue to attract international business. In recent years, there has been renewed focus on building a strong financial sector in Cyprus. Regulation is being continually updated and improved, while institutions like the Central Bank of Cyprus and the Cyprus Securities and Exchange Commission (CySEC) have engaged in a long-term development effort to grow the funds sector.
Cyprus' readiness and attractiveness as a preferred point for (re)domiciliation for the fund management industry today is the result of a number of significant developments taking place in the country over the last years. Macroeconomic and monetary stability with the enacted prudential regulatory framework were key factors in preserving financial stability and mitigating the effects from the crisis recently experienced in global financial markets. The Central Bank of Cyprus (CBC) which has regulated the non-UCITS (i.e. ICIS – International Collective Investment Schemes) since the law was first established in 1999 and the Cyprus Securities Exchange Commission (CySEC) which oversees UCITS funds, are the two principal supervisory bodies.
Cyprus is adhering to all EUregulation, is on the OECDcompliant white list and fully complies with FAFT guidelines on combating money laundering and terrorist financing. Cyprus has a favorable tax regime in place for funds and fund managers, which can be equally attractive and in some cases better than other jurisdictions. There is no capital gains tax on a wide range of securities while the country has established good double-tax treaties with over 40 countries.
According to analysts, the Cyprus regime offers some additional specific benefits to non-UCITS funds. As an example the legal fees for setting up a fund in Cyprus can be significantly lower that some competing jurisdictions.
The Cypriot regime also permits accountants with experience of the process to represent a fund to the regulator rather than requiring direct client presence with the regulator. Overall, costs are also likely to be lower in Cyprus than for example in Luxembourg. Fund administration and custodial services can be also cheaper than in other jurisdictions. As regards Cayman Islands, the provisions of the new AIFM Directive will make it more difficult for a non-EU alternative investments fund to be marketed within the EU.
3. What further improvements do you feel are needed to be made for Cyprus to be able to compete in the investment funds business internationally? Do you think Cyprus is capable of building a reputable investment funds sector?
Cyprus has all the right ingredients to compete in the investment funds business internationally and to build-up a sound reputation for its investment funds sector. The biggest challenge that remains perhaps is growing awareness in the global marketplace of Cyprus as an alternative for the domiciliation of funds. This will need to involve the active and coordinated participation of the government, relevant regulatory authorities and local business community.
As with all prior EU legislation, it is expected that Cyprus will swiftly adopt the new UCITS IV and AIFM Directives into national law and create the necessary legal framework required for the Fund's sector. It is also anticipated that with all supervisory authority to be transferred to CySEC in parallel, this will consolidate and further streamline registration procedures.
In summary, Cyprus is well positioned to take advantage of the heightened demand for (re)- domiciliation; it needs to enhance further its infrastructure for providing support to such fund structures (e.g. fund administration and custodian services) and more prominently and actively position itself as an investors'-preferred jurisdiction for setting up funds.
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.