The Cypriot shipping industry has experienced strong growth since the creation of the shipping registry in 1963 and several ingredients have combined to make Cyprus one of the most important locations for a variety of maritime-related activities, including a benign tax regime, modern financial and legal infrastructure, low operating costs and geographical location at the junction of three continents.

As one of only two 'open' registries in the European Union (EU), it is estimated that the Cypriot fleet accounts for a quarter of all the ships registered in the EU; and the Cyprus shipping registry is the tenth-largest in the world. As a result, the sector makes a substantial contribution to the Cypriot economy, with recent figures indicating that shipping accounts for about 5% of gross domestic product.

Cyprus is the biggest third party ship management centre in the EU, with about 60 ship management companies operating in the territory, and a substantial number of major ship management companies have chosen Cyprus in which to locate their headquarters. Other maritime-related activities which take place in Cyprus include bunkering, chartering, crewing, ship surveying, ship-broking, salvaging and marine insurance.

In April 2012, the Cypriot House of Representatives ratified the Maritime Labour Convention 2006 into the Cyprus national legislation. The Convention provides comprehensive rights and protection at work for the world's more than 1.2 million seafarers. The new labour standard consolidates and updates more than 68 international labour standards related to the Maritime sector adopted over the last 80 years. Cyprus became the 26th member state of the International Labour Organisation to ratify the Convention. The Convention entered into force on August 20, 2013.

The Cyprus Shipping Chamber is the trade association of the shipping industry in Cyprus. Established in 1989 as the Cyprus Shipping Council, the Chamber's membership now includes all the major ship-owning, ship management and shipping-related companies based in the jurisdiction. According to the Chamber, members own and manage more than 2,000 vessels from Cyprus, exceeding 42 million gross tons, thus making it one of the largest national shipping associations in the world.

The policies of successive governments have helped to foster the shipping industry in Cyprus, especially in the area of taxation. At 12.5% (10% prior to January 1, 2013), Cyprus has one of the lowest rates of corporate income tax in the EU, and recently a special tax regime was introduced for shipping companies (see below).

Cyprus also exempts international transport services from value-added tax when these services are rendered outside the EU while the income of crew and officers on board Cypriot-registered vessels is exempt from income tax.

Furthermore, there is no estate duty on inheritances of shares in a Cyprus shipping company, and no stamp duty is due on ship mortgage deeds.

Shipping companies can also take advantage of Cyprus's network of double tax treaties, which includes 50 countries (unusually for a 'low-tax' country) and Cyprus has entered into Bilateral Agreements of Cooperation in Merchant Shipping with 23 countries.

There are additionally no exchange controls by virtue of the country's membership of the EU, which it joined in 2004, and 100% foreign ownership is allowed in most sectors of the economy, although there are certain restrictions under Cypriot shipping law.

A new tonnage tax system was approved by the European Commission on March 24, 2010 under European Union state aid rules for maritime transport. The simplified tonnage tax system extends the favourable benefits available to owners of Cyprus flag vessels and ship managers to owners of foreign flag vessels and charterers. It also extends the tax benefits that previously only covered profits from the operation of vessels in shipping activities to cover profits on the sale of vessels, as well as interest earned on funds used other than for investment purposes and dividends paid directly or indirectly from shipping-related profits.

The new tonnage tax system was implemented by the Merchant Shipping (Fees and Taxing Provisions) Law, which was enacted in May 2010 and applies from the 2010 fiscal year. The tonnage tax system is available to any owner, charterer or ship manager who owns, charters or manages a qualifying ship in a qualifying activity (any seagoing vessel certified under applicable international or national rules and regulations and registered in the ship register of any member of the International Maritime Organization or the International Labour Organization that is recognized by Cyprus). The tonnage tax is calculated on the net tonnage of the ship according to a broad range of bands and rates prescribed in legislation. The rates applicable to ship managers are 25% of those applied for ship owners and charterers. This regime excludes certain types of ships, such as fishing vessels, ships used primarily for sports or recreation, river vessels, non-self-propelled floating cranes, and tug boats.

Owners of Cyprus flag ships automatically fall under the new tonnage tax regime and ship owners of EU/EEA flag ships or third country flag ships may opt to be taxed under the tonnage tax system. Ship owners of third countries must satisfy certain requirements in order to qualify for the tonnage tax. These include the requirement that a share of their fleet be comprised of EU flag ships, provided that this share is not reduced over a three year period.

However, any ship owner opting in to the tonnage tax regime must remain in the system for 10 years. Early withdrawal will incur penalties, calculated as the difference between the amount paid during the period the ship owner was under the tonnage tax system and what would have otherwise have been due. The Commission authorized the scheme until December 31, 2019.

The Cyprus Merchant Shipping Laws are based on the English Merchant Shipping Acts 1894-1954 and registration is administered by the Department of Merchant Shipping of the Ministry of Communications and Works. A ship may be registered in Cyprus if it is majority-owned by a Cypriot person or company; a non-Cypriot company qualifies if it is majority-owned by Cypriots.

Ships of any type or size may be registered in the Register of Cyprus Ships or the Special Book of Parallel Registration, provided the applicable age-related requirements and the applicable type-related requirements are complied with.

Under the latest rules, cargo vessels of more than 500 tons and not exceeding 15 years of age may be freely registered in Cyprus. Vessels over 15 years of age but not exceeding 20 may be registered subject to a satisfactory entry inspection.

Vessels over 20 years of age but not exceeding 25 must also undergo an entry inspection and, where it is required by legislation that the vessel should comply with the International Safety Management Code, be operated by a ship management company having its principal place of business in the EU or EEA.

Vessels over the age of 25 are not accepted for registration in the Cyprus register.

Similarly, passenger vessels (defined as those carrying more than 12 passengers on international voyages) not exceeding 30 years in age may be registered in Cyprus provided they pass an entry inspection, but passenger vessels older than 40 years are not eligible for registration in Cyprus.

Yachts and other pleasure craft may also be registered in Cyprus provided that they are used exclusively for recreation and are not engaged in any commercial operations, irrespective of size. Vessels in this category which do not exceed 25 years of age may be registered without any additional conditions. Vessels exceeding 25 years of age must pass an entry inspection.

Ships may be provisionally registered while they are in a non-Cyprus port; this must be converted into permanent registration during an actual visit to Cyprus within 9 months.

Registration fees in Cyprus are low, and compare favourably with those in other registries. Fees vary depending on the vessel's gross tonnage, but vessels other than passenger ships will pay a maximum fee of EUR 5,125.80 and a minimum of EUR 213.58.

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.