An increasing number of companies and ship owners choose to register their vessels in Cyprus. Why would they do that? They choose to take advantage of the “Cyprus Sovereign Flag” and the fact that Cyprus is an international Maritime Centre. Actually, the Cyprus registry is among the largest in the EU and it currently ranks tenth worldwide, Cyprus resident shipping and ship management companies enjoy one of  the most favourable shipping tax regime in the EU. They have benefited from significant exemptions and ship management companies could choose between a special corporate income tax rate of 4,25% or the tonnage tax regime.

Under the Tonnage Tax Law taxes based on profits are replaced by taxation calculated on the net tonnage.

Qualifying persons, activities and vessels

The tonnage tax scheme is available to any owner, charterer or ship manager who owns, charters or manages a qualifying ship in a qualifying shipping activity.

Onwers of Cyprus and of Foreign Ships

In order to be eligible:

• an owner of a Cyprus ship should own a qualifying ship, which is engaged in a qualifying shipping activity.
• an owner of a Foreign ship should be tax resident in Cyprus, has chosen to be taxed under the tonnage tax system and their ship is engaged in a qualifying shipping activity.

Charterers of Foreign Ships

In order to be eligible:

A charterer should:

• be a Cyprus tax resident
• choose to be taxed under the TTS

The chartered ship should be a qualifying ship and should be engaged in a qualifying shipping activity

Ship Manager

In order to be eligible:

A ship manager should:

• be a tax resident in Cyprus.
• choose to be taxed under the tonnage tax scheme
• provide ship management services to qualifying ship and meet the following requirements:
• maintain a fully fledged office in Cyprus
• employ a sufficient in number and qualifications personnel (at least 51 % of them should be EU/EEA citizens

What covers the tax exemption for owners and charterers?

• Profits from the use of a qualifying vessel
• Dividends paid out of those profits
• Interest income relating to the financing, maintenance or use of a qualifying vessel and the related working capital, excluding interest on capital used for investments.
• Profits from the disposal of a qualifying vessel or any share or interest in it.
• Profits from the disposal of shares in a ship owning company.

In order to qualify for the exemption:

• at least 25 % of the net tonnage of vessels subject to tonnage tax must be owned or bareboat chartered.
• if all the vessels of the charterer are registered or managed in the EEA, then the percentage is reduced to 10%.

Please note that qualifying owners, charterers and ship managers choosing to enter the tonnage tax system must include all qualifying ships. Also if a company which is part of a Cyprus tax resident group of companies enters the tonnage tax scheme, then all other qualifying members of the group must simultaneously enter the scheme.

This is just a general overview of the tonnage tax scheme in Cyprus. If you require any information or legal advice on the tonnage tax scheme, please get in touch with our specialists in Tax Law and Maritime Law.