There are several benefits of operating a shipping company in Cyprus, including but not limited to all the following:

• A Favourable Tax Regime: Cyprus offers a competitive tax regime for shipping companies, with a Tonnage Tax System (TTS) that is based on the net tonnage of the vessel. This system results in a significant reduction in the taxable income of the qualifying shipping companies;
• Access to EU Markets: Cyprus is a Member of the European Union, which provides shipping companies based in the country with access to the EU’s vast market of over 500 million consumers;
• Competitive Operating Costs: Cyprus has lower operating costs compared to other EU countries, including lower labour costs, office rent, and utility costs;
• Efficient Registration Process: Cyprus has a fast and efficient ship registration process, which allows for the quick and easy registration of vessels;
• High-Quality Flag: Cyprus is considered a high-quality flag state and has been included in the “White List” of the Paris and Tokyo Memoranda of Understanding on Port State Control. This means that vessels registered under the Cypriot flag are subject to fewer inspections and delays in ports around the world;
• Strategic Location: Cyprus is located at the crossroads of three continents, making it an ideal location for shipping companies which operate in the Eastern Mediterranean, Europe, the Middle East, and Africa.

Overall, the benefits of a Cyprus shipping company include a favourable tax regime, access to EU markets, competitive operating costs, an efficient registration process, a high-quality flag, and a strategic geographical location.

What Does a Favourable Tax Regime for Shipping Companies Mean?

A favourable tax regime for shipping companies refers to a tax system which provides certain benefits and exemptions to the qualifying shipping companies, reducing their tax burden and making it more attractive to operate in that jurisdiction.

In the case of Cyprus, the country operates a “tonnage tax” system, which is a type of tax that is calculated based on the net tonnage of a shipping company’s vessels. Under this system, shipping companies which are eligible for the tonnage tax system, pay a fixed amount of tax per vessel, regardless of their profits or losses.

This innovative legislation provides, inter alia, certainty in expenses and covers the three basic shipping activities:

• ship owing;
• ship management;
• chartering.

According to the Cyprus Tonnage Tax System, qualifying owners of Cyprus and foreign ships, charterers and ship managers engaged in a qualifying shipping activity, who have opted and are approved to be taxed under the said Scheme, are subject to an annual tax referred to as tonnage tax. This tax is calculated on the basis of the net tonnage of the qualifying ships they own, charter or manage respectively.

The tonnage tax system in Cyprus provides several benefits to qualifying shipping companies, including but not limited to:

• A Lower Tax Burden: The tonnage tax system results in a significant reduction in the taxable income of shipping companies, which in turn reduces their tax liability;
• Predictable Taxation: The fixed amount of tax payable under the tonnage tax system provides certainty and predictability for shipping companies, making it easier for them to plan their finances;
• No Tax on Dividends: Qualifying shipping companies registered in Cyprus which are subject to the tonnage tax system, are not subject to tax on dividends distributed to their shareholders from the operation or ship management of a ship or on dividends paid to ship owners from the sale of a ship.
• Companies which are not eligible for the tonnage tax scheme will be subject to the regular corporate tax regime in Cyprus, currently standing at the rate of 12,5%.

Overall, a favourable tax regime for shipping companies can provide significant benefits and incentives for companies to operate in a particular jurisdiction, leading to increased investment, job creation, and economic growth.

You may email us directly at agp@agplaw.com with all of your enquiries, which will be treated with full confidentiality at all times.

The information provided by A.G. Paphitis & Co. LLC is for general informational purposes only and should not be construed as professional or formal legal advice. You should not act or refrain from acting based on any information provided above without obtaining legal or other professional advice.