Cyprus has a unique location in the Eastern Mediterranean and is conveniently located in the hub of three continents: Europe, Asia and Africa. The ideal location of the island has played a prominent role in its development into a thriving international business and shipping center.

The development of Cyprus into an international maritime center began in 1963 when the government of Cyprus first offered incentives encouraging ship ownership and the registration of vessels under the Cyprus flag. Since then, successive governments implementing the correct policy, despite the political turmoil which has vexed Cyprus, managed to attract shipping entrepreneurs and to develop the island into a fully-fledged shipping center combining both a sovereign flag and a resident shipping industry, which is renowned for its high-quality services and standards of safety.

Nowadays, the international merchant fleet of Cyprus is the 10th largest merchant fleet in the world and the 3rd largest merchant fleet amongst all EU member states, representing a 12,7% of the total fleet with 1867 ocean-going vessels of a gross tonnage exceeding 22 million. Limassol, the country’s maritime capital, is the largest ship management center in the EU and the 2nd largest on a global scale. Its fleet numbers 2,200 vessels, with 50 million gross tonnage.

Besides the country’s excellent geographical position, the aforementioned achievements are also due to the cost competitiveness of the Cyprus ship registry, the island’s well-developed maritime infrastructure, and its international relations, in conjunction with the tax benefits introduced for both foreign and local ship owners.

Advantages of Cyprus shipping industry:

• Cyprus is without doubt one of the most attractive shipping and biggest international shipping centers in the world.
• The most important factors which contributed to the attractiveness of Cyprus shipping industry is the tax and other incentives offered to ship-owners, ship managers and crew members.

Taxation and Shipping

The advantageous tax regime of Cyprus is the main force behind the exceptional growth of the shipping registry over the past decades. The shipping taxation is fully compliant with EU and OECD directives with respect to harmful taxation practices, providing also for tax neutral regulations for both EU and non-EU companies.

The Merchant Shipping Legislation of 2010 placed the country in a very competitive position. Cyprus became the only European country with a tonnage tax system that is approved by the European Commission. This new taxation system provides for the imposition of tonnage tax on the net tonnage of the ships, rather than corporate tax on the profits derived from their activities.

Based on the tonnage tax system, shipping companies which possess or charter vessels are exempted from income tax on their profits and instead, they are automatically taxed based on the tonnage of the Cypriot flag ships they own or charter. In addition, shipping entities are not liable to capital gains taxation upon selling a vessel, or selling and transferring shares.

These companies are not subjected to stamp duty on ship mortgage deeds or other documentation, or to estate duty imposed on inheritance of shares. Important also to note that officers and crew of vessels registered in Cyprus are fully exempted from income tax.

Ship Owners

Owners of Cyprus flag ships automatically fall within the scope of the tonnage tax system.

Owners of community flag ships and foreign flag ships may opt to be taxed under the tonnage tax system.

Owners of foreign flag ships must comply with the relevant requirements in order to qualify the option to be taxed under the tonnage tax system. Including in the requirements are:

1. the share of their fleet be comprised of EU flag ships, whose shares must not be reduced within a period of three years following the exercise of the option (flag-share requirement); and
2. the commercial and strategic management of the fleet to be carried out from the EU/EEA.

Important to note that any ship owner opting for the tonnage tax system must remain in the system for ten years. Early withdrawals result in penalties.

Charterers

Any charterer who charters a ship under bareboat, demise, time or voyage charter is eligible for the tonnage tax system provided the tonnage of the ships under time and/or voyage charters do not exceed 75% of the total tonnage of ships chartered and owned, under the period of more than three consecutive years.

If the ships chartered are EU/EEA ships or their technical and management crew are carried out from the EU/EEA, then the eligibility percentage increases to 90%.

Eligible charterers may opt to be taxed under the tonnage tax system. In this case, charterer must remain in the system for 10 years. Early withdrawals result in penalties.

Ship Managers

A qualifying ship-manager is a legal person tax resident in Cyprus who provides crew and/or technical ship management services in respect of qualifying vessels.

Ship-manager has the option to pay tonnage tax at 25% of the rates applicable to ship-owners and charterers, for all vessels under management. Otherwise is to be taxed under 12.5% corporation tax at the profits earned.

Ship-managers are eligible for the tonnage tax system provided that certain criteria are satisfied:

• Obliged to maintain a fully-fledged office in Cyprus,
• employment of a sufficient number of qualified personnel (51% of whom to be EU/EEA citizens)
• at least 2/3 of the management to be entirely carried out from the territory of EU/EEA

In addition, the share of the manager’s fleet must be comprised of EU flag ships and not to be reduced during the three-year period following the exercise of the option (flag-share requirement).

The tonnage tax system covers:

• Profits from the provision of crew and/or technical ship management services;
• Dividends paid directly or indirectly; and
• Interest earned on funds used as working capital or for the payment of expenses relating to the management of the ships.

In cases that ship-managers chose to be taxed under the tonnage tax system must remain in the system for 10 years. Early withdrawals result in penalties.

Net Tonnage Tax rates

• 0 – 1.000:                         €36,50 per 100 NT
• 1.001 – 10.000:              €31,03 per 100 NT
• 10.001 – 25.000:           €20,08 per 100 NT
• 25.001 – 40.000:           €12,78 per 100 NT
• 40.000+:                           €7,30 per 100 NT

Note: Rates applicable to ship-managers are 25% of the above.