Maritime Cyprus Tax alert: New tonnage tax legislation introduced May 2010 Kanaris Demetriades & Associates COMPLIANCE AUDIT TAX ADVISORY
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Cyprus: a well established shipping centre The island s strategic location, at the crossroads of three continents (Europe, Asia, Africa) and close to the Suez Canal, enabled Cyprus to play a prominent role in its success as an international shipping centre. The Cyprus registry today ranks tenth among international fleets and continuously upgrades its services in order to offer a high standard of support to international shipping. new tonnage tax system On 29 April 2010 the Cyprus Parliament enacted The Merchant Shipping (Fees and Taxing Provisions) Law of 2010, applicable retroactively as from 1 January 2010. The new Law, provides full exemption to ship owners, charterers and ship managers from all profit taxes and imposes tonnage tax (hereafter TT ) on the net tonnage of the vessels. The TT system is available to any owner, charterer or ship manager who owns, charters or manages a qualifying ship in a qualifying shipping activity. Qualifying ship A qualifying ship is 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 Organisation and/or the International Labour Organisation that is recognized by Cyprus (the regime specifically excludes certain types of ships, which includes amongst others ships such as fishing vessels, ships used primarily for sports or recreation etc). QUALITYSERVICEEXCELLENCE 01
Qualifying shipping activity Any commercial activity that constitutes maritime transport, crew management and/or technical management is considered a qualifying activity. > Ship owners Ship owners of Cyprus flag ships automatically fall within the scope of the TT system. Ship owners of EU flag ships and/or third country flag (under certain conditions) ships may elect to be taxed under the tonnage system. If the choice is not made, profits are taxable under 10% corporation tax. Any ship owner electing the TT system must remain in the system for 10 years; otherwise early withdrawal will result in penalties. In addition, the following tax exemptions apply to ship owners: Profits from the use of a qualifying vessel; Profits from the disposal of a qualifying vessel and/or share and/or interest in it; Profits from the disposal of shares in a ship owning company; Dividends paid out of the above profits at all levels of distribution; Interest income relating to the financing/maintenance/use of a qualifying vessel and the working capital; excluding interest on capital used for investments. > Charterers A charterer who charters a ship under bareboat, demise, time or voyage charter is eligible for the TT 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 for more than three consecutive years (this eligibility percentage increases to 90% if the ships chartered are EU ships or their crew and technical management are carried out from the EU. The charterers of third country flag ships must comply with the additional requirements that apply for third country flag ship owners). If the choice is not made, profits are taxable under 10% corporation tax. Similarly with ship owners, any charterer electing the TT system must remain in the system for 10 years; otherwise early withdrawal will result in penalties. The following tax exemptions also apply to charterers: Profits from the use of a qualifying vessel; Dividends paid out of such profits at all levels of distribution; Interest income relating to the working capital / qualifying activity provided such interest is used to pay expenses arising from the charter, excluding interest on capital used for investments. QUALITYSERVICEEXCELLENCE 02
> Ship managers A qualifying ship manager is a legal person tax resident in Cyprus providing technical and/or crewing services in respect of qualifying vessels. Commercial management is taxable under corporation tax at 10%. An option exists to pay TT at 25% of the rates applicable to ship owners and charterers, for all vessels under management. If the choice is not made, profits are taxable under 10% corporation tax. The 10 year election rule also applies to eligible ship managers and the same penalties apply for early withdrawal. Finally, the following tax exemptions apply to ship managers: Profits from technical and/or crew management; Dividends paid out of the above profits at all levels of distribution; Interest income relating to the working capital / qualifying activity provided such interest is used to pay expenses relating to ship management, excluding interest on capital used for investments. QUALITYSERVICEEXCELLENCE 03
CONTACT US Efthymios Kanaris (ekanaris@kda.com.cy) Head of Compliance and Tax Services Director Marios Demetriades (mdemetriades@kda.com.cy) Head of Audit and Advisory Services Director Address: 66 Archbishop Makarios III Avenue Kronos Building, Suite 92 1077 Nicosia Cyprus P.O. Box 20762, 1663 Nicosia, Cyprus Telephone: + 357 22 466 888 Facsimile: + 357 22 377 400 Email: Website: info@kda.com.cy www.kda.com.cy QUALITYSERVICEEXCELLENCE 04
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