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Sophie Stylianou |
With a legacy of over 9,000 years in merchant shipping and being strategically located at the crossroads of three continents, Cyprus has long been established as an international maritime centre.
Its membership to the EU back in 2004 has come to complement the pre-existing far-reaching benefits available to the investors under the Cyprus laws which have enabled Cyprus to rank high among the very best maritime centres worldwide. The advantages offered include among others:
its well-developed tax, legal, accounting and banking infrastructure;
the fact that it has a free market economy and it is a democratic society;
the full foreign participation option in most areas of the economy;
the fact that there are no exchange control requirements;
the low ship registration as well as company formation costs and running expenses;
the ability to employ multinational crew members;
the competitive fees and duties, such as registration fees and annual tonnage taxes;
the low red tape enabling the prompt and simple attainment of the vessel's certificates;
the fact that Cyprus Competence Certificates issued are recognised on a worldwide basis.
Additional benefits include the parallel registration of both Cyprus registered ships in other jurisdictions as well as foreign ships into the local registry, the fact that ships under the Cyprus flag may call at any port worldwide and equally enjoy treatment equivalent with locally registered ships, the option of having provisional registration taking place in another jurisdiction
From a tax perspective, the Cyprus flag may come to serve as an ultimate tax planning opportunity. In supplement to the above, Cyprus has concluded a wide network of double tax treaties and other bilateral treaties, giving an opportunity to investors to benefit from privileged tax treatment and rates. In line with the above, Cyprus ship-owning companies are exempt from income tax, for a period up to December 31 2020:
On profits derived from the operation and management of a ship registered in Cyprus;
On the income of any person deriving from the provision of ship-management services;
On dividends distributed to the shareholders or to the members of a legal entity, deriving from the operation and management of a Cyprus registered ship, or the provision of ship management services;
On the emoluments of the captain of a Cyprus registered vessel, the officers and the crew.
Ship-management includes all kinds of chartering of a vessel.
Income deriving from the provision of ship-management services, despite from being exempt from income and corporation tax is, however, subject to tonnage tax.
To this extent, it is of equal importance to note that under the income tax law, a reduced rate on income deriving from the provision of ship-management services is provided for. Accordingly, subject to the provisions of the merchant shipping law, a person being taxed on such income may opt to be taxed in accordance with the provisions of the income tax law rather than the provisions under the merchant shipping law and hence be taxed with the reduced rate of 4.25% rather than tonnage tax, which is calculated on the basis of the tonnage of the vessel.
Additionally, the proceeds from the sale or transfer of a Cyprus registered ship as well as the proceeds from the sale of the shares of a ship owning company are exempt from capital gains tax.
Equally, the shares in a ship owning company may be inherited free from estate duty and also an exemption from stamp duty is granted on the deeds relating to the mortgage of a ship and other related documentation.
Sophie Stylianou (sophie.stylianou@eurofastglobal.eu), Nicosia
