The tax treatment of tugboats in Cyprus is governed by the Merchant Shipping (Fees and Taxing Provisions) Law (LAW 44(1)/2010) hereon to be referred to as the Law.
Article 2 of the Law which states what constitutes a “qualifying ship” for the purposes of the new Cyprus Tonnage Tax System specifically excludes, amongst others, “inland waterway navigation vessels”, “harbour, estuary and river ferries and tugboats” and “non ocean-going tugboats”.
For the purposes of the same law, it is provided that a “qualifying shipping activity” would be “any commercial activity that constitutes maritime transport or shipmanagement (crew and technical)”. Maritime transport includes the traditional carriage of goods and passengers by sea outside the territorial waters of the Republic of Cyprus between a Cyprus port and a foreign port or an offshore facility or between foreign ports or offshore facilities including:
– Cable laying activities
– Towage activities provided that the ocean going tug is a community ship and spends at least 50% of its time in towage or salvage activities at sea.
The definition of “maritime transport” in para b (1) of the Merchant Shipping (Fees and Taxing Provisions) Law (LAW 44(1)/2010) specifically refers the qualifying towage and dredging activities to The Tonnage Tax (Towage and Dredging Activities) Notification of 2010 issued by the Director of the Department of Merchant Shipping (DMS) by virtue of that paragraph and published in the official Gazette of the Republic.
In accordance with paragraph 3 (1) of the Notification to qualify for the new Tonnage Tax System a tugboat must be an ocean going tug which during a specific fiscal year will spend “at least 50% of its yearly operational time in towage or salvage activity at sea.
As per (2) of the same paragraph a tugboat’s waiting time for a specific activity is considered part of the time for that activity.
Moreover, paragraph 3 (3) of the Notification provides that to qualify for admission to the new Tonnage Tax System the ocean going tug must be a “community ship” which is not used for the exclusive purpose of assisting ships or other floating structures in and out of ports or for “movement within the confines of a port area or for the towage of barges on inland waters or in estuaries.”
Tug boats for the raising of wrecks however, will qualify for admission to the Tonnage Tax System but profits from selling abandoned goods salvaged will be taxable under the Cyprus Income Tax regime.
The Notification also provides for the documents that will be requested by the Director of DMS at the end of every fiscal year to determine if the towage activities of an interested tonnage tax company satisfy the qualifying criteria.
AHTS (anchor handling tug supply) vessels – type of support vessels used for the oil industry but differ from the platform supply vessels as they are fitted with winches for towage services.
Whether these qualify or will be considered a tug will be determined on the facts of each case.
*Information derived from Guide to Cyprus Tonnage Tax System (TTS) issued by Cyprus DMS, The Merchant Shipping (Fees & Taxing Provisions) Law of 2010 (LAW 44(1)/2010) and The Tonnage Tax (Towage and Dredging Activities) Notification of 2010 published in the Official Gazette of the Republic of Cyprus No.4444 30.07.2010.
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