FinExpertiza Cyprus provides full services in assisting clients to purchase a yacht/ship and register it in Cyprus under the Cyprus flag.
Ship Registration
Ship registration in Cyprus is regulated by the Merchant Shipping (Registration of Ships, Sales and Mortgages) Law of 1963, as amended from time to time (the “Law”)
The Law will allow registration of a ship in the Register of Cyprus Ships in two cases:
Case 1: The total of the ship’s shares are owned by one or more corporations, established and operating:
- according to the laws of the Republic and having their registered office in the Republic; or
- according to the laws of any other Member State having their registered office, central administration or principal place of business within the European Economic Area and either maintaining an authorized representative in the Republic or fully entrusting management in respect of the ship’s safety to a Cypriot or Community ship-management company, having its place of business in the Republic; or
- outside the Republic or other Member State, but controlled by Cypriot or other Member State citizens and who maintain an authorized representative in the Republic or fully entrusting management in respect of the ship’s safety to a Cypriot or Community ship-management company, having its place of business in the Republic.
Case 2: More than fifty percent (50%) of the shares of the ship are owned:
- by Cypriot citizens; or
- by citizens of other Member States who if not permanent residents of the Republic, will have appointed and maintain, during the whole period of the registration of the ship in the Register, an authorised representative in the Republic.
The Cypriot merchant shipping legislation allows for three types of registration of vessels:
- Provisional Registration: This will allow Owners 6 months (plus 3 months extension) to complete the administrative formalities for permanent registration.
- Permanent Registration: A provisionally registered vessel must be permanently registered within 6 months (or 9 months if the 3 month extension has been obtained) from the date on which she was provisionally registered.
- Parallel Registration: A ship registered in a foreign Register can be parallel registered in the Cyprus Register for a certain period of time, usually 2 years, which is renewable given that the law of the foreign Register allows parallel out registration of its ships. At the same time the ship remains registered at the foreign Register but its foreign nationality status is suspended and the foreign Register is operative only with respect to the ownership and encumbrance’s status of the ship. Deletion of the ship’s registration in the foreign Register is not required,
This pre-requires that the ship is “bareboat chartered” by a qualified physical or legal person.
“Bareboat chartering” is where the charterer for the agreed period of time, acquires full control and possession of the ship and substitutes in all respects the ship owner, save that he has no right to sell or mortgage the ship.
Ship owning companies or companies engaging in bareboat charters are taxed at 0% on profits arising from ship owning activities, no capital gains tax on the sale or transfer of a ship or the sale of the shares of the company owing or chartering the ship, no stamp duty on the Bills of Sale and enjoy a very competitive annual tonnage tax.
The parallel-out registration of a Cyprus ship in a foreign registry is also possible under similar prerequisite conditions. “Parallel-out” registration allows the financing of a ship and her mortgaging under the Cyprus flag and her registration in a foreign registry through a bareboat charter arrangement.
These two options offer some very interesting opportunities for leaseback, hire purchase and finance arrangements.*
The application for registration of a ship under the Cyprus flag must be prepared and submitted by a practicing lawyer of the Republic to the Minister of Communications and Works through the Registrar of Cyprus Ships. In practice, the Registrar will also accept the submission of applications for registration of ships on behalf of companies under formation, so that the incorporation of the company and registration of the ship can progress simultaneously. However the company must be duly incorporated prior to the registration of the vessel.
Summary of applicable rates for tonnage tax calculation for a vessel:
|
NET TONNAGE |
||||
|
0 – 1.000 |
1.001 – 10.000 |
10.001 – 25.000 |
25.001 – 40.000 |
> 40.000 |
|
€36.50 |
€31.03 |
€20.08 |
€12.78 |
€7.30 |
|
Per 100 NT |
Per 100 NT |
Per 100 NT |
Per 100 NT |
Per 100 NT |
Sample Calculation: Tonnage Tax for a 20,000 net tonnage vessel:
*Net tonnage broken down into 100 increments for each net ton:
1,000 NT: 1,000/100 = 10 x 36.50 = €365.00
9,000 NT: 9,000/100 = 90 x 31.03 = €2,792.70
10,000 NT: 10,000/100 =100 x 20.08 = €2,008.00
—————
TOTAL PAYABLE TONNAGE TAX = €5, 1165.70
Ship Management in Cyprus
Cyprus has for years now been a very attractive destination for the registration and management of Shipping and Maritime Operations companies. It is estimated by the Cyprus Department of Merchant Shipping (DMS) that ship-management companies operating in Cyprus manage one fifth of the global 3rd party managed fleet.
Ship management companies providing technical or crew management services which qualify under the Law enjoy a number of major benefits such as no income tax on the profits earned or dividends paid from providing these services or on the salaries of officers and crew of such ships. The exemption also applies to the bareboat charterer of a vessel flying the Cyprus flag under parallel registration.
A qualified Ship Management Company has an option to be taxed under the Tonnage Tax System at a rate equal to 25% of the rates used to calculate the tonnage tax imposed on Cyprus registered ships or be subject to the basic 10% corporate tax. A ship management company which opts to be taxed under the Tonnage Tax System has to remain in the system for 10 years.
To be eligible to be taxed under the Tonnage System a tax resident company providing management services to a ship/ships which opted to be taxed under the System must maintain a fully-fledged office in Cyprus and employ a sufficient number and qualified personnel of which at least 51% of on-shore personnel are EU citizens.
The Law further requires at least 2/3 of managed tonnage to be managed from the territory of any EU member state. At least 60% of its managed fleet has to be EU flag ships or a share of the fleet be EU flag ships but this share may not be reduced in the 3 year period following the exercise of the option.
All the managed ships and crews must comply with the relevant international standards and fulfill the EU Law requirements relating to maritime security, safety, training and certification of seafarers, environmental performance and on-board working conditions.
Other specific criteria must be met depending on the type of management service provided (i.e. implementation of 2006 MLC for crew managers or ISM certification for technical managers).
Summary of applicable rates for tonnage tax calculation for a Ship Management Company:
|
NET TONNAGE |
||||
|
0 – 1.000 |
1.001 – 10.000 |
10.001 – 25.000 |
25.001 – 40.000 |
> 40.000 |
|
€36.50 |
€31.03 |
€20.08 |
€12.78 |
€7.30 |
|
Per 400 NT |
Per 400 NT |
Per 400 NT |
Per 400 NT |
Per 400 NT |
Sample Calculation: Tonnage Tax for a ship management company that manages a 20,000 net tonnage vessel:
*Net Tonnage broken down into 400 increments for each net ton so that:
1,000 NT: 1,000/400 = 2.5 x 36.50 = €91.25
9,000 NT: 9,000/400 = 22.5 x 31.03 = €698.175
10,000 NT: 10,000/400 = 25 x 20.08 = €502.00
—————
TOTAL PAYABLE TONNAGE TAX = €1,291.425
Why Cyprus*
- European Union and European Monetary Union Member State.
- Strategic location at the crossroads of three continents.
- An upcoming key player in energy – the discovery of one of the biggest natural gas fields in the world off the coast of Cyprus have created new prospects for economic and business development.
- One of the lowest Corporate Tax rates in the EU – 12.5% on profits.
- Liberal Foreign Direct Investment regime allowing up to 100% foreign participation in most sectors of the economy.
- No exchange control and freedom of movement of foreign currency.
- Double Tax Treaties with 49 countries.
- Bilateral Agreements of Cooperation in Merchant Shipping with 23 countries including major labour supplying countries.
- Low setup and operating costs for companies.
- VAT exemption for international transport services when the effective use and enjoyment of the services takes place outside the EU.
- Special taxation for shipping companies: ship owners, charterers and ship managers participating in the Cyprus tonnage tax system, are exempted from income tax and any other tax or levy on dividends paid to shareholders, on interest earned on working capital and on any profit made from the sale of a qualifying ship.
- No estate duty on the inheritance of shares in a ship owning company.
- No income tax on the emoluments of officers and crew on board of a Cyprus ship.
- No stamp duty on ship mortgage deeds or other security documents.
- Signatory to all the significant international maritime conventions.
- Modern and efficient legal, accounting and banking services based on English practices.
- Advanced telecommunications network and easy access by air and sea.
- Highly educated, qualified and multilingual personnel.
- Poised for long-term growth.
- Excellent quality of life.
*Source: Cyprus Guide to Shipping, 10th edition, Department of Merchant Shipping, Republic of Cyprus.
Disclaimer:
The information contained herein does not constitute legal or investment advice and may not be relied upon as such. The author shall not be responsible for any damage or loss incurred directly or indirectly by any person acting upon or refraining from acting wholly or partially in reliance upon it.
For more information and/or advice, please contact us via email at info@finexpertiza.cy