Shipping law is one of the main activities of Costas Indianos & Co law firm, which provides legal services to clients for shipping loans & mortgages, registration of Cyprus shipping companies, registration of ships under the Cyprus flag and registration of ships under flags of other jurisdictions.
Cyprus has today one of the world’s largest ship registry, is one of the largest third-party ship management centres.
Why Cyprus: A Sovereign Flag – An International Maritime Centre
- Member State of the European Union and European Monetary Union
- Democratic country with a free market economy.
- Strategic location at the crossroads of three continents.
- Lowest Corporate Tax Rate in the EU – 12.5% on profits
- Modern and efficient legal, accounting and banking services based on English practices.
- 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 60 countries.
- No tax on profits from the operation or management of a Cypriot registered vessel or on dividends received from a ship owning company.
- No capital gains tax on the sale or transfer of a Cypriot registered vessel or the shares of the ship owning company.
- No estate duty on the inheritance of shares in a ship owning company.
- No income tax on the emoluments of officers and crew.
- No stamp duty on ship mortgage deeds or other security documents.
- Signatory to numerous international maritime conventions.
- Bilateral agreements with 29 countries, through which Cyprus ships receive either national or favoured nation treatment in the ports of other countries.
- Competitive ship registration costs and annual tonnage taxes.
- Full protection for financiers and mortgagees.
- Favourable tax regime for ship management.
- Low set up and operating costs for companies.
- Excellent telecommunications and easy access by air and sea.
- Highly qualified managerial, clerical and technical staff available.
- Enviable quality of life.
Our law firm specializes in the Mortgage of vessels and Loan Agreements, drawing up and finalizing all the necessary documents required, i.e. First Statutory Mortgage & Collateral Deed of Covenants, Memorandum of Agreement (MOA), Corporate Authorities, Pledge of Shares, etc. We cooperate with Law Firms and foreign banks such as the Nordea Bank, Norge ASA, Oslo, Fortis Bank SA/NV, The Federal Bank of Reconstruction, AS Eesti Krediidipank, Estonia etc.
Sale of vessel (Memorandum of Agreement, Addendums, Bill of Sale, etc), Purchase of vessel, Reflagging of vessel, Deletion of vessel, Shipbuilding contracts, Crew endorsements & SISRBs, renewal of shipping certificates i.e. Radio license, CLC certificate, CSR certificate, etc.
The Cyprus Ship Registry will readily grant its permit to register a shipping company without there being a necessity to submit a Bank reference. Nominees may be used who at a later stage will transfer their shares to the beneficial owners. Once the Cyprus Shipping Company is registered, a ship can be registered in its name and under theCyprus flag. As of May 1rst 2004, with the recent amendments to the Cyprus Merchant Shipping Laws, no ship can be registered in the Cyprus Ship Register unless:
(a) Over 50% of the shares in the ship are owned by Cypriot citizens or citizens of a member State of the EU or of the European Economic Area Agreement who, unless permanently resident in Cyprus, have appointed and maintain throughout the period of the ship’s registration in the Ship Register, an authorized representative in Cyprus, or
(b) All shares in the ship are owned by one or more legal entities which have been incorporated and operate in accordance with Cyprus Laws with their registered address in Cyprus, or, have been incorporated and operate in accordance with the Laws of a Member State with registered office in the EU and have either appointed an ‘authorized representative’ throughout the registration under the Cyprus Register or have given the ‘management of the ship with regards to its safety’ to a ship management company of any of the 25 Member States with offices in Cyprus, or, have been incorporated and operate outside Cyprus or any other Member State while controlled by citizens of any Member State and have either appointed an ‘authorized representative’ throughout the registration under the Cyprus Register or have given the ‘management of the ship with regards to its safety’ to a ship management company of any of the 25 Member States with offices in Cyprus. An ‘authorized representative’ is either a Cypriot residing in Cyprus or a legal entity registered in Cyprus or a branch established in Cyprus.
Procedures have to be followed and documentation be submitted for the Provisional registration of a ship under the Cyprus flag. Within 6-9 months thereafter the ship must be permanently registered with the Registrar of Ships (permanent registration).
A ship registered in a foreign registry may be registered in parallel in the Cyprus Registry (parallel registration). The conditions are the following:
- the ship must be bareboat chartered-in to a Cyprus company
- the laws of the ship’s initial foreign flag must allow parallel registration
- the written consent of both the foreign registry and the mortgagees, if any, must be submitted to the Registrar of Cyprus Ships. Similarly, it is feasible under Cyprus law for a ship registered under the Cyprus flag to be bareboat chartered-out to a foreign corporation, for parallel registration in a foreign registry.
New Merchant Shipping Tonnage Tax Legislation 44 (I) 2010
The new tonnage tax system for Cyprus merchant shipping was approved by the European Commission on 24th March 2010 (case N. 37/2010), as compatible with the requirements of the EU acquis, in accordance with the relevant guidelines on State Aid to Maritime Transport. The Merchant Shipping (Fees & Taxing Provisions) Law was enacted in May 2010 and introduces a new tonnage tax system in Cyprus, applicable as from the fiscal year 2010.
This simplified tonnage tax system is approved for the first time for an EU Member State with an open registry, thus available to the world Shipping business community.
Scope of Tonnage Tax
It extends the favorable benefits applicable to owners of Cyprus flag vessels and ship managers to owners of foreign flag vessels and charterers. It also extends the tax benefits that previously only covered profits from the operation of vessels in shipping activities, to cover profits on the sale of vessels, interest earned on funds used other than for investment purposes and dividends paid directly or indirectly from shipping related profit.The new tonnage tax system contains most of the favorable features found in tonnage tax systems in other EU countries, and more. The regime, therefore, provides Cyprus with a competitive advantage and is expected to significantly contribute to the improvement of the already strong position of the country in the shipping world.The main provisions of the new tonnage tax system are described below.
The tonnage tax system which provides full exemption on income tax is available to any ship owner, charterer or ship manager who owns charters or manages a qualifying ship in a qualifying shipping activity and is tax resident. In other words, the beneficiaries, whether shipowners, charterers, ship managers, individuals or companies must be Cyprus tax residents.
The above includes a bareboat charterer of a foreign ship under parallel-in registration under the Cyprus flag.
The tonnage tax is calculated on the net tonnage of the ship according to a broad range of bands and rates prescribed in the legislation. The rates applicable to ship managers are 25% of those applied for ship owners and charterers.
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 Organization and / or the International Labour Organization that is recognized by Cyprus.
The regime specifically excludes certain types of ships, such as fishing vessels, ships used primarily for sports or recreation, river vessels, non-self propelled floating cranes and tug boats, among others.
Qualifying shipping activity
Any commercial activity that constitutes maritime transport, crew management and / or technical management is considered a qualifying activity.
The definition of maritime transport includes the traditional carriage of goods and passengers, as well as ancillary services such as all hotel, catering, entertainment and retailing activities on board a qualifying vessel, the loading and unloading of cargo, the operation of ticketing facilities and passenger terminals. Towage, dredging and cable laying are also eligible for tonnage tax.
Ship owners of Cyprus flag ships (ships registered under Cyprus flag) automatically fall within the scope of the tonnage tax system. Ship owners of EU / EEA flag ships (ships registered under EU / EEA flag) and / or third country flag ships may opt to be taxed under the tonnage system.
Ship owners of third country flag ships must comply with certain requirements to qualify for the option to be taxed under the new regime. These include the requirement that a share of their fleet be comprised of EU flag ships, which share must not be reduced in the three-year period (flag-share requirement) following the exercise of the option and that the commercial and strategic management of the fleet be carried out from the EU / EEA.
Any ship owner opting for the tonnage tax system must remain in the system for 10 years. Early withdrawal will result in penalties, calculated as the difference between the amount paid during the period the ship owner was under the tonnage tax system and the amount that would have paid had it been subject to corporation tax in the same period. In addition, the ship owner will lose the right to opt for tonnage taxation until expiration of the 10-year period from the date the option was first exercised.
The tonnage tax system covers profits from shipping operation, dividends paid directly or indirectly out of such profits, profits on the sale of the ship and interest earned on funds used as working capital or for the financing, operation and / or maintenance of the ship.
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 for more than three consecutive years. The eligibility percentage increases to 90% if the ships chartered are EU / EEA ships or their crew and technical management are carried out from the EU / EEA. The charterers of third country flag ships must comply with the additional requirements that apply for third country flag ship owners (i.e. flag-share requirement).
An eligible charterer may opt to be taxed under the tonnage tax system, but once the option is made, it must remain in the system for 10 years. Early withdrawal will result in the penalties outlined above for ship owners.
The tonnage tax system covers profits from shipping operations, dividends paid directly or indirectly out of such profits and interest earned on funds used as working capital or for the payment of expenses arising out of the charter party.
A ship manager who provides crew and / or technical ship management services is eligible for the tonnage tax system provided it satisfies certain criteria. These include the maintenance of a fully fledged office, the employment of a sufficient number of qualified personnel (51% of whom should be EU / EEA citizens) and at least 2/3 of the management is carried out from the territory of the EU / EEA. Further, at least 60% of the fleet under management should be carrying an EU / EEA flag, while all ships and crew under management must comply with international standards and EU law requirements relating to maritime security, safety, training and certification of seafarers, the environment, on board working conditions and so on.
Other specific criteria must be complied with, depending on the ship management service provided (i.e. full implementation of the 2006 Maritime Labour Convention for crew managers and the ISM Code certification for technical managers).
The tonnage tax system covers profits from the provision of crew / or technical ship management services, dividends paid directly or indirectly out of such profits and interest earned on funds used as working capital or for the payment of expenses relating to the management of the ships. The 10-year option rule also applies to eligible ship managers and the same penalties apply for early withdrawal.
- No tax on income / profits of a qualified Ship-owner
- No tax on income / profits of a qualified Charterer of a qualifying vessel from the use of the vessel in any qualifying maritime activity
- No tax on dividends from such profits at all levels
- No tax on sale or transfer of such vessels or the shares of the ship-owning company
- No income tax on the emoluments of officers or crew on board such vessels
- No tax on interest earned (excluding capital used for investments)
Tonnage Tax Rates
The following table summarizes the applicable rates for the tonnage tax calculation:
|0 – 1.000||1.001 – 10.000||10.001 – 25.000||25.001 – 40.000||> 40.000|
per 100 NT
per 100 NT
per 100 NT
per 100 NT
per 100 NT
Note: The rates applicable to ship managers are 25% of the above.
Sample calculation of the annual tonnage tax for a 19.538 net tonnage vessel:
1,000 NT : 1000/100 = 10 x € 36,50 = € 365,00
9,000 NT : 9000/100 = 90 x € 31,03 = € 2792,70
9,500 NT : 9500/100 = 95 x € 20,08 = € 1907,60
38 NT : 38/100 = 0.38 x € 20,08 = € 7,63
Annual Tonnage Tax due = € 5072,93
Tonnage Tax e-calculation
Step 1: Click on http://www.mcw.gov.cy/mcw/dms/dms.nsf/intro?OpenForm
Step 2: Click on “New Cyprus Tonnage Tax System”
Step 3: Click on relevant link, either the link relating to Qualifed Ship Owners and Charterers, or the link relating to Ship Managers,
Step 4: Enter the relevant tonnage of the ship and press “calculate” to get the corresponding annual tonnage tax.
The Law is valid until 31/12/2019
The Cyprus VAT Yacht Leasing Scheme
The VAT Yacht Leasing Scheme applies to yachts owned by a Cyprus Company which are leased to a physical or legal person and reduces the effective VAT rate for yacht registration from 19% up to 2,42%.
The VAT Yacht Leasing Scheme aims to determine the percentage of time a yacht spends within the EU based on the size & type of the yacht instead of time sailing records, and apply VAT according to this percentage.
The VAT Yacht Leasing Scheme applies to both motor & sailing yachts.
The VAT Yacht Leasing Scheme implies the following:
- A Yacht Leasing Agreement between the lessor owner of the yacht which must be a Cyprus Company with VAT number and the lessee individual or company who leases the yacht from the owner for the use of the yacht, with a possible option for the lessee to buy the yacht at the end of the lease period.
- The approval of the VAT Commissioner.
- An initial contribution from the lessee being at least 40% of the yacht’s value.
- Corporate income tax on profit.
- Sailing in Cyprus waters within one month of the beginning of the lease.
- Monthly lease payments with a lease of maximum 48 months.
International Shipping Conventions
Cyprus has ratified most relevant International maritime Conventions currently in force. Cyprus is a member of the Council of the International Maritime Organisation and as a new member of the EU Cyprus has modernized all its maritime legislation according to European standards and participates in the Community law-making process as well as the Short Sea Shipping and Euromed initiatives.As a result, Cyprus today stands on the white list both at Paris MOU & Tokyo MOU. The Cyprus Ship Registry is governed by the Merchant Shipping Laws of Registration of Ships,Sales & Mortgages 1963-2005, of Fees & Taxing Provisions 1992-2007 and of Masters & Seamen 1963-2002.