With the global economic turmoil having a huge effect on the worldwide shipping industry, the visionary policies of Cyprus are demonstrating high levels of commitment towards ensuring the growth and wellbeing of Cyprus shipping companies. The country’s simplified registration procedures, favorable taxation regime, well-developed infrastructure and advanced safety policies have established the Cyprus flag as one of the most prominent in the world. Therefore, it is no wonder why Cyprus is one of the most highly sought-after registration jurisdictions for ship owners, charterers, ship managers and other shipping-related companies.
Cyprus’ Shipping Industry
Cyprus has long been established as a renowned shipping centre that successfully meets the rising demands of the globalised maritime industry. By giving competitive tax incentives and putting simplified policies into practice, Cyprus’ successive governments succeeded to attract international shipping businessmen and to develop the country into a highly-regarded shipping hub with a powerful sovereign flag.
The international merchant fleet of Cyprus is the 3rd largest of all 27 EU member states, representing a 12,7% of the total fleet, and the 10th largest in the world with 1867 ocean-going vessels of a gross tonnage exceeding 22 million. In addition, Cyprus is the leading third-party ship management hub of the EU with a total fleet representing 20% of the world third-party ship management market. Limassol, the country’s maritime capital, is EU’s largest ship management centre and the 2nd largest on a global scale.
The shipping sector contributes about 6% of the country’s GDP, accounting for 1 billion euro each year. There are more than 140 ship owning, ship management and ancillary shipping-related companies maintaining premises in the country and undertaking international operations from the island. Moreover, the shipping industry in Cyprus employs approximately 4,500 on-shore personnel and 55,000 international seafarers.
The benefits Cyprus has to offer for individuals that register a shipping company under its sovereign flag are numerous. The most prominent are outlined below:
Competitive registration and financial incentives
Cyprus is recognised as one of the most competitive and respected shipping registration centres in the world. Opportunities for ship ownership, chartering or management are available for Cypriot, EU and non-EU nationals and a provisional registration may be conducted in order to give the applicant more time until the documentation for permanent registration is concluded. Cypriot authorities also allow for parallel-in and parallel-out registration in order to facilitate individuals who want to take advantage of the many benefits offered by registration under the Cyprus flag as much as possible.
There are several financial incentives offered to shipping companies that wish to register in the Republic of Cyprus. The fees for the registration of a vessel are significantly lower than in other countries and are calculated based on the gross tonnage and type of the ship. Cyprus does not impose any exchange control and allows the uncontrolled movement of foreign currency. Foreign participation in most segments of the economy is also permitted, as the country provides for liberal foreign direct investment regulations. Moreover, anonymity of beneficial owners through trustee or nominee shareholders is ensured, and financiers and mortgages are fully safeguarded. Finally, the low operational costs have prompted a lot of international shipping entrepreneurs to set up companies with fully-fledged headquarters in the country.
Advantageous tax regime under the tonnage tax system
The favorable tax regime in Cyprus is the main force behind the exceptional growth of the shipping registry over the past decades. The shipping taxation is fully compliant with EU and OECD directives with respect to harmful taxation practices, providing also for tax neutral regulations for both EU and non-EU companies.
The Merchant Shipping Legislation of 2010 was a turning point for the country, as it placed it in a very competitive position. Cyprus became the only European country with a tonnage tax system that is approved by the EU and covers the three main shipping categories of ship-owning, ship-management and the chartering of vessels. The new taxation system provides for the imposition of tonnage tax on the net tonnage of the ships, rather than corporate tax on the profits derived from their activities. It is important to note that the tonnage tax legislation is regulated by the Department of Merchant Shipping and not by the tax authorities.
Under the tonnage tax system, shipping companies which posses or charter vessels are exempted from income tax on their profits and are automatically taxed based on the tonnage of the Cypriot flag ships they own or charter. Moreover, they are not liable to capital gains taxation upon selling a vessel, or selling and transferring shares. In addition, these companies are not subjected to stamp duty on ship mortgage deeds or other documentation, or to estate duty imposed on inheritance of shares. Officers and crew of vessels registered in Cyprus are fully exempted from income tax.
Ship-management companies are entitled either to pay tax at a rate of 25%, calculated on the tonnage of the international ships they manage, or to pay tax based on their profits at a rate of 4.25%. In case they undertake the full management of Cyprus flag vessels, ship-management companies are fully exempted from tonnage tax. Moreover, no tax is withheld from dividends paid out of profits derived from ship management activities, and no tax is levied on the recipient shareholder with regard to these dividends. Ship-management companies are also exempt from defence contribution imposed on paid dividends.
Non-shipping income of ship-owning, chartering and ship-management companies invested in other activities is subject to corporate tax at the normal rate of 10% (possible increase of 2.5%), which is the lowest corporate tax rate in the EU. The taxation legislation provides for several exemptions that may decrease the payable tax rate on non-shipping income even below 10%.
EU Flag and International Agreements
Excellent international relations have contributed in a significant way to the expansion of the country’s shipping registry. The entry of Cyprus in the European Union in 2004 as one of the two member states with an “Open Registry”, developed new growth perspectives for the country’s maritime industry. EU directives prompted policymakers to set up an action plan, implementing new policies for the qualitative upgrading and development of the Cyprus EU flag. Cyprus also enjoys the advantages of being a member of the Council of Europe, United Nations, the Conference for Security and Cooperation in Europe, Commonwealth and the Group of Non Aligned Countries.
Cyprus offers fiscal benefits to those who wish to register on the island, by boasting a broad spectrum of double tax treaties with more than 40 countries, aimed at avoiding double taxation of income earned in any of the countries concerned. There are also several merchant shipping bilateral agreements in place, geared towards the facilitation of seaborne trade and employment of seafarers, while promoting friendly relations and development of mutual economic interests. Through these agreements, Cyprus’ vessels enjoy national or privileged treatment during embarkation and disembarkation in foreign ports.
Well-developed Maritime Infrastructure and Professional Services
Cyprus features a highly developed maritime infrastructure and professional services, committed in satisfying the demands of shipping entrepreneurs. The country’s advanced maritime infrastructure is comprised by admiralty courts, a classification society, trade associations and the Department of Merchant Shipping. DMS is a highly effective organisation operating under the Ministry of Communications and Works, offering dedicated and speedy services to shipping companies in terms of registration, issuance of certificates, ongoing operations and legislative work. Moreover, Cyprus operates maritime offices in London, New York, Rotterdam, Hamburg, Brussels and Piraeus dedicated in offering world-class services to Cyprus’ shipping companies.
There are numerous shipping-related service agencies in the country, such as marine surveyors, shipping security companies, marine insurance and P&I brokers, ship-brokers, bunkering facilities, an underwater survey service and a ship-repair facility. Additionally, there is a great influx of multilingual legal, accounting, banking and technical service providers specialised in shipping, underlining the faith in the continuous growth of Cyprus as a shipping centre. The advanced professional services in Cyprus are supported by an effective legal system, which is based on the English model.
High Levels of Safety and Security
Commercial shipping is in the forefront of the agenda of the EU, displaying great sensitivity regarding the standards of safety and security of vessels. Cyprus’ ships are required by legislation to put into practice compulsory security measures when sailing through risky areas, in addition to the particular measures for maritime security as outlined is SOLAS and the ISPS Code. Moreover, shipping policies are frequently upgraded to reinforce the safety levels, wellbeing and employment of seafarers in order to heighten the reputation of Cyprus as a shipping jurisdiction.
A considerable number of ships in the registry of Cyprus are managed by dedicated ship management companies distinguished by their know-how in this field. High-risk ships are determined with large-scale examinations conducted by the competent authorities with inspections being carried out on a worldwide basis. There is a wide network of inspectors of Cyprus flag vessels operating from 23 international ports to guarantee efficient control and to avoid confinements by port controls.
It is worth noting that the Cypriot flag is classified among the “White Lists” of Paris’ and Tokyo’s Memorandums of Understanding (MOUs) and excluded from the list of “Targeted Flag States” of the United States’ Coast Guard, leading to less inspections and fewer delays at international ports. Moreover, Cyprus is a member of the International Maritime Organisation (IMO) and has endorsed all international conventions on shipping safety and security, as well as on pollution prevention.
Grab the opportunities that Cyprus has to offer
There is a wide range of benefits available to individuals wishing to register a shipping company under the Cyprus flag. Aside the island’s sound reputation as an international financial centre, the advantageous tax legislation and competitive registration procedures, combined with fiscal incentives and advanced maritime infrastructure, render Cyprus the ideal jurisdiction for ship-owning, chartering and ship-management companies. Michael Chambers & Co LLC’s team can provide speedy incorporation services to shipping companies, as well as legal assistance to any tax-planning or shipping-related issue. If you wish to speak to one of our shipping and admiralty lawyers, pleasecontact us.