Taxation
For the period ending on the 31st December 2020, no income tax shall be charged, levied or collected:
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upon the income derived by the shipowner of a Cyprus ship from the operation of such ship (with the exemption of any fishing enterprises using Cyprus as their base); |
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upon the dividends paid to the shareholder or the members of a corporation, out of profits made from the operation of a Cyprus ship. |
Cypriot companies are subject to a uniform corporate tax rate of 10% on their net earnings. Shipmanagement companies, however enjoy, subject to the conditions listed below, a special tax status. Shipmanagers are automatically subject to the taxation of the shipmanagement services on the basis of the tonnage of ships, for which shipmanagement services have been rendered. However, they have the option to be taxed under Section 28 F of the Income Tax Law, at the rate of 4,25% on their net earnings.
This option may be exercised by interested parties with a written notice addressed to the Department of Merchant Shipping with a copy to the Commissioner of Income Tax. For a specific fiscal year, the notice must be filed at least 30 days prior to 1 January of the relevant fiscal year, and may remain in force until its withdrawal by the same procedure.
This special tax is applicable to any ship managed by a Cypriot or a Community shipmanager (Cyprus flag or foreign flag vessel), and is equal to 25% of the amount calculated as prescribed in the Second Schedule of the Merchant Shipping (Fees and Taxing Provisions) Laws 1992-2004.
The new taxation regime covers the three basic types of shipmanagement services, which are commonly effected internationally, i.e. crewing, technical and commercial management.
The Shipmanagement companies who are eligible to benefit from this tax regime are subject to the following conditions:
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1. Have an office in the Republic of Cyprus; |
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Be staffed with a sufficient in number and qualifications personnel (as described in the previous section); |
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Provide shipmanagement services to the ships they manage. |
The special tax on shipmanagement services is not applicable in the case of Cypriot or community ships which by virtue of section 8 (3) (b) (i) of the Merchant Shipping (Fees and Taxing Provisions) Laws 1992-2004, benefit from a 30 percent reduction on the annual tonnage tax payable by their owners, on account of their technical and crewing management being entirely carried out by a Cypriot or Community shipmanagement company.
Section 4 of The Merchant Shipping (Fees and Taxing Provisions) Laws of 1992 to 2004 provides for the period ending December 2020 for an exemption from income tax:
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upon the dividends received from the rendering of shipmanagement services, |
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upon the income derived by any person from the rendering of ship management services. |
Administrative and procedural aspects of the new tax system are governed by the Merchant Shipping (Taxation of Shipmanagement Services) Regulations of 2000 (P.I. 395/2000).
Shipmanagers, who will opt or opted to be taxed under the provisions of the Income Tax Law will have to provide, for every fiscal year, the Department of Inland Revenue with a Confirmation of Shipmanager´s Status. Such Document is issued by the Department of Merchant Shipping and certifies that the company complies with the requirements of the Law[1] and is thus eligible to be taxed at the rate of 4,25% on the income derived from the rendering of ship management services.
[1] The Merchant Shipping (Fees and Taxing Provisions) Laws of 1992 to 2007 and the relevant Regulations of 2000 (P.I. 395/2000).