The Cyprus Tonnage Tax System in relation to ship owners

Author: N. Pirilides & Associates LLC

Cyprus is currently holding the 10th largest merchant navy in the world and the 3rd largest in the European Union. Cyprus is a major shipmanagement center worldwide with a total of around 60 shipmanagement companies operating in its territory. It has the EU-approved ‘Open Registry’ allowing non-Cypriot citizens to register ships under Cypriot flag. This regime was reintroduced with the Merchant Shipping Law (Fees & Taxing Provisions) in 2010. Ship owners under Cyprus flag are exempted from Income Tax and are automatically taxed under the TTS. This is one of the factors that have made Cyprus a favourable destination for such Business.

Which Ship Owners can be taxed under TTS?

(a) an  owner  of  a  Cyprus  ship under Cyprus flag,  that  is  a  qualifying  ship  engaged  in  a  qualifying  shipping activity ; or


(b) a tax resident  owner of a Community ship who has opted to be taxed under the  tonnage  tax  system  in  accordance  with  section  7  and  the  ship  is  a qualifying ship engaged in a qualifying shipping activity ; or


(c)  a  tax  resident    owner  of  a  fleet  of  ships  comprising  Community  and  non  -  Community ships who has opted to be taxed under the tonnage tax system in accordance with section 7,  and the said ships  are qualifying ships engaged in a   qualifying   shipping   activity,   and   furthermore   provided   section   15   is   fulfilled.


According to section 7 of the Merchant Shipping Law (Fees & Taxing Provisions) of 2010, ship owners of foreign ships can opt (as per paragraph (b) and (c) above) for Tonnage Tax System. This can be achieved by filling a written application addressed to the Director of the Merchant Shipping Department with a copy to the Director of the Tax Department at least thirty days prior to the 1st January of the relevant year. If it is approved, the owner of the foreign ship has to remain in the Tax Tonnage System for 10 years otherwise if he decides to opt out, he will be liable to pay the difference between the tax which the owner would have been liable to pay  had the  provisions  of  the  Income  Tax  Laws  of  2002 as amended applied,    and  the  amount  of  relevant  tax which the owner paid when he was taxed under the  tonnage  tax  system.


Cyprus plays a prominent role as a leading shipping and ship-management destination and will continue to strengthen its position in the world economy by maintaining and enhancing its sound maritime infrastructure, favorable tax regime and competitive ship registration and annual tonnages tax rates.


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