Tonnage Tax System
Maritime tonnage tax system
Maritime Tonnage Tax System.
A full exemption is provided to ship owners, charterers and ship managers from all profit taxes and imposes tonnage tax on the net tonnage of the vessels.
The Tonnage Tax System applies to qualifying ship owners, charterers or managers of qualifying ships with qualified activities. Under the Tonnage Tax System, the qualifying ship owners, managers and charterers are exempt from Income Tax on various shipping activities.
Qualified vessel is a sea-going vessel that:
- has been certified in line with international principles and legislation of the flag country, and
- is registered in the register of a member country of the International Maritime Organization (IMO) and International Labor Organization (ILO).
Ship Owners.
Tonnage Tax regime applies to any owner of qualifying vessels that carry out a qualifying activity:
- Cyprus flag vessels
- EU/European Economic Area (EEA) flag vessels that exercised the option to be taxed under the Tonnage Tax regime
- Fleet of EU/EEA and non EU/EEA vessels that exercised the option to be taxed under the Tonnage Tax regime
Tax exemptions for Ship Owner.
Tonnage Tax regime applies to any owner of qualifying vessels that carry out a qualifying activity:
- Profits from the use of a qualifying vessel
- Profits from the disposal of a qualifying vessel and/or share and/or interest in it
- Profits from the disposal of shares in a ship owning company
- Dividends paid out of the above profits at all levels of distribution
- Interest income relating to the financing/maintenance/use of a qualifying vessel and the working capital, excluding interest on capital used for investments
Where an option is exercised to enter the Tonnage Tax system, the ship owner must be a Cyprus tax resident and the option must remain in force for at least 10 years.
Ship Charterers.
Tonnage Tax regime applies to qualifying vessels that carry out a qualifying activity. An option exists for all vessels (Cyprus/EU/EEA/fleet) chartered under bareboat, demise, time, voyage charter, provided the charterer is a legal person tax resident in Cyprus. If the choice is not made, profits are taxable under 12,5% corporation tax. The fleet qualifying criteria are the same as for ship owners and so is the minimum 10 year duration.
Tax exemptions for Ship Charterers.
- Profits from the use of a qualifying vessel
- Dividends paid out of such profits at all levels of distribution
- Interest income relating to the working capital / qualifying activity provided such interest is used to pay expenses arising from the charter, excluding interest on capital used for investments.
The law grants the exemption provided a composition requirement is met. That is, at least 25% of the net tonnage of vessels subject to tonnage tax are owned or are bareboat chartered. The percentage can be reduced but not for more than three consecutive years.
Ship Manager.
A qualifying ship manager is a legal person tax resident in Cyprus providing technical and/or crewing services in respect of qualifying vessels (Cyprus/EU/EEA/fleet). Commercial management is taxable under corporation tax.
There is an option to pay TT at 25% of the rates applicable to ship owners and charterers, for all vessels under management. If this option is not used, profits are taxable under 12,5% corporate tax. The fleet qualifying criteria are the same as the ship owners / charterers and so is the minimum 10 year duration.
Tax exemptions for Ship Managers.
- Profits from technical and/or crew management
- Dividends paid out of the above profits at all levels of distribution
- Interest income relating to the working capital / qualifying activity provided such interest is used to pay expenses relating to ship management, excluding interest on capital used for investments.
