Cyprus: Offshore Business Sectors
Ship Management and Maritime Operations
In recent years Cyprus has developed a maritime policy which is highly favourable for ship owners.
Cypriot merchant shipping laws are based on the English Merchant Shipping Acts 1894-1954. The Department of Merchant Shipping, part of the Ministry of Communications and Works, handles registration. A ship may be registered in Cyprus if it is majority-owned by a Cypriot person or company; a non-Cypriot company will qualify if it is majority-owned by Cypriots.
Non-resident shipping companies deriving their income from sources outside Cyprus are not subject to Cypriot taxation. Note that Cyprus recently extended a tonnage tax regime for companies that are engaged in international maritime transport and liable to corporation tax in Cyprus. (See Tonnage Tax).
A vessel may only be registered in the Register of Cyprus Ships if:
- More than 50% of the ship’s shares are owned by Cypriot citizens, or by EU citizens that have authorised representatives in Cyprus.
- All the ship’s shares are owned by one or more corporations which have been established and operate under one of these three conditions:
- in accordance with the laws of the Republic of Cyprus and have their registered office in Cyprus.
- in accordance with the laws of any other EU member state, provided that an authorized representative is appointed in Cyprus, or that the management of the ship is entrusted in full to a Cypriot or a Community ship management company having its place of business in Cyprus.
- outside Cyprus or outside any other member state but are controlled by Cypriot citizens or citizens of member states and either have an authorised representative in Cyprus or fully entrusted the management of the ship to a Cypriot or a Community ship management company having its place of business in Cyprus. The corporation is deemed to be controlled by Cypriots or citizens of any other member states when more than 50% of its shares are owned by Cypriots or citizens of anyother member states or when the majority of the directors of the corporation are Cypriot citizens or citizens of any other member state.
Traditionally, registration depends on the age and type of the ship. In July 2005, to aid harmonisation with the EU body of laws, Cyprus amended and improved its policy of vessel registration. The policy covers, inter alia, new categories of vessels, such as research vessels and small passenger vessels.
Under the latest rules, cargo vessels of more than 500 tons and not exceeding 15 years of age may be freely registered in Cyprus. Vessels over 15 years of age but not exceeding 20 may be registered subject to a satisfactory entry inspection. Vessels from 21 to 25 years must also undergo an entry inspection and, where it is legally required for the vessel to comply with the ISM Code, operated by a ship management company having its principal place of business in the EU or European Economic Area (EEA). Vessels of 26 years and older cannot be added to the Cyprus register.
Passenger vessels (defined as those carrying more than 12 passengers on international voyages) not exceeding 30 years in age may be registered in Cyprus if they pass and entry inspection. Passenger vessels from 31 to 40 years must pass various safety inspections and be operated by a ship management company whose principal place of business is in the EU, among other requirements. Passenger vessels older than 40 years cannot be added to the Cyprus register.
Regardless of size, yachts and other pleasure craft may be registered in Cyprus provided that they are used exclusively for recreation and are not engaged in any commercial operations. Vessels in this category which do not exceed 25 years of age may be registered without any additional conditions. Vessels of 26 years and older must pass an entry inspection.
Ships may be provisionally registered while they are in a non-Cyprus port; this must be converted into permanent registration during an actual visit to Cyprus within 9 months.
Registration fees in Cyprus are low, very often lower than those in other registries. There have traditionally been many further advantages to registering in Cyprus, including:
- No income tax, estate duty or capital gains tax for Cyprus-registered ships
- No income tax in Cyprus for foreign crew
- No stamp duty on documents or mortgage deeds
- Anonymity of beneficial owners through nominee or trustee shareholders
- Recognition of Competence Certificates from many countries
- Easy removal of ships from the Register
In June 2003, the Cypriot government decided to abolish the VAT levied on luxury yachts berthed in the country's marinas. The tax, which had been set at a rate of 30% for vessels berthing for six months or more, was highly unpopular amongst the yachting community and was criticised for deterring wealthy tourists at a time of particular economic fragility.
Commenting on the move Cyprus Shipping Council President, Andreas Droussiotis, said: "We do not object to the VAT, because that is normal in Europe. But no other country in the EU has a 30% luxury tax."
In an effort to show that such a high rate of tax benefited neither the yachting industry nor the government, a study was commissioned by opponents of the tax earlier in the year. It found that the government did not significantly increase its revenue as the majority of yacht owners were deterred from berthing as a result of the VAT.
See Offshore Business Review - Shipping for a more general treatment of offshore shipping registries.