Cyprus has recently introduced the New Merchant Shipping Law of 2020 (hereinafter “the new Law”) which is a consolidation of the basic Law of 2010 (Law 44(I)/2010) and the amendments introduced by the Law of 2020.
The amendments of the Merchant Shipping Law are in line with the decision of the European Commission on 16 December 2019 to extend the Cyprus tonnage tax system and to approve it as being in accordance with the European Union ("EU") Guidelines on state aid to maritime transport industry.
The renewed tonnage tax system in Cyprus covers the three major shipping activities in Cyprus being the Ship-owing, Shipmanagement and Chartering.
B. MAJOR AMENDMENTS
By virtue of the Law of 2020, the validity period of the Merchant Shipping Law of 2010 has been extended for another ten years until the 31st of December 2029.
The definition of the maritime transport has been amended so as to include ancillary activities to maritime transport provided that the revenue from such activities do not exceed the 50% of the total gross income from the activities of each qualifying ship under tonnage tax from a qualifying ship owner or a qualifying ship charterer.
The new Law defines the ancillary activities as:
As already defined in section 2 of the basic Law, a qualifying ship is every seagoing vessel that has been certified according to the current international or national regulations and is registered in the register of any country that is a member of the International Maritime Organisation and the International Labour Organisation and that has been recognised by the Cyprus Republic.
The new Law includes both a list of eligible vessels as well as a list of the vessels which are excluded from the definition:
The vessels which are included in the definition of “qualifying ship” are the following:
According to the new Law, the above-mentioned list of eligible vessels may be extended following the prior notification approval by the European Commission.
The vessels excluded from the definition are the following:
Following the amendments of Article 6 of the basic Law, intra-group transactions are eligible for tonnage tax without restrictions.
Specifically, an owner of a ship which is bareboat chartered out shall be deemed to be a qualifying owner if the ship is bareboat chartered to a charterer being part of the same group with the owner.
Conversely, non-intra group transactions will be eligible for tonnage tax provided that:
The above provisions do not apply to existing bareboat charter agreements until their expiration date or up to 31 December 2022, whichever takes place earlier.
Under the new Law, the tonnage tax is possible to be further reduced by 30% in the case of a Cyprus ship (section 9 of the new Law) or EU/EEA ship (section 13 of the new Law) using mechanisms for environmental preservation of the marine environment and the reduction of the effects of climate change.
The eligibility criteria for such reduction as well as the level of reduction may be set by a relevant Order of the Council of Ministers published in the Official Gazette of the Republic.
In accordance with the EU decision, the tax benefits existing for seafarers have been extended to seafarers of Community ships.
More specifically, under section 55 of the new Law the tax exemptions apply to seafarers who:
Where the vessels provide scheduled passenger services between ports of the Community, only seafarers who are citizens of the EU/EEA are eligible to benefit from the scheme. In all other cases, the exemptions apply to all seafarers (citizens of a Member State or a non-Member State).
The extension of the Cyprus Tonnage Tax system for another ten years by the European Commission proofs the system’s fairness and transparency. This extension will enable the Cyprus shipping industry to grow even more making Cyprus one of the leading jurisdictions in the shipping industry.
This publication has been prepared as a general guide and for information purposes only. It is not a substitution for professional advice. One must not rely on it without receiving independent advice based on the particular facts of his/her own case. No responsibility can be accepted by the authors or the publishers for any loss occasioned by acting or refraining from acting on the basis of this publication.
Partner – Tax Department
Senior Associate – Tax Department
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