The new tax system for Cyprus merchant shipping was adopted by the European Union as compatible with the EU policies in the year 2010. It is the first time the EU adopted such a simplified merchant tax system for a Member State, which has an open ship register. The new legislation extends the tax benefits applicable to owners Cyprus registered ships and ship managers,owners of foreign ships and charterers. It also extends the tax relief that previously covered only profits from operating ships in maritime activities, to profits from the sale of ships, from interest on capital (excluding interest on funds used for investments) and dividends paid directly or indirectly derived from profits realized by a ship.

The new tonnage tax system includes most of the favorable provisions of tonnage tax systems of other European countries, but also other provisions which give Cyprus a competitive advantage. The new system is expected to contribute significantly to further improve the position held by Cyprus in international shipping.

Some important provisions of the new legislation are the following:
-No tax on profits for the owners of Cypriot ships and ship manager Cypriot ship charterers
-No tax on dividends distributed from such earnings
-No taxation of profit arising from sale or transfer of such ships or shares in owner companies
-No tax on the personal income of officials and crew of Cyprus ships

The rate of tonnage tax is:

* The above rates apply to owners and charterers of Cyprus ships. Ship managers have to pay only 25% of above rates.

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Charilaos Hadjiioannou, BSc, ACA