Basis of Taxation – Shipping companies

Basis of Taxation – Shipping companies

The Merchant Shipping Legislation fully approved by the EU provides for exemption from all direct taxes and taxation under tonnage tax regime of qualifying shipowners, charterers and ship managers, from the operation of qualifying community ships (ships flying a flag of an EU member state or of a country in the European Economic Area) and foreign (non-community) ships (under conditions), in qualifying activities.


The legislation allows non community vessels to enter the tonnage tax regime provided the fleet is composed by at least 60% community vessels. If this requirement is not met, then non community vessels can still qualify if certain criteria are met.


The legislation includes an “all or nothing” rule, meaning that if a shipowner/ charterer/ ship manager of a group elects to be taxed under the Tonnage Tax regime, all shipowners/ charterers/ ship managers of the group should elect the same.


Exemption is also given in relation to the salaries of officers and crew aboard a Cyprus ship.


The Cyprus Tonnage Tax System (TTS) was re-approved by the EU Commission for another 10-year period as of 01/01/2020.


The TTS applies to qualifying ship owners, ship charterers and ship managers of qualifying ships engaged in qualifying activities. Under the TTS, the qualifying ship owners, managers and charterers are exempt from Income Tax on shipping activities such as:

  • income from operation of qualifying vessel engaged in qualifying activity or rendering crewing and/or technical management services to any qualifying ship engaged in qualifying activity;
  • disposal of a qualifying ship or interest or share in the qualifying ship;
  • disposal of shares in a ship-owning company;
  • bank interest earned on working capital or shipping revenue, provided that the said working capital or shipping revenue is used to pay expenses arising form the qualifying person engaging in the qualifying activity; and
  • dividends paid (either directly or indirectly) out of the profits described above.