Part of Cyprus' attraction to shippers stems from an attractive set of tax incentives and supporting services that make it easy to operate a shipping business there.
Generous Tax Incentives for Shipping Operations.
The most important reason for Cyprus's success as a shipping center is the tax incentives the country offers to ship owners, ship managers and crewmembers. For ship owners, Cyprus offers exemption from any Cyprus income or corporation tax on the income of a ship owner of a Cyprus ship from the operation of such ship in any shipping enterprise between Cyprus and ports abroad or between foreign ports. In essence, no income tax is payable on the profits derived from shipping activities by a Cyprus shipping company which owns ships under the Cyprus flag.
Cyprus also offers tax exemptions for dividends that are paid directly or indirectly from profits of a Cyprus ship from the operation of such ship in any shipping enterprise between Cyprus and ports abroad or between foreign ports. In addition, Cyprus does not levy a withholding tax on dividends paid by ship owning companies, does not impose a capital gains tax on the sale of a ship or on the sale or transfer of the shares of a ship owning company, and the country reduces the tonnage tax levied on ship owners if a Cyprus ship management company manages its ships.
The tax incentives that Cyprus offers to ship managers include no withholding tax on dividends paid by ship management companies and no capital gains tax on the sale of shares of a ship management company. Cyprus also offers incentives for crew earnings, which mean that the earnings of the crew of Cyprus ships are exempt from Cyprus income tax.
Robust Support Services make Cyprus an Ideal Location for Maritime Activities.
Tax incentives are not the only factor that has contributed to Cyprus' attractiveness to shippers. There is a unique package of support services available to shippers in Cyprus that make it worthwhile to establish shipping operations there. These services include a large number of ship management companies that have established a presence in the country, laws allowing shippers to better protect their ships from pirate attacks, a legal system conducive to shipping operations, a superior banking system and a professional workforce that makes it attractive to conduct shipping operations there.
Cyprus is one of the largest ship management centers in the world, and is the European Union's biggest ship-management center, with revenue from ship management accounting for five percent of the country's GDP in the first half of 2012. More than 140 ship owning and ship management companies conduct their international activities in the country and many of the largest ship management companies in the world have established fully fledged offices in Cyprus, making the country an ideal shipping location.
In addition, Cyprus is the first country that has laws allowing ship owners and operators to have armed guards on board its merchant ships to protect the crew, ship and cargo from pirate attacks. The law was introduced last year and has enhanced the country's image as a reliable and constantly developing maritime center.
Other aspects of Cyprus' legal system also make it attractive to Chinese shippers. Cyprus is a signatory to all international maritime conventions and has a bilateral agreement with China that provides significant economic advantages to Chinese shipping enterprises that want to establish themselves in Cyprus.
Cyprus is a respected international banking center, providing a range of services through a wide network of banks. The common banking practice and the legal framework in the country is based on the UK model. The country has a number of foreign bank branches that help international businesses with their banking needs. Companies in need of funding can easily get business loans and credit facilities, such as short-term loans or working capital overdrafts. Other services are also available to international companies based in Cyprus.
As one of the largest international shipping centers in the world, Cyprus has a wide range of services provided by competent and experienced professionals. In addition, a well-educated, English speaking workforce makes it much easier to conduct shipping business in Cyprus compared to other EU countries.
Ship Registration in Cyprus.
Considering the significant tax and supporting service advantages that conducting shipping operations in Cyprus provide, Chinese investors looking to enter the shipping business would be wise to conduct their operations there.
A good way to get a ship registered as a Cypriot is to form a shipping company in the country, as a ship is deemed to be Cypriot if it belongs to a company registered in Cyprus, no matter who owns the shares in the company. Incorporation of a Cyprus shipping company is simple and inexpensive and single-ship companies have become the norm for ship owners who want to register a ship in Cyprus.
A Cypriot company can either be a private company established by one or more persons or a public company established by any seven or more persons who establish the company by signing a memorandum of association. There is no minimum required capital for establishing a private company in the country. The process for registration of a company can be complete in as little as seven days. The first step is reserving a company name and getting initial approval from the Registrar of Companies, after which prospective company owners should have a lawyer prepare a memorandum and articles of association for the company. After these documents have been prepared, submit the documents to the Registrar of Companies, after which the company should be registered at the Cypriot ministry of commerce, ministry of finance and ministry of labor.
A ship can also be deemed Cypriot if it belongs to a company registered elsewhere in the EU, provided either that the company has appointed a representative in Cyprus or that the ship is managed by a Cyprus ship management company or an EU company that has operations in Cyprus. A ship can also be deemed Cypriot if it is owned by a company registered outside the EU that has Cyprus citizens as its controlling shareholders.
Provided that the ship is a Cypriot ship, it can be registered fairly easily by presenting the relevant documentation to the Registrar of Cyprus ships. The requirements pertaining to the ship itself are:
- Passenger ships of any age must successfully undergo an entry inspection and subsequent annual inspections. Passenger ships over 30 years old but not exceeding 40 years of age may be registered provided they undergo an inspection of the hull, machinery and general condition of the vessel in addition to the standard entry inspection and standard annual inspections thereafter. They must also be operated by a Cypriot or EU (or EEA) ship management company having its place of business in Cyprus, and which is adequately staffed with qualified personnel and certified as compliant with EU regulations. Passenger ships over 40 years of age are not normally accepted for registration.
- Mobile offshore drilling units may be registered without any additional conditions if they do not exceed 25 years of age. If they are over 25 years old, they may be registered subject to the conditions set out above for cargo ships between 20 and 23 years old. Self-propelled mobile offshore drilling units must also comply and be certified in accordance with the International Maritime Organization Code for the Construction and Equipment of Mobile Offshore Drilling Units.
- Cargo ships of any type exceeding 1000 gross tons may be registered without any further requirement up to 15 years of age. Ships between 15 and 20 years of age require a satisfactory entry inspection. Ships over 20 years old (but not exceeding 23 years) may be registered subject to a satisfactory entry inspection and provided they are operated by a Cypriot or EU (or EEA) ship management company having its place of business in Cyprus, and which is adequately staffed with qualified personnel and certified as compliant with EU regulations. Cargo ships over 23 years of age are not normally accepted for registration.
- Smaller ships, including yachts, fishing ships, auxiliary ships, ocean going tug boats over 500 tons and cargo ships below 1000 gross tons, may also be registered subject to certain conditions.
