“The New Cyprus Tonnage Tax System”

1. “The New Cyprus Tonnage Tax System” Andreas Chrysostomou Head of Maritime Policy and Standards Division Department of Merchant Shipping

2. Significance of New Tonnage Tax System (TTS) Enhances competitiveness of ship owners, charterers and ship managers. Encourages the employment of European personnel. Maintains shipping know-how. The EC recognises that shipping activities in Cyprus ensure the implementation of Community Acquis on maritime safety on vessels irrespective of flag.

3. Importance for Cyprus Shipping Simplified tonnage tax system approved by EC as compatible with the requirements of the EU acquis. Cyprus is the only open EU Registry achieving the approval of such a tax system and thus a competitive advantage. It secures a stable fiscal environment for Cyprus Shipping.

4. Beneficiaries The tonnage tax system is available to: Ship owners Charterers Ship managers who own, charter or manage qualifyingships engaged in qualifying shipping activities. Those who participate in the TTS are exempted from income tax and pay tonnage tax, calculated on the basis of the net tonnage of the ship.

5. Qualifying ship A qualifying ship is any seagoing vessel certified under applicable international or national rules and regulations and registered in the ship register of any member of the International Maritime Organization and the International Labour Organization, which is also recognised by Cyprus. The regime specifically excludes fishing vessels, ships used primarily for sports or recreation, river vessels, non-self propelled floating cranes, non-ocean going tug boats, floating hotels, restaurants and casinos.

6. Qualifying shipping activity Any commercial activity that constitutes maritime transport, crew management and/or technical management. The definition of maritime transport includes: the traditional carriage of goods and passengers between ports and/or offshore facilities, towage, dredging and cable-laying activities. ancillary activities, such as: hotel, catering, entertainment and retailing activities on board of a qualifying ship, the provision of loading and unloading of cargo within a port area.

7. Income tax exemptions Total exemption from income tax on: Income from the operation of a qualifying ship engaged in a qualifying shipping activity or from rendering crewing and/or technical management services to a qualifying ship, Dividends paid directly or indirectly out of such income, Interest earned on working capital or from the financing, operation and maintenance of a ship or for the payment of expenses arising out of the charter party or for the payment of expenses relating to the management of a ship, Income from the sale of a qualifying ship. Salaries and other benefits of seafarers of a qualifying Cyprus ship engaged in a qualifying shipping activity.

8. Participation in the TTS Ship owners of Cyprus ships by default are within the scope of the TTS. Ship owners of foreign ships, Charterers and Ship managers have the option to be taxed under the TTS or under income tax (10%). Those opting for the TTS must remain in the system for 10 years. Early withdrawal will result in penalties.

9. General Requirements Tax resident in Cyprus. Option “All or Nothing”: all qualifying ships and all qualifying companies belonging to a group must enter the TTS. A share of the fleet must comprise EU flag ships. This share must not be reduced in the three-year period following the entrance to the TTS.

10. General Requirements All non-community ships must comply with relevant international standards and fulfil Community law requirements relating to maritime security, safety, training and certification of seafarers, environmental performance and on-board working conditions.

11. Specific Requirements for Charterers The tonnage of the ships under time or voyage charters should not exceed 75% of the total tonnage of ships chartered and owned, for more than three consecutive years. This eligibility percentage increases to 90% if the ships chartered are EU/EEA ships or their crew and technical management are carried out entirely from the EU/EEA.

12. Specific Requirements for Ship managers Employment of sufficient in number and qualifications personnel (51% of whom must be EU/EEA citizens):

13. Specific Requirements for Ship managers The full management of at least 2/3 of the total tonnage under their crew or technical management, is carried out from the territory of the EU/EEA. Full implementation of the provisions of the Maritime Labour Convention 2006 by crew managers. Ship managers who perform technical management services must be certified under the ISM Code.

14. Further information Visit the DMS website at www.shipping.gov.cy for: The full text of the Law in Greek. Unofficial translation of the Law in English. An overview of the new TTS, available in Greek, English, German and Russian. Tonnage tax calculator.