EC Endorses Cypriot Maritime Tax

by Lorys Charalambous, Tax-News.com, Cyprus

26 March 2010

The Cypriot government has received approval from the European Commission to phase out levying corporation tax on companies engaged in international maritime transport in favour of a tonnage-based tax regime. A Commission investigation of the scheme found that it will enhance the competitiveness of the Cypriot fleet without unduly distorting competition in the European Union (EU).

The tonnage tax scheme allows companies to opt for a tax calculated on the net tonnage of the fleet that they operate instead of being taxed on the actual profits of their maritime transport activities. The tonnage tax scheme would also be applicable under certain conditions to tugboats, dredgers and cable-layers.

The Commission considers that the scheme is in line with the European Union's Guidelines on state aid to maritime transport. It also found strict ring-fencing measures will avoid any risks of tax evasion or spillover of the benefits of the scheme to non-shipping activities. Finally, the scheme complies with the aid ceiling provided for in the Guidelines; the government has estimated that the annual cost of the measure would be EUR1.5m

The Commission authorized the scheme until December 31, 2019. It is aimed at supporting the shipping sector in Cyprus, based on similar schemes introduced by other member states.

The Cypriot maritime industry is one of the largest in the EU and the 10th largest worldwide. Moreover, Cyprus is the biggest third party ship management centre in the EU.

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