A Guide to Ship Registration

Shipmanagement Services

Provision of shipmanagement services means the services relating to the crewing of a Cyprus or foreign ship and /or to the technical or commercial management of such ship, by virtue of a shipmanagement agreement concluded with the owner or the bareboat charterer of a ship, by a legal person having an office in the Republic staffed with sufficient in number and qualifications personnel (Shipmanagement Company).

Types of shipmanagement services:
"management services relating to the supply of crew" (Crewing) means services relating to the supply of either the whole or part of the crew, as stated in the safe manning certificate of the ship.

"technical management" means the monitoring of the condition of the hull, the engines and the equipment of the ship in order to maintain the standards acceptable by her Flag State according to the relevant Laws and Regulations in force.

"commercial management" means:
(a) The provision of chartering services, which includes seeking and negotiating employment of the ship and the conclusion of charter parties or other contracts relating to the employment of the ship, in accordance with the instructions of the shipowner,
(b) the payment to shipowners of all hire and freight revenues and any other moneys, to which the shipowners are entitled and arise out of the employment of the ship, and
(c) the provision of voyage estimates, accounts, the calculation of hire, freights and demurrage, and/or dispatch moneys due from or due to the charterers of the ship.

Commercial manager is the person/professional/company that acts on behalf of the shipowner, against payment and by virtue of a written Ship Management Agreement that covers the activities (a), (b) and (c) of the above definition simultaneously.

Sufficient in number and qualifications personnel is defined as follows:

1. Persons providing management services related to the supply of crew (crewing) or technical shipmanagement services and have an office in the Republic of Cyprus, staffed:

(a) in case they manage up to 10 ships, with at least 5 persons (including one qualified marine engineer or one skilled crew manager, as the case may be),
(b) in case they manage more than 10 ships, with at least 10 persons (including two qualified marine engineers or one skilled crew manager, as the case may be).

2. Persons providing commercial shipmanagement services and have an office in the Republic of Cyprus staffed with one skilled commercial manager and at least three other persons..

Taxation of Cypriot Shipmanagement Companies
Cypriot companies are subject to a uniform corporate tax rate of 10% on their net earnings. Shipmanagement companies, however enjoy, subject to the conditions listed below, a special tax status. Shipmanagers are automatically subject to the taxation of the shipmanagement services on the basis of the tonnage of ships, for which shipmanagement services have been rendered. However, they have the option to be taxed under Section 28 F of the Income Tax Law, at the rate of 4,25% on their net earnings2.

This option may be exercised by interested parties with a written notice addressed to the Department of Merchant Shipping with a copy to the Commissioner of Income Tax. For a specific fiscal year, the notice must be filed at least 30 days prior to 1 January of the relevant fiscal year, and may remain in force until its withdrawal by the same procedure.

This special tax is applicable to any ship managed by a Cypriot or a Community shipmanager (Cyprus flag or foreign flag vessel), and is equal to 25% of the amount calculated as prescribed in the Second Schedule of the Merchant Shipping (Fees and Taxing Provisions) Laws 1992-2007. The new taxation regime covers the three basic types of shipmanagement services, which are commonly effected internationally, i.e. crewing, technical and commercial management.

The Shipmanagement companies which are eligible to benefit from this tax regime are subject to the following conditions:

1. Have an office in the Republic of Cyprus;
2. Be staffed with a sufficient in number and qualifications personnel (as described in the previous section);
3. Provide shipmanagement services to the ships they manage.

Section 4 of The Merchant Shipping (Fees and Taxing Provisions) Laws of 1992 to 2007 provide, for the period ending December 2020, for an exemption from income tax:

Administrative and procedural aspects of the new tax system are governed by the Merchant Shipping (Taxation of Shipmanagement Services) Regulations of 2000 (P.I. 395/2000).

Shipmanagers, who will opt or opted to be taxed under the provisions of the Income Tax Law will have to provide, for every fiscal year, the Department of Inland Revenue with a Confirmation of Shipmanager’s Status. Such Document is issued by the Department of Merchant Shipping and certifies that the company is eligible to be taxed at the rate of 4,25% on the income derived from the rendering of ship management services.