On the 11th of December 2015, Cyprus and Ukraine signed a protocol amending the existing Convention for the Avoidance of Double Taxation (which was signed on 8th November 2012) and the prevention of fiscal evasion with respect to taxes on income and on capital. The provisions of the signed protocol will come into effect as of 1st January 2019 on the date when the existing Convention will expire.
The signed protocol is based on the OECD Model Tax Convention for the Avoidance of Double Taxation on Income and on Capital and contributes to the further development of the trade and economic links between Cyprus and Ukraine.
“Most favourable nation clause”
During the negotiations of the protocol the “most favourable nation clause” was granted, for taxes on interest, dividends, royalties and capital gains. This means that in case Ukraine enters into a double tax treaty agreement with another country which provides for more favourable provisions for dividends, interests, royalties and capital gains than those provided to Cyprus, the Double Tax Treaty between Cyprus and Ukraine will have to be amended to include these more favourable provisions.
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- The launching of the Yacht Registration Centre Y.R.C
- Provision of services
- Awarded for professional achievements
- New recruits to the Shipping Department
Cyprus Shipping Sector Highlights at a glance:
2015 has been a busy year regarding developments in the shipping sector, aiming towards its modernization and its further development and expansion.
- Further revision of the Cyprus yacht leasing scheme with the lowest effective VAT rate of 2,42%, being the lowest VAT in Europe;
- The initiation of new projects for the creation of Marinas;
- Record breaking revenues from ship management activities;
- The reelection of Cyprus as a Member of the IMO;
- The holding of the Cyprus International Maritime Conference, being one of the most well respected and popular shipping conferences worldwide, in Limassol, in September 2015;
- The application of more tax and other benefits for ship owners, having their vessels registered under the Cyprus flag.
- The signing of Double Tax Treaties with Ukraine and Iran;
Cyprus Ministry of Finance announced today that on the 11th of December 2015 in Kiev, the protocol amending the Convention for the Avoidance of Double Taxation and the prevention of fiscal evasion with respect to taxes on income was signed between the Republic of Cyprus and Government of Ukraine. The signing of the protocol took place in the presence of the President of the Republic of Cyprus, Mr Nicos Anastasiades and the President of Ukraine, Mr. Petro Oleksiyovych Poroshenko.
According to the announcement, the signed protocol will come into effect as of 1st January 2019, on the date when the existing Convention will expire. The existing Convention has been signed on the 8th of November 2012 and entered into force on the 1st of January 2014.
The signed protocol is based on the OECD Model Tax Convention for the Avoidance of Double Taxation on Income and on Capital. During the negotiations a most favourable nation clause has been agreed, for the taxes on interest, dividends, royalties and capital gains. This clause is considered of high importance as Cyprus will be treated equitably with other jurisdictions.
As noted, the text has been agreed between the two negotiating teams of the Contracting States and will contribute to the further development of the trade and economic links between Cyprus and the Government of Ukraine, as well as with other countries.
The announcement concludes by stating that: “Upgrading and expanding the network of Double Tax Conventions, is of high economic and political importance and aims to further strengthen and attract foreign investment in Cyprus as its standing an international business center is elevated”.
* A detailed analysis of the Protocol will be released in a forthcoming newsletter.
As per Circular No. 33/2015 published by the Department of Merchant Shipping (DMS) on the 8th of December 2015 with regards to the Calculation of the Global Share for the Owners of Foreign Ships, Charterers and Ship Managers applied for the fiscal year 2016 which has been conducted in accordance with the Cyprus Tonnage Tax System (Law 44(I)/2010 (the “Law”)), the Director of the Department has advised that the assessment of the Community-flagged Share of each company or group of companies will be carried out by the Director of the Department upon expiry of the third year, on 31st December, as from the date of opting to be taxed under the Tonnage Tax System (TTS). (i.e. on 31st December 2015 for the companies which entered the TTS on 01 January 2013 or during the period 02 January 2012 – 01 January 2013). Subsequently, an additional assessment will be carried out every three years throughout the duration of validity of the Law.
With regards to a company or group of companies whose Community-flagged Share at the time of assessment is less than its Reference Share (unless it is over 60%), no additional non-Community ships will be allowed to enter the TTS until it raises its Community-flagged Share back to its Reference Share as minimum. Nonetheless, those companies or group of companies may take advantage of the sectoral Global Share to include additional non-Community ships in the TTS, in accordance with sections 15(3) (a), 25(3) (a) and 35(2) (a) of the Law and with paragraphs 8 and 10 of The Tonnage Tax (Special Provisions for the Calculation of the Community Flagged Share) Notification of 2010 (P.I. 536/2010- the “Notification”). In that instance, following sections 15(4), 25(4) and 35(3) of the Law, the said owner, charterer or ship manager will be subject to an increase of ten per cent (10%) on the total amount of tonnage tax payable for all the qualifying non-Community ships in his fleet.
Additionally, the DMS relied on paragraph 10 of the Notification, and for the purposes of implementing sections 15(3) (a), 25(3) (a) and 35(2) (a) of the Law, has conducted a calculation in accordance with paragraph 11 of the Notification, on the Community-flagged Share of the relevant global tonnage eligible for tonnage tax in the Republic of Cyprus (Global Share) on a sectoral basis for 2014. Therefore, for 2014, there has been a decrease of the Global Share in comparison to 2013 for: firstly, the Owners of foreign ships from 28.97% to 28.67%; secondly, the Charterers from 74.75% to 70.51%; and lastly, the Ship Managers from 55.62% to 54.23%.
Hence, Owners of foreign ships, Charterers and Ship Managers whose Community-flagged Share is at the time of assessment, that being on 31st December 2015, below their Reference Share (unless this is over 60%) will not be allowed to include additional non-Community ships in the TTS until they increase their Community-flagged Share back to their Reference Share as minimum. The relevant ships will not be considered as qualifying ships and will be taxed with corporate-income tax by the Department of Taxation. In addition, following section 44 of the Law, the company has to keep separate books, records and accounts for those ships.
Pointing out the significant presence of Cyprus in the area of international shipping, the country has been re-elected as a Member of the International Maritime Organisation (IMO) Council for the 2016-2017 biennium.
During the 29th General Assembly of the IMO which took place in London from the 23 November to the 2 December 2015, Cyprus has been re-elected in Category (c) which consists of 20 States which have special interests in maritime transport or navigation. Cyprus has been a member of the International Maritime Organization (IMO) since 1978 and a member of its Council since 1987 and its re-election is of high importance as it allows Cyprus to have an active role in the drafting of International Shipping policy. Moreover, the country’s participation in the IMO Board enhances Cyprus’s international reputation as one of the leading international shipping powers.
As per Circular No. 32/2015 published by the Department of Merchant Shipping on the 25th of November 2015 with regards to the Cyprus Tonnage Tax System (Law 44(I)/2010), the Director of the Department having relied on sections 17(2), 27(2) and 40(2) of the Law and the relevant tables contained in the Annual report of the Paris MOU for the year 2014 has decided that certain flags will be included in the Grey List or the Black List of the Paris MOU for the fiscal year 2015.
Specifically, ships flagged under the flags of: Albania, Algeria, Bulgaria, Curacao, Egypt, Georgia, Jamaica, Lebanon, Libya, Lithuania, Malaysia, Mongolia, Morocco, Poland, Portugal, Slovakia, Spain, St. Kitts and Nevis, Syrian Arab Republic, Thailand, Tunisia, Tuvalu, Ukraine, Vanuatu or Vietnam, are included in the GREY list of the Paris MOU. Moreover, The Qualifying non-Community ships that fall within this List shall have their annual tonnage tax increased by thirty per cent (30%),
Similarly, ships flagged under flags of: Azerbaijan, Belize, Bolivia, Cambodia, Comoros, Dominica, Honduras, Republic of Moldova, Montenegro, Sierra Leone, St. Vincent and the Grenadines, United Republic of Tanzania or Togo, are included in the BLACK list of the Paris MOU accordingly. Qualifying non-Community ships that fall within this List shall have their annual tonnage tax increased by sixty per cent (60%).
In addition, Community and non-Community ships under management flying a flag of a State mentioned in the BLACK list must be deemed to comply with international and Community standards only if the technical and crew management of every such ship is entirely performed from the territory of any Member State. In case of failure of compliance with these requirements, s 54 of the Law will apply, thus the Director may impose a fee to ensure compliance.
The latest biannual Ship Management Survey released on 19 November 2015, by the Central Bank of Cyprus, displayed a considerable increase in respect of ship management revenues, during the first half of 2015. The survey, initially launched in 2009, covers residents of Cyprus who provide ship management services to shipowning companies registered either locally or abroad.
The total revenues for the period increased to €464 million, now corresponding to 5,4% of Cyprus’s GDP, being the highest reported since 2010, with Germany, despite a declination of share to 44%, remaining the leader in terms of overall revenue provision.
A similar trend is demonstrated by Vietnam, Russia and the Marshall Islands, while Singapore has increased its share and Greece has gained a substantial share in the list of revenue contributing countries.
45% of the companies managed to generate revenues in excess of €5 million, while 9% of the companies managed to exceed the €30 million threshold.
Ship management Services:
Core ship management services, including crew, technical and full management, account for 71% of the industry’s revenues.
The share of crew management services increased marginally reaching 41%, while the share of full management contracts, comprising technical and crew management services, remained stable at 44%.
Companies managing between 1-3 ships accounted for 24% of the total population of ship management companies, companies managing between 4-10 ships accounted for 41%, companies managing between 11-40 ships, during the first half of 2015, accounted for 24% and lastly, higher numbers of ships were managed by only 11% of the companies, which accounted for 57% of the total revenues.
Ship Management expenses and fees
The level of cross-border expenses associated with the operations of the ship management industry has increased to a total of €428 million for the first half of 2015, corresponding to the 5% of the country’s GDP.
Crew expenses accounted for 66% of the total amount (51% non-EU crew and 15% EU crew), administration expenses to 18% and ship management expenses to 16%.
Since 2013, a substantial increase has been noted with respect to the transport volume departing from Cyprus, suggesting a possible increase in merchanting and other shipping related services.
The ratification procedure of the Double Tax Treaty signed between Cyprus and Switzerland in 2014 has been completed and as a result the Treaty will come into effect as from 1st January 2016.
The main provisions of the Double Tax Treaty are as follow:
The permanent establishment definition included in the treaty is in line with the meaning provided in the OECD model tax convention. In particular, any building site or construction or installation project or any supervisory activities in connection with such site or project constitutes a permanent establishment only if it lasts more than 12 months
Withholding tax rate on dividend payments – 0% withholding tax if the beneficial owner is:
- A company (other than a partnership) the capital of which is wholly or partly divided into shares and which holds directly at least 10% of the capital of the company paying the dividends for an uninterrupted period of at least one year or;
- A pension fund or other similar institution recognised as such for tax purposes, or
- The government, a political subdivision, local authority or central bank of one of the two contracting states
15% withholding tax in all other cases.
Withholding tax rate on interest payments – 0% withholding tax
Withholding tax rate on royalties payments – 0% withholding tax
Capital Gains Tax
Gains from the disposal of immovable property are taxed in the country where the immovable property is situated.
Gains from the disposal of shares, deriving more than 50% of their value directly or indirectly from immovable property are taxed in the country in which the immovable property is situated, unless:
- Shares are listed on a Stock Exchange or
- The property is used in the company’s business or
- The sale is as a result of corporate reorganization.
In all above cases, any gains are taxable in the country of which the seller is resident.
As part of the ongoing promotion of the Cyprus shipping sector, the Minister of Transport, Communications and Works of Cyprus, Mr. Demetriades, recently visited the USA for the purpose of attracting shipping investments from the US to Cyprus. The trip was highly successful in creating industry awareness.
Locally, as part of the promotion of Shipping in Cyprus, and apart from the existing tax benefits applicable to ship owners of Cyprus vessels, the Council of Ministers of Cyprus has also approved a new measure which concerns foreign ship-owners and their family members. Specifically, Article 18 of the National Guard Law provides for obligatory national service for all male citizens of the Republic of Cyprus on the completion of their 18th year of age and up to the age of 50. Since the law applies to all male residents of Cyprus, it operates as a disincentive for foreign ship-owners for migrating to Cyprus. Bearing in mind the difficult financial position Cyprus has been in, following the financial crisis, the Minister of Defense exercised the powers vested in him under Article 28 of the National Guard Law, and proceeded to discharge all the male ship-owners and the male members of their family over the age of 18, who move to Cyprus and who either own Cyprus-flagged ships or Shipping companies with registered office in Cyprus, from the relevant duties.
The Shipping Industry in Cyprus constitutes an essential source of financial income to the Island, hence any measures taken in an attempt to promote the industry are always welcome.
Louisa Massonidou, Deputy Managing Director and Compliance Officer of CGV, has become a member of the Association of Certified Anti-Money Laundering Specialists (ACAMS) as well as founding member and Board member of the recently launched ACAMS Cyprus Chapter.
4th November 2015 marked the official launch of the ACAMS Cyprus Chapter. We marked this occasion with an evening reception in Nicosia, which CGV were proud to be sponsors of.
Pursuant to their mission and vision, ACAMS Cyprus Chapter aims to provide a platform for AML and general compliance professionals in Cyprus by:
- enhancing knowledge, personal development and promoting the exchange of experiences and expertise;
- providing an environment that facilitates networking amongst members;
- utilising the implementation of the various provisions of the relevant regulations an related directives.
All of the above stated goals will be achieved by organising specialised training events which will focus on advancing the knowledge and skills of the Cyprus AML and financial compliance community.
CGV is proud to be a contributor to the ACAMS Cyprus Chapter.
For more details please visit ACAMS