The Legal 500

The Cyprus Department of Merchant Shipping has recently issued a circular reminding shipmanagers operating in Cyprus of the arrangements for assessment and payment of their tax liabilities for the fiscal year 2009.

Basis of taxation

Shipmanagers are normally taxed on the basis of the tonnage and age of ships under their management. However, under section 19 of the Income Tax Law of 2002 (Law 118(I)/2002) as amended they may opt to be taxed according to the prevailing Income Tax Law at a rate of 4¼% on their income from ship management services, by submitting a written notice to the Department of Merchant Shipping with a copy to the Department of Inland Revenue. For a specific fiscal year, the notice must be sent at least 30 days before the beginning of the relevant fiscal year and continues to be in force until it is withdrawn in the same way. A written notice of withdrawal which is submitted during any year takes effect at the end of that year and the tonnage basis of taxation is applied from 1 January of the following year.
In practical terms this means that shipmanagers who opted to be taxed on the alternative basis for 2008 will continue to be taxed in the same manner for the fiscal year 2009 unless they have submitted a written notice of withdrawal. Shipmanagers who wish to move to the alternative basis of taxation for 2010 must submit the requisite notice before the beginning of December 2009.
Shipmanagers who opt for the alternative basis of taxation are required to provide the Department of Inland Revenue with an annual Confirmation of Shipmanager´s Status issued by the Department of Merchant Shipping certifying that the company is eligible to be taxed on this basis.

Completion of returns for 2009

Shipmanagers who have not opted for the alternative basis of taxation should obtain and complete the relevant Declaration for the Taxation of Shipmanagement Services (Declaration) [Form MS 51G (Greek version) or MS 51E (English version)] for the fiscal year 2009. Forms may be obtained from the Department of Merchant Shipping or downloaded from its website, which also includes a calculator for the accurate calculation of the tax on each vessel.
The declaration form, certified by an independent authorised accountant or accompanied by the supporting documents specified on the form, must be submitted to the Department of Merchant Shipping during January 2010, together with a remittance for the estimated tax.
Verification of the declarations takes place during February and March 2010.

Estimated assessments

If it concludes that the taxpayer's estimate is incorrect or incomplete the Department of Merchant Shipping may issue an amended assessment on form MS 52G (Greek version) or MS 52E (English version), served by hand or sent by registered post to the taxpayer.
Interest is charged on overdue tax at 5% if it is paid before 31 July and at 9% per annum, if paid later.
In the event that no declaration has been submitted and the Department of Merchant Shipping is of the opinion that there is a liability to tax, the Department may issue an estimated assessment at any time within six years after the end of the relevant fiscal year.
In all cases there are provisions to dispute or appeal against decisions of the Department of Merchant Shipping.
The law also provides criminal sanctions against anyone who wilfully and fraudulently submits an incorrect declaration or assists any other person to do so, or who fails to submit a declaration or to perform any other obligation.

Tax exemption for Community vessels

A tax exemption was introduced in 2008 for Community ships for which the shipmanagement agreement was valid during the period throughout the fiscal year. Shipmanagers are entitled to tax exemption in respect of: "any Community ship to which the provision of shipmanagement services in relation to its crewing and technical management is entirely contracted to a Cyprus or a Community shipmanagement company, which has an office in Cyprus staffed with a sufficient in number and qualifications personnel, for technical, administration and accounting matters relating to ships." This exemption will apply to Community ships for which the shipmanagement agreement was valid throughout 2009.

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