The Cyprus Department of Merchant Shipping has issued Circular 11/2011 regarding the introduction of tonnage tax under the provisions of the Merchant Shipping (Fees and Taxing Provisions) Law of 2010 (the Tonnage Tax Law). Early action is required in order not to miss the deadline for submission of the necessary application.
Qualifying Cyprus tax-resident owners of foreign ships, charterers and ship managers may opt to be taxed under the tonnage tax scheme in respect of any particular fiscal year under the provisions of section 7, section 19 and section 29 respectively of the Tonnage Tax Law.
In order to do so they must submit a completed Application for Approval of the Option to be taxed under the Cyprus Tonnage Tax System on form MS TT 1 to the Director of the Department of Merchant Shipping, with a copy to the Commissioner of Income Tax, no later than thirty days before the beginning of the relevant year.
The Department of Merchant Shipping will review the application and its supporting documentation and will notify the applicant and the Commissioner of Income Tax within thirty days whether the applicant qualifies or not. If the application is approved, the option will be effective as from the date of receipt of the application and will remain in force until it expires, or is subsequently withdrawn by the owner, charterer or ship manager, as the case may be. A notice of withdrawal given during the course of any year will take effect from the last day of the year. If early withdrawal takes place otherwise than as a result of the disposal of the ships, termination of the charters or cessation of all ship management activities, the tax liability will be recalculated as if the option to be included in the tonnage tax scheme had never been exercised, and the taxpayer will be required to pay any shortfall.
Taxpayers wishing to be included in the scheme for 2011 were unable to do so within the time allowed by the Tonnage Tax Law since the necessary subsidiary legislation for implementation of the Law was not in place at the time. Accordingly, the Department of Merchant Shipping has set a deadline of 31 May 2011 for receipt of applications from owners of foreign ships, charterers and ship managers wishing to be taxed under the tonnage tax system for the fiscal year 2011. If the application is approved, the option will be effective from 1 January 2011.