The Merchant Shipping (Fees and Taxing Provisions) Law of 2010 (the Tonnage Tax Law) left certain issues of detail to be determined by the Cyprus Department of Merchant Shipping ("DMS"). The DMS has now issued Notifications setting out requirements for qualifying shipmanagers and prescribing the arrangements for calculation and payment of tax by owners and charterers of foreign ships and shipmanagers. A summary of their main provisions is given below.
The Tonnage Tax for Ship Managers (Special Provisions and Requirements) Notification of 2010
This Notification sets out the prescribed procedures for shipmanagers to demonstrate their entitlement to taxation under the tonnage tax system. Shipmanagers are required to complete a special form, which may be either the application form to enter the tonnage tax system, or the tax declaration form, listing details of all vessels under management and evidencing compliance with section 33(2) of the Tonnage Tax Law. Where a shipmanager provides only partial management services such as crew management or technical management, details of other shipmanagers providing services to the same ship must be given. The form must be submitted to the DMS in paper form with an electronic copy.
The DMS may request further information or documentation such as copies of ISM certificates and copies of management agreements.
Where their responsibilities include crew management shipmanagers are required to demonstrate compliance with the obligation to insure against liability for claims in the event of death or long-term disability of seafarers under the 2006 Maritime Labour Convention of the International Labour Organization. They must also ensure that the provisions of the Maritime Labour Convention concerning the seafarer's employment agreement, compensation in the case of a ship's loss or foundering, provision of medical care, shipowner's liability including payment of wages in case of accident or sickness and repatriation are properly applied, and provide any necessary financial security. They must make declarations of compliance in the form specified in Schedule I and Schedule II of the Notification and submit them to the DMS no later than two months after the end of the fiscal year concerned, together with their tax declaration. The DMS may require the shipmanager to produce additional documentary evidence to support the declarations, such as certificates of insurance, copies of crew management agreements and copies of seafarers' employment contracts.
The Tonnage Tax (Special Provisions on the Levy and Collection) Notification of 2010
This provides that tonnage tax is to be calculated by the taxpayer and is payable to the DMS annually, for as long as the ship was operative or the ship management contract was in force during the fiscal year or part of it. Fractions of a month are considered as a whole month for purposes of calculating the tax. The taxpayer is required to submit a declaration of tax payable and to pay the calculated amount according to the declaration within two months after the end of the fiscal year.
The declaration must be submitted to the DMS in paper form, signed by a director and certified by an independent accountant authorised to practise in Cyprus. In addition a copy of the declaration should be submitted to the Department electronically. Owners and charterers may produce supporting documents with regard to the declaration instead of having it certified. This option is not available to shipmanagers.
The DMS will examine the declaration and may request further information, which the taxpayer has 30 days to provide. The DMS may accept the taxpayer's self-assessment or, if it considers that it is inaccurate or incomplete, impose its own assessment. The assessment must be made in writing and delivered to the taxpayer within 120 days of the date of submission of the declaration or of any further information requested. Any balance of tax payable must be paid within 60 days.
In addition, where no declaration has been submitted and the DMS is of the reasoned opinion that tax is payable, an assessment may be issued up to 6 years after the end of the fiscal year concerned. The tax assessed, together with interest for late payment, is payable within 30 days. The interest rate is set by the Minister of Finance under the Uniform Public Interest of Late Payment Law of 2006.
Objections to assessments imposed by the DMS must be submitted in writing, stating the grounds of objection, within 30 days of receipt of the assessment. In the case of an assessment raised because no declaration had been submitted the objection will not be considered until the tax and interest for late payment have been paid and a declaration has been submitted for the relevant year. The DMS will consider the objection and may request further information or documentation.
If agreement can be reached between the taxpayer and the DMS an amended assessment will be issued and any balance of tax payable or refundable must be settled within 30 days. If no agreement can be reached the DMS determines the tax on the basis of the information in its possession and notifies the taxpayer. Any balance of tax payable or refundable must be settled within 30 days. If the DMS has not determined an objection and issued a decision within 3 months of the objection having been submitted the objection is automatically determined in the taxpayer's favour. This 3 month period may be extended by the time taken for the taxpayer to produce any additional information or documents requested by the DMS.
If the taxpayer is dissatisfied with the decision of the DMS he may apply to the Supreme Court under Article 146 of the Constitution for a review of the decision or he may file an "hierarchical recourse" to the Minister of Communications and Works against the decision. Any hierarchical recourse must be filed within 45 days and must be accompanied by all relevant evidence. The Minister has 6 months to determine the issue. If the taxpayer is dissatisfied with the Minister's decision he may apply to the Supreme Court under Article 146 of the Constitution for a review of the decision.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
