The European Commission approved a prolongation of the tonnage tax and seafarer scheme in Cyprus on 16 December 2019. It was one of five separate decisions in respect of schemes to encourage ship registration in Europe and contribute to the global competitiveness of the sector without unduly distorting competition.
In respect of the tonnage tax schemes in Cyprus, the Commission found that it complied with the rules limiting tonnage taxation to eligible activities and vessels. In respect of the taxation of dividends of shareholders, the Commission also found that it ensured that shareholders in shipping companies were treated in the same way as shareholders in any other sector.
In respect of the seafarer scheme, the Commission found that Cyprus had agreed to apply the benefits of the scheme to all vessels flying the flag of any EU or EEA member state. It concluded that it was therefore in line with EU State aid rules and would contribute to the competitiveness of the EU maritime transport sector.
To address the risk of flagging out and relocation of shipping companies to low-tax countries outside of the EU, the Commission’s 2004 Guidelines on State aid to maritime transport allow member states to adopt measures that improve the fiscal climate for shipping companies.
Tonnage tax provides that shipping companies can apply to be taxed either on a notional profit or the tonnage they operate, instead of being taxed under the normal corporate tax system. This can reduce the overall level of taxes paid and increase their predictability for the companies.
Seafarer schemes provide that labour costs – income tax and social security contributions – for seafarers employed on board vessels flying the flag of EU or European Economic Area (EEA) member state may be partly or totally reduced.
In its application of the Maritime Guidelines, the Commission is determined to ensure consistency and equal treatment of shipping companies throughout the EU whilst at the same time making sure that any beneficial tonnage tax and seafarer schemes do not contravene internal market rules or spill over into other sectors unrelated to maritime transport.
The other four decisions related to the introduction or prolongation of tonnage tax and seafarer schemes in Denmark, Estonia, Poland and Sweden.