The Merchant Shipping (Fees and Taxing Provisions) Law 2010 ('the tonnage tax law') requires that, in order to qualify for the tonnage tax scheme, EU-flagged ships (ie, ships lawfully registered in and flying the flag of an EU member state or any other contracting party to the European Economic Area Agreement) must account for at least a specified minimum percentage ('the reference share') of the taxpayer's fleet. The reference share is calculated at the date of entry to the tonnage tax scheme.

The tonnage tax law requires the Deputy Ministry of Shipping to assess the EU-flagged share of each participant in the tonnage tax scheme at the third year from the date of opting to be taxed under the tonnage tax system.

The ministry recently announced the outcome as at 31 December 2018 of its review of companies that entered the tonnage tax system between 1 January 2015 and 1 January 2016.

As a general rule, any company or group of companies whose EU-flagged share at the time of assessment is less than its reference share and less than 60% cannot introduce any additional non-EU ships into the tonnage tax system until it increases its EU-flagged share to at least the level of its reference share.

However, the tonnage tax law(1) and the Tonnage Tax (Special Provisions for the Calculation of the Community Flagged Share) Notification 2010(2) allow owners, charterers or managers to introduce additional non-EU vessels if the aggregate share of EU-flagged ships in their individual sector has increased compared with the reference date. Taxpayers taking advantage of this concession are subject to a surcharge of 10% of the total amount of tonnage tax payable for all the qualifying non­-EU ships in their fleet.

According to the ministry's calculations, the global share of EU-flagged ships has decreased in comparison with 2016 in all sectors. This means that for the fiscal year 2019, the option of introducing additional non-EU vessels and paying the surcharge is unavailable.

Owners, charterers and ship managers whose EU-flagged share on 31 December 2018 was less than 60% and less than their reference share cannot include additional non-EU ships in the tonnage tax scheme until they increase their EU-flagged share to at least their reference share. Any additional ships will be treated as non-qualifying ships, for which the taxpayer will be liable to pay corporate income tax on their profits, and must maintain separate books, records and accounts as provided by Article 44 of the tonnage tax law.

For further information on this topic please contact Costas Stamatiou at Elias Neocleous & Co LLC by telephone (+357 25 110 110) or email ([email protected]). The Elias Neocleous & Co LLC website can be accessed at


(1) Articles 15(3)(a), 25(3)(a) and 35(2)(a).

(2) PI 536/2010.