05 Nov, 2013

Yacht Registration in Cyprus

Categories: Uncategorized

FinExpertiza Cyprus provides full services in assisting clients to purchase/lease a yacht and register it in Cyprus under the Cyprus flag.

Yacht Registration

Ship and yacht registration in Cyprus is regulated by the Merchant Shipping (Registration of Ships, Sales and Mortgages) Law of 1963, as amended from time to time (the “Law”). The Law does not make a special reference to yachts as such, but to small vessels or recreational crafts.

In accordance with the “Law” recreational crafts may be registered in the Register of Cyprus Ships. These vessels are permitted to sail in both national and international waters.

Recreational crafts may also be registered in the Register of Small Vessels according to the provisions of the Emergency Powers (Control of Small Vessels) Regulations of 1955. These vessels are only permitted to sail in Cyprus territorial waters.

The legal framework governing the registration of recreational crafts has been developed to harmonize local legislation with the European Directives 94/25/EC and 2003/44/EC which were both incorporated in the internal legal order via the Basic Requirements (Recreational Crafts) Regulations 2003 and Basic Requirements (Recreational Crafts) (Amendment) Regulations 2004.

A “recreational craft” is defined by the above EU Directives as any boat of any type intended for sports and leisure purposes of hull length from 2.5 m to 24 m, regardless of the means of propulsion. The same boat will still be covered even if used for charter or recreational boating training when placed in the community market for recreational purposes

*For recreational crafts built for own use separate requirements apply.

Ships of length less than 13 m employed only in coastal navigation of the Republic and Sovereign Base Areas and ships without a whole or fixed deck employed solely in fishing, lightering or trading coastwise of the Republic or the Sovereign Base Areas (or a prescribed radius therefrom) may not be registered in The Register of Cyprus Ships.

Small Vessels: All fishing vessels and pleasure or other vessels of below 15 net registered tons operating or plying exclusively in any Cyprus port or shipping place or between such ports and shipping places or otherwise within Cyprus territorial waters must be recorded at the office of the Director of the Department of Merchant Shipping in accordance with the Emergency powers (Control of Small Vessels) Regulations) 1955. Owners must provide the vessel’s name, description and dimensions, name and address of the Owner and when and how the vessel was acquired. The Director after recording the vessel will allot a registration number to be displayed on vessel’s each bow and stern.

*The Cyprus Registry offers one of the most competitive registration and annual fees regime internationally.

Taxation: The new Yacht Leasing Scheme of Cyprus

In March 2012, Cyprus VAT department issued new guidelines thereby introducing an advantageous leasing scheme for pleasure yachts in Cyprus. The new scheme seeks to benefit yacht owners allowing them significant tax savings on the lease payments and the final purchase price if they opt to purchase the yacht at the end of the lease agreement.

The new model is based on the assumption that the larger the yacht the more time it will spend navigating outside EU territorial waters. In this respect the 17% Cyprus VAT rate will only apply to the period the Yacht is confined within the EU territorial waters. Depending on the type and size of the yacht predetermined percentages of the VAT rate will apply without the need to keep any kind of record proving the navigation of the yacht in and out of the EU territorial waters.

The VAT department has published one table for motor yachts and one for sailing yachts determining the percentage of VAT payable under a lease agreement depending on the assumed percentage of use within EU territorial waters based on the yacht’s length.

In this respect, a yacht owner may pay a VAT rate as low as 3.4% which is lower than the 5.4% of similar VAT models offered by some of Cyprus main yachting competitors.

Motor Yachts

Length

% of use within EU

VAT calculation

Over 24 meters

20%

20% of 17%

14.01 to 24 meters

30%

30% of 17%

8.01 to 14 meters

50%

50% of 17%

Up to 8 meters

60%

60% of 17%

Yacht only licenced to be used within Cyprus waters

100%

100%

Sailing Yachts

Length

% of use within EU

VAT calculation

Over 24 meters

20%

20% of 17%

14.01 to 24 meters

30%

30% of 17%

8.01 to 14 meters

50%

50% of 17%

Up to 8 meters

60%

60% of 17%

Yacht only licensed to be used within Cyprus waters

100%

100%

Conditions for the new VAT scheme to apply

  1. There must be a financial leasing agreement between a lessor which must be a Cyprus company and a lessee that can be of any origin.
  2. An initial contribution of 40% of the yacht’s value must be paid by the lessee to the lessor.
  3. The yacht must be brought to Cyprus territorial waters within a month from the commencement of the agreement.
  4. Monthly lease payments have to be made from the lessee to the lessor for a lease duration that may not exceed 48 months.
  5. A total profit of 10% of the value of the yacht must be generated by the lessor from the lease agreement. This will be subject to 12.5% Cyprus corporate tax.
  6. Approval must be sought by the Cyprus VAT commissioner confirming the applicable VAT rate and accepting the declared value of the yacht.
  7. At the end of the lease agreement the final contribution must be over 5% of the value of the yacht. This will be subject to the standard VAT rate of 19%.

Working example

A motor yacht of 30 m length and declared value of €15,000,000. Under the standard 19% VAT rate a prospective buyer would have to pay €2,850,000 VAT.

Under the new scheme because the length of the yacht is above 24 m the applicable VAT rate would be 3.4%.  Payable VAT would be as follows:

  1. An initial installment of €6,000,000 representing 40% of the Yacht’s value would become payable on the commencement of the agreement. The 3.4% VAT payable would be €204,000.
  2. A final installment of €750,000 would become payable to the lessor to satisfy the requirement that at least 5% of the Yacht’s value is paid at the end of the lease agreement. This will be taxed on the standard VAT rate of 19% so that the VAT payable would be €142,500.
  3. The 48 monthly installments together with the 10% profit on the value of the yacht that the lessor is required to make sum up to €9,750,000. The 3.4% VAT payable would be €331,500.

The total VAT payable under the new Yacht leasing scheme would be €663,000 saving the buyer €1,887,000.

Why Cyprus

Cyprus yachting has experienced rapid growth in the past few years mainly due to the geographical location of the island, the favourable tax regime and the business growth the country has experienced especially in the services section.

Yacht Owners based in Cyprus can enjoy the enviable quality of life of a developed and modern EU state from the new state of the art exclusive yacht marina that will be ready to welcome its first yachts end 2012. Simultaneously, Yacht owners are offered the opportunity to facilitate their business activities within an efficient legal and accounting services framework or explore new business opportunities via Cyprus’ liberal FDI status and its beneficial tax regime.

*Information derived from Department of Merchant Shipping (DMS), VAT circulars and Cyprus Law

*Disclaimer: The information contained herein does not constitute legal or investment advice and may not be relied upon as such. The author shall not be responsible for any damage or loss incurred directly or indirectly by any person acting upon or refraining from acting wholly or partially in reliance upon it.

For more information and/or advice, please contact us via email at [email protected]