Cyprus Shipping and Ship Management Companies

Introduction

Cyprus has developed into a major shipping centre and its importance in the shipping world is evidenced by the fact that Cyprus ranks sixth internationally as a Maritime Country and is a member of International Maritime Organisation (IMO).

Cyprus has ratified the International Convention for the Safety of Life at Sea, 1974 and its Protocol of 1978, the Convention of the International Regulations for Preventing Collisions at Sea, 1972, the International Convention on the Tonnage Measurement of Ships, 1969, the International Convention for the Prevention of Pollution of the Sea by Oil, 1954 and the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers, 1978.

A freely negotiated collective crew agreement between the Union of Cypriot Ship-owners and the local Trade Union governs the wages and terms and conditions of employment of seamen engaged on Cypriot Ships.

The double tax treaty signed and the numerous bilateral agreements as well as the tax benefits given to shipowners, contributed to the expansion of the Cyprus Shipping Registry, both in terms of number of vessels as well as gross tonnage.

The Law governing the registration of ships under the Cyprus flag is the Merchant Shipping Law (Registration of Ships, Sales and Mortgages) 1963-2005, which legislation is essentially based on the English Merchant Shipping
Acts 1894-1954.

According to the section 5 of the Merchant Shipping (Registration of Ships, Sales and Mortgages) Law, Law 45 of 1963-2005 a vessel may be registered in Cyprus if:

A. More than fifty percent (50%) of the shares of the ship are owned:

• by Cypriot citizens; or
• by citizens of other Member States* who in the instance of not being permanent residents of the Republic will have appointed an authorised representative in the Republic of Cyprus, or

* Member State means a Member State of the European Union or other contracting party to the European Economic Area Agreement.

B. The total (100%) of the shares of the ship are owned by one or more corporations, which have been established and operate:

Tonnage tax

Cyprus resident Companies that generate profits from shipping activities of ships under Cypriot flag are liable a so-called tonnage tax.

For vessels other than passenger ships the tonnage tax is calculated as follows:

(BASIC CHARGE + GROSS TONNAGE INCREMENT) x AGE MULTIPLIER

The basic charge is €170,86 and the gross tonnage increment is calculated as follows:

Gross Tonnage                                                     Euro Cents*
For each unit up to 1.600                                         44.42 cents
For each additional unit between 1.601—10.000         27.34 cents
For each additional unit between 10.001— 50.000      10.25 cents
For each additional unit over 50.000                           6.82 cents

The age multiplier is shown below:

Age**                                                       ship rate multiplier
Up to 10 years                                                                  0.75
11-20 years                                                                      1.00
Over 20 years                                                                   1.30

** the age is calculated by taking the year in which the heel was laid and then deducting it from the year of assessment of the tonnage tax

For Passenger Ships

For passenger ships the tonnage tax payable is double that payable for other vessels.

Reduction of Tonnage Tax

Section 8 of the Merchant Shipping (Fees and Taxing Provisions) Laws, 1992-2004 provides for the reduction and refund of the tonnage tax in the cases listed below:

• Technical Management And Crewing By Cypriot Companies
  If the vessel’s technical management and crewing is carried out by Cypriot ship management companies operating in Cyprus, a 30 percent reduction of the tonnage tax is allowed provided that the relevant documentary evidence is submitted to the Department of Merchant Shipping in advance of the period for which the reduction is claimed.
• Cypriot Crew Members
  If members of the crew of the vessel are Cypriot citizens, a percentage of the tonnage tax paid by that vessel may be refunded for each month they are employed on board the vessel, as follows:
• for vessels other than passenger ships:
  −    officers and cadet officers: 2.5 percent for each month of actual employment on board
  −    ratings: 1.5 percent for each month of actual employment on board.
• in the case of passenger ships the above rates are reduced by 50 percent.
  The Cypriot seafarers employed must be duly qualified for the post they hold on board.
  The tonnage tax may be refunded on the application of the owner of the vessel who should submit relevant documentary evidence attesting the employment of Cypriot citizens on board his vessel.
• Laid Up Ships
  If the ship is laid up for a period of more than 3 consecutive months the tonnage tax payable is reduced by 75 percent for the period during which the vessel is laid up. The maximum reduction or refund of tonnage tax described above cannot exceed 50 percent of the tonnage tax due.

Taxation of profits from ships under foreign flag

Cyprus resident Companies that generate profits from shipping activities of ships under non-Cyprus flag are liable to corporate income tax at the normal rate of 10%.

Ship management Companies

Ship management companies are finding Cyprus increasingly attractive as a base for managing ships under various flags. These companies offer full management services to ship-owners worldwide and are engaged in chartering, crewing, ship-broking and similar activities. In order to encourage the establishment of ship management companies and other shipping headquarters in Cyprus, the existing legislation grants such companies and their foreign employees various tax advantages and other incentives.

Procedure for registration of ships

Vessel registration and age limits

The new Government policy for the registration of Cyprus Ships was effective from 1st January 2000. Under the new policy, vessels of any size and type having an age not exceeding 15 years, except fishing vessels with a gross tonnage less than 1000, may be registered in the Cyprus Register of Ships, as long as they comply with the provisions contained in the merchant shipping legislation and the circulars of the Department of Merchant Shipping.

Vessels over 15 years of age, cargo vessels with a gross tonnage less than 1000, passenger vessels, fishing vessels, coastal passenger and small passenger vessels, may be registered in the Cyprus Register of Ships or the Special Book of Parallel Registration under additional conditions (contained in the Government Policy on the registration of vessels in the Cyprus Register of ships), which must be fulfilled concurrently with the submission of the application for registration and must be complied with at all times while the vessel remains registered, irrespective of any subsequent transfer of ownership.

Notwithstanding the above, the owner/bareboat charterer of a vessel registered under the Cyprus flag in accordance with the said Policy, automatically undertakes that whenever the Department of Merchant Shipping deems necessary to have the vessel inspected by its own surveyors as a result of identified deficiencies or an alleged serious violation of international conventions or EU instruments, he is required to submit the vessel for inspection, at his expense, in order for the Department to determine whether the vessel meets the applicable statutory requirements.

Vessels of any age constructed exclusively for inland waterway navigation are not accepted for registration in the Cyprus Registry.

Vessels banned by any Memorandum of Understanding on port state control or a port state on grounds of safety or pollution prevention, are not accepted for registration in the Cyprus Registry.

Vessels detained by port state control at least 3 times within the last 2 years prior to the date of application for registration are not accepted for registration in the Cyprus Registry.

The age of a vessel is calculated by deducting the year when its keel was laid from the year when the application for registration of the vessel was filed with the Registrar of Cyprus Ships. For the purposes of the said Policy, the year of major conversion or reconstruction of a vessel will be taken into account for the calculation of its age provided that on the date of the conversion or reconstruction, the vessel complies with all the provisions of the international conventions as a new vessel.

4(i) Provisional Registration

Cyprus Merchant Shipping legislation allows for the provisional registration of a vessel (if at the time of registration the vessel is situated at a port outside the Republic and provided it was not a Cypriot ship) and most owners usually opt to have their ship provisionally registered first. This will allow them time (up to 9 months, including a 3 month extension) during which they will be able to complete the administrative formalities for permanent registration.

The application for registration of a ship under the Cyprus flag must be made to the Minister of Communications and Works through the Registrar of Cyprus Ships. In practice, the Registrar will also accept the submission of applications for registration of ships on behalf of companies under formation, so that incorporation of the company and registration of the ship can progress simultaneously but the company must be duly incorporated prior to the registration of the vessel.

A ship may be provisionally registered under the Cyprus flag either in Limassol, by the Registrar of Cyprus Ships or at any diplomatic mission or consular post of the Republic of Cyprus abroad (hereinafter referred to as "consular officer") who will act on instructions issued by the Registrar of Cyprus Ships.

At the time of her provisional registration under the Cyprus flag a ship must be at a port so that she can be surveyed and certified on behalf of the Cypriot government. The presence of the ship at the port or place where the provisional registration will be effected is not necessary.

4(ii) Permanent Registration

The Permanent registration of a vessel registered provisionally under the Cyprus flag must be completed within nine months, including the three-month extension period, which is the maximum provisional registration period. It is not necessary for the ship to be present in a Cyprus port. Certain additional documents have to be submitted to the Registrar of Cyprus Ships for this purpose.

Admeasurements of the Ship's Tonnages and Ship's Carving and Marking

The Certificate of Survey and the Cyprus Tonnage Certificate or International Tonnage Certificate (1969) may be prepared by any one of the classification societies recognised by the Cypriot Government or by the Department of Merchant Shipping. After receipt of the aforementioned forms, the Registrar of Cyprus Ships allots to the ship her official number (which for ships over 100 GT is identical to the IMO number) and issues the ship’s carving and marking note which is given to the owner. The owner should ensure that his ship is marked in accordance with the requirements of section 8 of the Merchant Shipping (Registration of Ships, Sales and Mortgage) Laws, 1963-2005.

The owner must then ask a surveyor of ships (surveyors of any of the recognised and authorized classification societies or of the Department of Merchant Shipping) to inspect the ship’s carving and marking. When the surveyor is satisfied that these have been made in accordance with the requirements of the aforesaid section, he will complete and sign the lower part of the note, verifying that these have been carried out and return it to the owner.

The owner should forward the duly verified ship’s carving and marking note to the Registrar of Cyprus Ships in order to enable him to proceed with the permanent registration of the vessel.

Permanent Certificate of Cyprus Registry

On receipt of the prescribed documents, the Registrar of Cyprus Ships will allot to the ship an official number and issue the Carving and Marking Note containing the official number which must be shown on the ship, together with her name, registered tonnage and port of registry. Following receipt of the Carving and Marking Note, duly completed and signed, and provided the appropriate fees have been paid, the Registrar will issue the “Certificate of Cyprus Registry”, and the vessel will be permanently registered under the Cyprus Flag.

Parallel Registration

An important development in Cyprus Merchant Shipping has been the introduction of parallel registration of a ship in the Cyprus Register. According to the Law 57/86 as amended the parallel registration under the Cyprus Flag of a ship, which is already in the Register of Ships of another country is allowed for a fixed period of time. At the same time, ships which are permanently registered under the Cyprus Flag, can be registered under the flag of another country for a fixed period of time.

The administrative practice of the Department of Merchant Shipping has confirmed that the parallel (bareboat) registration of vessels under the Cyprus regime may be effected with more than 20 states whose legislation is compatible with Cypriot legislation.