Cyprus: Shipping In The European Era

Last Updated: 10 June 2005

Cyprus is a well established shipping centre in a strategic geographical location at the crossroads of prosperous financial regions of three continents and next to the Suez Canal. The independence of Cyprus in 1960 heralded a new era of prosperity which saw an upsurge in the island’s economy and the modernization of its infrastructure.

The role of the island as an international business, financial and shipping centre has evolved considerably, stimulated by increased trade, a growth in offshore activities and the aggressive expansion of the Cypriot economy.

Cyprus is nowadays considered as one of the most favourable jurisdictions in the European Union and the whole world in which to do business.

The island is a low tax jurisdiction, not a tax haven, and its fiscal and regulatory regimes as well as its legislation are now aligned with the EU’s acquis communautaire. Cyprus is a signatory to a large number of international conventions and treaties, including an extensive network of tax treaties.

The legal system is based on the English common law system, and the adoption of modern shipping legislation, closely modelled on its English counterpart, has paved the way for the Cypriot flag to become the well respected flag that it is today, flown by vessels from almost every nation. The Constitution of Cyprus, as well as the EC Treaty, safeguard the rule of law, political stability, human rights and the ability to challenge the legality of administrative decisions.

The framework of the policy and conduct of government ministries, departments and organizations such as the Department of Merchant Shipping maintains the respectable and responsible reputation of the Republic of Cyprus whilst at the same time allowing activities to be conducted in a environment as free from onerous and bureaucratic delays and restrictions as possible.

The accession of Cyprus to the European Union on 1 May 2004 and the harmonization of the island’s legislation with the EU’s acquis communautaire only add to and reinforce the quality of the Cypriot registered fleet. This is evidenced by the withdrawal of the Cypriot flag from the recently published black list of the Paris Memorandum of Understanding on Port State Control Organization. At the same time, Cypriot registered vessels enjoy the benefits of flying the flag of an EU member state which remains highly competitive.

The extension and diversification of shipping activity is to a large extent attributable to the island's excellent infrastructure. Operating in Cyprus are all the businesses and services, public and private, which ship owners, banks, investors and individuals require and all are provided at the highest international standards.

The ship management companies feature prominently in Cyprus, along with companies engaged in chartering, crewing, ship broking, surveying, insurance and salvage. Membership of numerous international organizations enables the island to influence at the highest level decisions relating to shipping matters and furthermore helps Cyprus to maintain strong and friendly links with almost all foreign powers. As a result, vessels flying the Cypriot flag receive a warm welcome in ports of call the world over.

Taxation of shipping activities

Cyprus offers nondiscriminatory and favourable tax treatment of shipping activities which may constitute a major factor in successful tax planning, particularly through the use of the extensive network of tax treaties. Virtually all such treaties provide, directly or indirectly, that shipping profits are taxable only in the place of residence or effective management, irrespective of whether or not a permanent establishment exists in the other treaty country (with the exception of Denmark and France).

The tax environment provides that:

  • Ship management companies are exempt from income tax and enjoy a different and more favourable tax regime altogether;
  • No tax is payable either on profits from the operation of Cypriot-registered vessels, or on dividends received from a ship owning company;
  • No capital gains tax is payable on the sale or transfer of a Cypriot-registered vessel or the shares of a ship owning company;
  • No stamp duty is payable on ship mortgage deeds or other security documents;
  • Emoluments of seamen employed on board Cypriot-registered vessels are exempt from tax;
  • No estate duty or inheritance tax is levied following the death of a shareholder.

The Merchant Shipping (Fees & Taxation Provisions) Laws 1992-2004 contain special provisions for the taxation of ship management companies with a qualified and sufficiently staffed office in Cyprus.

International relations

The Republic of Cyprus is a member of numerous international associations, including the United Nations, the Council of Europe, the British Commonwealth and the Group of Non-Aligned Countries and it acceded to the European Union on 1 May 2004.

Furthermore, Cyprus is an active member of the International Maritime Organization, the International Labour Organisation, the International Telecommunication Union and the United Nations Conference on Trade and Development. Its membership of the European Union implies the active participation of the island in the newly established European Maritime Safety Agency as well in the shaping of the EU’s transport policy in general.

It is expected that the signing of the EU Customs Union Protocol between Cyprus as a new EU entrant and Turkey as an applicant country will remove all current obstacles faced by Cypriot registered ships to trading in Turkish ports. The European Commission Ship Owners’ Association fully supports such development.

Cyprus has also ratified many international conventions, thereby achieving further enhancement of the island's high standing in the shipping community.

Although every effort is made by the Cypriot government to ensure that strong bonds of cooperation and friendship are maintained and encouraged with all international organizations and among all of their respective members, at the same time it safeguards the interests of its shipping industry.

Professional services

In Cyprus, the commercial infrastructure is so advanced that all the professional services required for successful shipping operations are present and offer high standards of service. There are numerous highly skilled and educated accountants and lawyers, with extensive experience in the shipping arena yet the fees for the provision of such services are usually low in comparison with other western jurisdictions. These professionals may also act as directors, trustees or secretaries of shipping companies.

Low costs

The low costs found throughout all sectors of the economy in Cyprus include the costs of incorporating shipping companies, as well as the levies payable by shipping companies for the registration and retention of vessels under the Cypriot flag and which cover an initial registration fee and an annual tonnage tax thereafter that are both reasonable and, more importantly, are considerably lower than those of other comparable jurisdictions.

Cyprus has adopted a tonnage tax system which is very favorable to ship owners. Under it the relevant calculation formula takes into consideration the age and tonnage of the vessel. The tonnage tax is reduced or a refund may be made in the following instances:

  • Where the vessel is laid up for 3 consecutive months, the tonnage tax for that period is reduced by 75%;
  • Where technical and crew management is undertaken by a Cypriot or an EU ship management company operating in Cyprus, the tonnage tax is reduced by 30%.

Registration of ships and mortgages in Cyprus

Within the Department of Merchant Shipping there is a Cyprus Ship Registry, whereby all kinds of registrations, whether provisional, permanent or parallel, as well as all mortgages, transfers and deletions regarding Cypriot vessels, are approved and recorded.

Certain conditions exist as to the registrations of ships under the Cypriot flag which primarily depend upon the age of the vessel.

There are numerous advantages to Cypriot mortgages and international banking institutions are usually willing to grant loans on the strength of such mortgages.

Crewing

Ships flying the Cypriot flag have every opportunity to employ foreign crew. The requirement to employ a minimum Cypriot crew content was abolished on 1 May 2004.

The composition and quality of the crew must nevertheless be of such a standard as to secure the safe manning of the vessel. The Cypriot authorities require that all crew members possess a valid certificate of competency appropriate to their rank or position issued by the Cypriot authorities or one of the several countries whose certificates are recognized.

Protection of competition

The EC Treaty provisions on the protection of competition are directly applicable in Cyprus. In addition, Cyprus enacted in 1989 the Protection of Competition Law which forbids in a fashion similar to the EC Treaty, any agreement having as its object or effect the elimination, restriction or distortion of competition or the abuse of a dominant position.

For the shipping industry, two block exemptions have been adopted: one concerning liner conferences (PI 210/97) and the other in relation to liner consortia (PI 211/96 as amended). These may be used as guidelines so that agreements are compatible with the law. The main difference between these two exemptions is that the former allows carriers to fix prices, while the latter does not. Both exemptions are contained in regulations based on EU Regulation 4056/1986 on Liner Conferences and Regulation 823/2000 as amended on Liner Consortia. The application of these block exemptions is limited to international scheduled cargo services and, while the two Cypriot enacted block exemptions only concern such operations out of Cypriot ports, the European block exemptions are applicable where there is an effect on EU trade. Tramp and passenger operations are excluded while a separate Regulation has been adopted by the European Union in connection with cabotage services.

The block exemption for liner conferences provides that members of liner conferences engaged in the fixing of rates and conditions of carriage, subject to certain conditions and obligations, will not breach the 1989 law. However, this block exemption is currently under review by the European Commission.

The block exemption for liner consortia exempts the following agreements between shipping companies from the 1989 law:

  • Joint operation of liner shipping transport services, including the fixing of timetables, pooling of vessels and the exchange of space on board;
  • Temporary capacity adjustments;
  • Joint operation of port terminals;
  • Participation in tonnage and/or revenue/net revenue pools;
  • Joint exercise of consortium voting rights held in a conference, as long as it concerns the consortium;
  • Joint marketing structures, joint operations offices, issue of joint bills of lading and use of computerized data exchange systems;
  • Other arrangements ancillary to the above, which are necessary for their implementation.

Exemptions are granted subject to certain conditions and obligations.

The freedom to provide maritime transport services within the territory of another member state (cabotage services) is granted by EC Regulation 3577/1992 to ship owners operating ships registered and flying the flag of Cyprus, subject to certain conditions.

The ISM Code & the ISPS Code

The incorporation of the International Safety Management (ISM) Code on the Safe Operation of Ships and for Pollution Prevention and the International Ship and Port Security (ISPS) Code in the International Convention on the Safety of Life at Sea (SOLAS) makes the two codes enforceable via port state control and compliance is mandatory for ships flying the Cypriot flag or entering the Cypriot jurisdiction.

The object of the ISM Code is to ensure safety at sea, the prevention of human injury and loss of life, and avoidance of damage to the environment and property. Under the ISM Code, the company that undertakes the operation of the ship must develop and maintain a Safety Management System and, among other things, issue detailed manuals that cover a wide variety of matters. The ship must have on board a Document of Compliance and a Safety Management Certificate.

The purpose of the ISPS Code is to enhance the maritime security of ships and port facilities. It is therefore necessary for Cypriot ships to have approved security plans and to abide by them. Upon compliance of a ship with the ISPS Code, the relevant International Ship Security Certificates are issued.

Summary

Cyprus is rightfully considered as one of the leading international maritime centres worldwide as it is the third largest ship management centre in the world and currently ranks sixth on the list of leading maritime nations with a merchant fleet exceeding 26 million gross tonnes.

The long-standing policy of the Cypriot Government has been the continuous improvement of the already high quality infrastructure and the incentives available to both residents and non-residents alike.

In addition, the current regime guarantees the prosperity and growth of the Cypriot shipping industry.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions