Cyprus: Cyprus As A Base For Shipping Operations

Last Updated: 20 November 2001
Article by Vassilis PH Demetriades

Cyprus has proved to be an ideal center for the establishment of enterprises by foreign ship-owners and other professionals engaged in shipping activities and related services worldwide.

The islands strategic location, which is at the crossroads of three continents –Europe, Asia and Africa –, has enabled Cyprus to play a prominent role in its success as an international business center.

Cyprus has one of the largest ship registries (its merchant fleet ranks sixth in the world this year with more than 2700 ships exceeding 27m G.T in total), and is the largest third-party ship-management center in the world. The resident shipping industry in Cyprus comprises 110 shipping and shipping related companies.

The geographical position of Cyprus is not the only factor that has contributed to its attractiveness. There is a unique package of advantages in Cyprus, such as the legal system based on the English model, an efficient civil service, good labor relations and an outstandingly high level of professionalism in the legal and accounting sectors.

Cyprus has an open, free market economy and is often aptly referred to as a European Country in the Middle East. Per capital GNP is approximately US$14.000, one of the highest in the Mediterranean. The cost of living is substantially lower than in most developed countries, offering a comparable standard and quality of life. In addition, there are generous tax incentives available, a wide network of double taxation treaties and bilateral shipping agreements, excellent telecommunications and highly educated workforce.

During the last couple of years, a lot of work has been done by the maritime administration, showing the commitment and attention of the Cyprus Government to the development of Cyprus shipping, under the rules and standards set by the international shipping community. Measures have been introduced by the Government in order to improve compliance of the shipping industry with standards concerning the safety of ships, safety management, prevention of pollution of the marine environment, as well as suitable living and working conditions for seafarers. As part of the strategy to enhance the quality of the ships flying the Cyprus flag, their crews and operators, the merchant shipping legislation is being continuously updated and guidelines have been developed for the effective implementation of the International Safety Management Code.

In this respect, guidelines have been prepared and classification societies have been authorized to carry out inspections and to issue the necessary certificates on behalf of the Republic. The criteria for selecting classification societies have been their compliance with IMO resolution A379(18) and the European Union Directive No. 94/57 of November 1994. Full compliance with the Code has been achieved.

In the drive towards better quality, the human element plays a crucial role and the conditions of living and work on board Cyprus ships have been given particular attention. Cyprus is a contracting party to the International Labour Organisation´s Merchant Shipping (Minimum Standards) Convention, known as ILO Convention No. 147.

The competence of the crews of the ships is decisive for the utilisation of modern technology. With assistance from the International Maritime Organisation, the Cyprus Government is in the process of upgrading the existing maritime training facilities. Furthermore, the work for the implementation of the 1995 amendments to the International Convention on Standards of Training Certification and Watch-keeping for Seafarers, 1978 is already in hand and plans are made to respond effectively to the 2002 implementation deadline.

Emphasis is being given by the Department of Merchant Shipping (DMS) on the training of its professional personnel. The majority of the Surveyors of the DMS have undergone the necessary training and became also qualified Maritime Auditors, in accordance with the standards of the industry. Cyprus is the first flag-State Administration that has taken up such initiative. It is noted that whenever surveyors of the DMS inspect, for whatever reason, a Cyprus ship, they have to verify also the Safety Management System implemented on the ship. This is expected to improve tremendously the effectiveness of the inspections, as most of the casualties as well as the deficiencies found on ships, are due to lack of proper training and organization of the crew on board.

The implementation of the project "MARCOS" for the full computerization of the DMS, commenced in September 2000 and is expected to be completed in 21 months. This project will improve substantially the speed and the quality of services rendered by DMS as well as its overall capacity.

The Government of the Republic of Cyprus is presently expanding further its global network of inspectors of Cyprus ships. The programme envisages the appointment of inspectors at ports where vessels under the Cyprus flag call frequently or are carrying out repairs. The objective of the programme is the verification and enforcement of compliance of Cyprus ships with the applicable provisions of the national and international maritime legislation relating to safety, pollution prevention and the living and working conditions on board Cyprus ships. Twenty-seven (27) inspectors have been appointed so far covering 20 ports in 13 countries. The target set by the Department of Merchant Shipping is to increase the number of inspectors at main ports worldwide, to about 50. These flag state inspections are carried out at no cost to the ship-owners as long as no deficiencies are found.

Accession negotiations between the Republic of Cyprus and the European Union in shipping commenced officially in November 1998, during the Acquis Screening of the EU Transport Policy. In this respect, Cyprus proceeded with harmonization measures and preparatory work for the transposition and effective implementation of the relevant European Union legislation, policies and administrative practices ("Acquis Communautaire").

The Department of Merchant Shipping (DMS) has prepared a specific sectoral harmonization Programme (Action Plan) with the following main objectives:

Legislation transposition of the acquis

Strengthening of the capacity of the DMS

Improvement of the safety record of the fleet under the Cyprus Flag

This multifaceted Action Plan that was prepared by the DMS in late 1998 as a pre condition for the country joining the EU, seems to be yielding results.

During the last two years, a significant amount of new legislation has been enacted; existing legislation has been amended and relevant International Maritime Instruments have been ratified. Today, the relevant approximation of Cyprus with the Acquis Communautaire, as far as the legal aspect is concerned, is around 70%.

The Government policy and the actions taken for the improvement of the quality of the Cypriot Merchant Fleet proved to be successful. The DMS statistical data regarding flag State control, reported maritime accidents on Cyprus ships as well as the Cypriot flagged vessel detention ratio, show considerable signs of improvement as follows:

With regard to flag State control, during 1999, 365 vessels under the Cyprus flag were inspected by the DMS (i.e. by surveyors of the DMS and by Inspectors of Cyprus Ships stationed at various ports around the world), as compared to 166 in 1998 and 119 in 1997.

With regard to marine accidents, their reported number has taken the downward trend during the last three years with respect to the number of vessels lost, as well as to the number of lives lost. Thus, in 1997, the number of reported marine accidents was 128, out of which 7 resulted in the total loss of the ships involved. In 1998 the accidents were 120 with 8 total losses, whereas in 1999, the number of accidents was 81 of which 6 were total losses. In addition, there was a significant fall in the number of lives lost, 11 in 1999 compared to 41 in 1998 and 51 in 1997.

The Cypriot flagged detention ratio improved substantially. The United States Coast Guard in a recent communication with the DMS referred to the 1999 PSC/Flag State evaluation and indicated that the rate of Cyprus flagged vessel detentions in US waters declined by 50% in 1999 compared to the 1998 figures. This constitutes a substantial improvement and positively reflects the effectiveness of the efforts that the Cypriot maritime administration has made on improving the quality of its fleet.

Cyprus can claim one of the top places in the ship-management league. The size of the fleet managed from the island continues to grow. The Government of Cyprus in its effort to offer the same conditions to Cypriot citizens as to non-Cypriot citizens (and in the future, to EU-citizens as to non EU-citizens) introduced a new taxation regime for ship-management services based on the tonnage of the ships managed (covering the 3 basic types of internationally accepted ship-management services – crewing, technical, and commercial management of ships). Under the new regime, for a specific fiscal year, ship-management companies may opt to be taxed either according to the special tonnage tax method or according to the rates provided by the current income tax laws in force (4.25% on their net earnings). This new optional tax system aims to maintain the positive fiscal environment for international shipping companies based in Cyprus.

In summary through the measures implemented so far, considerable progress has been achieved towards harmonization with the acquis communautaire in the field of maritime transport. However, there remain a number of measures that need to be taken in order to achieve full compliance with the acquis, especially in the field of maritime safety, with the immediate objective to enhance the quality of Cyprus ships, their crews and operators. Their introduction is already scheduled in accordance with the Action Plan.

As far as the interests of the Shipping Industry are concerned, the Cyprus Government is making every possible effort to ensure that they will be met as much as possible within the new environment. By the year 2003, Cyprus will be in a position to meet the very high demands and expectations of EU (especially on the aspect of maritime safety) thus retaining the present incentives to shipping companies, assuring the future of Cyprus as a Shipping Center as well as providing the EU the opportunity to become the biggest shipping power in the world.

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 from a local lawyer or accountant.

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