CYPRUS SHIPPING TODAY, October 2011

Cyprus’ accession to the European Union in 2004 created new prospects for the shipping industry. Joining the bloc with a strong fleet, a well-founded and efficient maritime infrastructure and one of the only two ‘Open Registries’ in the EU, Cyprus is now thought to constitute 25% of the EU’s total shipping fleet.

An as EU member state, with all the safety protocols that this entails, the sector is particularly sensitive about the level of safety of all ships sailing under the Cyprus flag. Government policy on shipping has been progressively upgraded in order to improve safety standards and the living and employment conditions of seamen on board. The Cyprus flag is on the white list of the Paris Memorandum of Understanding which certifies the Cypriot government’s commitment to safety and maintenance of Cyprus as a reputable maritime centre.

The island’s tax legislation is credited as being the main force behind the rapid expansion of the shipping industry over the past 50 years and now almost 2,000 vessels fly the Cyprus flag.

Cyprus merchant shipping legislation allows for the provisional registration of a vessel (in the case that a vessel is not previously a Cyprus ship) and most owners usually opt to have their ship provisionally registered first. The provisional registration is considered to be a full registration for a period of up to six months and it can be extended further for three months with an application prior to the expiration of the six month period. This allows owners the time (up to 9 months, including the 3 month extension) to complete the administrative formalities for permanent registration. Once the necessary documents are submitted and formalities completed the Registrar of Cyprus Ships will issue the Certificate of Cyprus Registry and the vessel will be permanently registered under the Cyprus flag.

Under Cyprus legislation the possibility of parallel (bareboat) registration of vessels exists. The legislation provides for the two forms of internationally accepted bareboat registration: “Parallel-in” registration and “Parallel-out” registration. These two options offer opportunities in leaseback, hire purchase and finance arrangements.

Most Cyprus-registered ships are owned by Cypriot companies with a varied and wide range of foreign interests. Due to the fact that every limited liability company is a separate legal entity, it is very common to incorporate a ship owning company for every ship registered.

Cyprus constitutes one of the largest shipmanagement centres in the world with the most of the largest shipmanagement companies in the world having fully fledged offices on the island. Cyprus also hosts about 50 more shipmanagement companies and marine-related foreign enterprises which conduct their international activities from Cyprus.

For a long time now, Cyprus been utilized as a transshipment centre for Asia Pacific trade with Europe as well as with shipping markets situated along the coasts of the Levant and Black Sea and North Adriatic. Due to the key position of the island, these markets can be easily accessed from Cyprus with minimum diversion from main arterial routes. Cyprus is also a natural hub for other mainline deep sea trades traversing the Mediterranean, to North Africa and the Middle East. The main products re-exported from Cyprus include tobacco, processed food supplies, beverages, textiles, minerals and chemicals. Given its geo-strategic positioning, the island has been a pioneer in the development of purpose-built container terminals in the Eastern Mediterranean.

A bareboat charter is an arrangement for the chartering or hiring, of a ship or boat, whereby no crew or provisions are included as part of the agreement. In general, the charterer is acting as if he were the owner of the vessel, except for the right to sell or mortgage the vessel. Because Cyprus allows for the possibility of parallel registration of a vessel under the Cyprus flag by bareboat chartering, a vessel registered under the Cyprus flag may be bareboat chartered-out to a foreign corporation for parallel registration under a foreign flag, provided the law of the other country recognizes the concept of bareboat charter registration.

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

Cyprus is home to numerous shipping agencies, classification societies, marine surveyors, average adjusters, marine insurance and protection and indemnity (P & I) ship-brokers, bunkering facilities, a small ship-repair facility and the possibility of a larger one in the future, as well as underwater survey service. Moreover, a growing number of international banking units are willing to offer their services for ship financing and there is a large number of lawyers and accountants specializing in shipping.

One small bright spot for the Cypriot sector is the reform of the tonnage tax. While tonnage tax might seem an obscure technicality to outsiders, the reform is extremely important for the Cypriot shipping sector because without it, ship management would have shifted to tax-free Singapore once the old pre-EU system expired.

The new legislation places Cyprus in a very competitive position. Cyprus is now the only EU country with an EU approved TT system that provides for TT on the net tonnage of the vessels rather than Corporation Tax on the actual profits. The sector is also regulated by the DMS rather than the Tax Authorities and grants total tax exemption of profits tax and distribution tax at all levels and allows mixed activities within a company/group. Furthermore, it supports an open registry system which allows split ship management activities (for example between crewing and technical).