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In recent years, the entire profile of Shipping has changed with the emergence of truly international registries whose components are becoming increasingly diverse. It is not unusual for ship owners to approach several countries at the various stages of acquisition, building, financing, supplying and manning of vessels. The same is true for registration and management. Cyprus has proven to be particularly well suited for these latter two services where a complete Package is available to the international maritime community. The island’s development into an international maritime center began almost 30 years ago. In 1963 the Government offered the first incentives aimed at the encouragement of ship ownership and the registration of vessels under the flag of the Republic. In 1981 the Cypriot merchant fleet ranked 32nd on the list of maritime nations. Today it ranks 7th and over 2,100 ships exceeding 21 million Gross Registered Tons (GRTs). This achievement is due to the cost competitiveness of the Cypriot Ship Registry, the island’s well-developed maritime infrastructure as well as the high standard of services offered to international shipping. The usual practice is for each vessel to belong to a different shipping company. A foreign owner may register a vessel under the Cypriot flag by forming a shipping company with the permission of the Central Bank. The formation of a shipping company may generally be completed in a matter of days through a local advocate. Shipping companies owned by non-residents and deriving their income from sources outside Cyprus are exempt from exchange control. A shipping company’s memorandum of association and its Central Bank permit restrict its objects to the ownership, bareboat chartering and operation of vessels. Thus shipping companies constitute a category of their own, entirely separate from that of offshore enterprises.
Fiscal incentives to shipping companies include the following:
The Government of the Republic has decided to amend its policy on the age limit of vessels which may be registered in the Register of Cyprus Ships.
AGE OF SHIPS – AMENDMENT OF POLICY As regards the special inspection referred to in section 2(a) of the policy, it is anticipated that, normally, the onboard inspection of the ship should not take longer than one working day, but this will depend on the readiness of the vessel for inspection, the size of the vessel and its general condition.
SPECIAL INSPECTION Otherwise, every effort should be made so that the inspection of the ship takes place as soon as possible but not later than three months from the date of the ship’s provisional registration. For this purpose, at the time of the provisional registration of a ship which will undergo a special inspection, the following must be deposited:
The management of vessels, referred to should be carried out by shipmanagement companies which have been registered for this purpose and have their principal place of business in Cyprus and employ suitably qualified personnel. The personnel of such companies must not be less than five, and must include at least one experienced crew superintendent and a qualified technical superintendent. Companies having under their management (part or full) more than ten ships, are required to employ at least two technical superintendents and one crew superintendent. The management agreement for the purposes of this policy, should preferably be signed on a BIMCO "SHIPMAN" standard Management Agreement, and must cover at least Creing, Technical Management, and Accounting. The annual management fee is of no interest to the Department, so, on the signed copy to be submitted it may either be deleted or replaced by the words "as agreed between the two parties". In cases where, for any reason, the management agreement is not signed on a BIMCO "SHIPMEN" form, the form used must clearly define the responsibilities of the managers which should be no less or different than those defined in PART II of the "SHIPMAN" standard ship Management Agreement under Crewing, Technical Management Accounting. The management agreement should be accompanied by an undertaking by the managers stating that they will give the Department of Merchant Shipping at least one month advance notice before the agreement is terminated or its validity expires and the parties do not intend to extend it. It should be noted that no management function undertaken by the management company may be subcontracted out to foreign third parties and this Department has the right to audit the company for compliance. Any disclosure of beneficial ownership, under section 3 of the policy will be treated in strict confidence. The new policy will replace the existing policy on 1st September 1992. From the date of this circular, however, until that date, either the two policies may be applied, at the option of the shipowner, in respect of applications for registration of ships under the Cyprus flag, submitted to this Department before the 1st September 1992. Vessels over 17 years of age may be registered in the Cyprus Register of Ships as follows:
THE GOVERNMENTS NEW POLICY ANALYTICALLY A.1. A cargo vessel over 17 and up to 20 years of age may be registered subject to the following conditions: (a) (i) Either it passes a special inspection, or (ii) it is managed from Cyprus, and
(a)
B.
(a)
C.1. For the purposes of paragraphs A.2. (a)
This note applies to the assessment of ships having an over 17 years of age, the Owners of which with to have them registered under the Cyprus flag in accordance with the Government of the Republic of Cyprus policy on the Age limit of vessels which may be registered in the Cyprus Register of Ships. The assessment may take place within six months before the provisional registration of the vessel provided no casualty or other serious damage would occur after the completion of the assessment, which adversely affects the seaworthiness of the vessel. The assessment study will consist of:
This Note does not apply to liquefied gas carriers or chemical tankers as these will be specially considered by the Department of Merchant Shipping (hereinafter called "the Department"). This Note does not apply to pleasure craft.
A request for assessment is to be submitted in writing to the Department by the Owners or by the Purchaser with the Owners permission, of any ship to which this Note applies. The Applicant is to:
The plans, drawings and other documents to be submitted are to contain all necessary information with regard to the requirements of this Note.
The copies of the following certificates, records and reports, as applicable, should be submitted:
In general the following plans and documents will be required to be submitted:
The Department may request, at any state during the assessment study, the submission of other plans and documents if it is found necessary and appropriate.
The thoroughness or stringency of the survey depends on the condition of the ship and its equipment as well as the results of the examination of the Classification Society'’ records. Should any doubt arise, as to the maintenance or the condition of the ship or its equipment, then further examinations and testing may be conducted as considered necessary by the Surveyor. The Surveyor may take into account the examination of components made within the last twelve months, from the date of consideration of the vessel’s case, by Surveyors of the vessel’s classification Society. The Department may give special consideration to vessels which are to sail, in ballast, to a repair port for the purpose of carrying out complete special survey and or conversion works of a major character or are to proceed to a port where they will be laid-up. The Department may specially consider the cases of vessels which have undergone complete special surveys during the last twelve months, from the date of the consideration of the vessel’s case and have fully complied with the applicable Rules and Regulations of her Classification Society.
Notwithstanding the above and without prejudice to the provisions of this sub-section the Department, following consideration of the records of the Classification Society and of the documentation to be submitted, will advise the Applicant in advance of the survey, the anticipated extent of the general examination, to enable him to make appropriate arrangement. The survey of the vessel will be a general examination, the extent of which will be approximately that of annual classification and statutory surveys applicable to the vessel under consideration, in accordance with her age and type.
The Department will not disclose technical information, drawings, and survey reports to any person other than the Owners or Purchaser or those who have been given the authority receive such information by the Cyprus legislation, a Cyprus court decision or written declaration from the Owners, or the Purchaser with the permission of the Owner. On completion of the assessment study the Department will make available to the Applicant the recommendation(s) of the assessment of the vessel under consideration for his information and action, if any.
Provisional Registration of a ship may be effected at any place abroad where Cyprus has a Diplomatic Mission or an Honorary Consulate. The provision registration can remain in force for a maximum of six months. The procedure for provisional registration consists of two stages. First, an application will need to be addressed to the Minister of Communications and Works through the Registrar of Ships for permission to register the ship in the Cyprus Register. The application, which should provide particulars with regard to the vessel and the shipowners (individuals or corporations), should be accompanied by the following documents:
Secondly, upon approval of the application, the Registrar instructs the Diplomatic Mission or Consulate named by the applicant to proceed with provisional registration. At this stage the applicant is required to deposit either with the Registrar of Cyprus Ships or the Diplomatic Mission or Consulate certain documents, the most important of which are duly legalized Bill of Sale, whereby the owner acquires title to the vessel, and the Certificate of Deletion of the vessel from the previous registry or a confirmation by the previous registry that the vessel is free of encumbrances. Following the prescribed fees, a Provisional Certificate of the Cyprus Registry and a temporary certificate, in lieu of a radio licence, are issued by the Consul. It must be noted that, upon its registration under the Cypriot flag, a vessel must not leave the port where it lies unless it is furnished with the appropriate statutory certificates issued on behalf of the Cypriot Government by the recognized Classification Society with which the vessel is classed. The permanent registration of a provisionally registered vessel must be completed within nine months (including the three months extension). It is not necessary for the ship to be present in a Cypriot port at the time of permanent registration.
The following additional documents have to be submitted to the Registrar of Ships in Cyprus:
On receipt of the Tonnage and Survey Certificates, the Registrar will allot to the ship an official number and issue the ship’s Carving and Marking Note, which contains the number which must be carved on the ship, together with her name, registered tonnage and port of registry. Following receipt of the ship’s Carving and Marking Note, duly completed and signed, the Registrar will issue the Certificate of Cyprus Registry and the vessel will be permanently registered under the Cypriot flag.
Parallel registration of a ship is allowed for a fixed period of time during which the ship may continue to be registered in her current foreign registry. The conditions which must be fulfilled are the following:
During the period of parallel registration in Cyprus, the ship’s registration in the foreign register remains dormant, except in so far as it relates to ownership, mortgages and other encumbrances. During this period the ship must fly the Cypriot flag only, while the name of the ship and its Cypriot port of registry must be marked on it. Parallel registration of a foreign vessel in the Cyprus Register is approved for a maximum period of two years but may be extended. When the period of the charter is prematurely terminated, the parallel registration is automatically cancelled and the ship returns to its original registry. Chartering out of a Cypriot ship and its parallel registration in a foreign register is allowed, subject to conditions similar to those for parallel registration of a foreign ship in the Cyprus Register. By law under the Official Gazette of the republic on the 29th May 1992 (Gazette No. 2712, Supplement I (I), dated 29.5.92) and came into force on the 1st July 1992, the following ships-fees and Taxing provision came into force:
SHIPS-FEES AND TAXING PROVISIONS This Law revises and amends the fees and taxation of ships, which have been in force since 1982, but the competitiveness of the Cyprus Registry vis-à-vis the other open registries is retained. Additionally, the new provisions allow for reductions on the tonnage tax of Cyprus vessels provided that their crewing and technical management is being carried out from Cyprus, or Cypriot seamen are being employed on board. The existing fees for radio station installation and radio station licence renewal are abolished. However, a nominal fee is the retained for the issue and renewal of relevant certificates. The crew fees are abolished and have been incorporated in the tonnage tax. The fees for the inspection of the marking and carving of a vessel are also abolished and have been incorporated in the initial registration fees. Another significant change introduced by this law is that the Department of Merchant Shipping is designated as the Department responsible for the assessment and collection of the tonnage tax, thus substituting the Department of Inland Revenue in this respect. As the tonnage tax of ships for the second half of 1992 must be paid by the 31st July 1992, under the new law, it is deemed necessary to make certain transitional arrangements. For this purpose please note the following:-
The resulting figure from the above calculation must then be multiplied by the corresponding rate based on the age of the vessel as shown below: AGE OF SHIP RATE Up to 10 years 0.75 11-20 years 1,00 over 20 years 1.30 For passenger ships the amount of tonnage tax is twice the amount payable by other vessels according to the above calculation. The age of the ship is determined by deducting the year of build, as shown on the Certificate of Registry of the ship from the year of assessment of the tonnage tax. The sum which must be paid by the 31st of July 1992 is one half of the annual tonnage tax as calculated using the above method. Assessment of the annual tonnage tax of vessel of 52985 grt, built in 1985. EXAMPLE Fixed amount C.P. 100,00 1600 GRT X C.P. O,26 416,00 (10000 – 1600) X C.P. O,16 1,344,00 (50000 – 10000) X C.P. 0,06 2,400,00 (52985 – 50000) X C.P. O.O4 119,40 ------------ C.P. 4,379,40 Age of ship: 1992 – 1985 = 7 years Age of Rate: 0,75 Annual Tonnage Tax= C.P. 4379,40 X 0,75 = 3284,55
The Department of Merchant Shipping must always be kept posted of any substantial changes related to the above information.
Cypriot seamen are submitted after the expiration of the period for which the tonnage tax has been paid. Interested companies should take due note of the requirements of the law in respect of the proper keeping of the ship’s articles, the seamen’s qualifications, and the payment of the contributions to the Social Insurance fund.
Cyprus has concluded an impressive number of Treaties for the avoidance of Double Taxation. There are currently 25 treaties in force and these are as follows: Austria, Belgium, Bulgaria, Canada, China, Czechoslovakia, Denmark, Egypt, Germany, France, Greece, Hungary, Ireland, Italy, Kuwait, Malta, Norway, Poland, Romania, Sweden, Syria, United kingdom, United States, Former USSR with the exception of Kazakistan, Ex-Yugoslavia. The existence of these Treaties, combined with the low tax paid by Offshore Enterprises, as well as their beneficial owners and expatriate employees, offer significant possibilities for International Tax Planing through the Island. In order that an Offshore Company may be entitled to take advantage of Double Tax Treaty, it should be considered for the purposes of the Treaty as resident in Cyprus. For the purpose of most Treaties a Cypriot Company may be deemed resident in Cyprus if the majority of its directors reside in Cyprus, board meetings take place in Cyprus and generally the decision making is in Cyprus. The place of residence of the shareholders of the Company is in most cases immaterial. Out of the 25 Treaties now in force, only Canada, Denmark, Germany, France, Sweden, the UK and the USA have some anti-avoidance provisions. Even so, these countries, with the exception of Canada and the USA, provide tax sparing credits to their residents on income received from the Cypriot entities.
INCOME AND OTHER EARNINGS FROM SHIPPING Practically in all Cyprus Treaties it is provided, either directly or indirectly, that shipping profits are only taxable in the place of the effective management of the enterprise concerned. Cyprus offers favourable incentives and tax reliefs to shipping Companies which own and operate ships under the Cypriot Flat in international waters. By virtue of these reliefs, the profits of shipping Companies manages and controlled in Cyprus are exempt from taxation. Thus, such companies through the operation of Cyprus Double Tax Treaties.
Companies which are engaged in shipmanagement or render maritime services from within Cyprus are classified as Offshore Enterprises, are taxed at 4.25 per cent on income and they, as well as their beneficial owners and expatriate employees, enjoy the whole spectrum of tax advantages afforded to this category.
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