A Sovereign Flag – Cyprus An International Maritime Centre

Cyprus has during the past two decades become an International Maritime Center. There are numerous reasons that brought Cyprus to this position, having at the same time the 5th largest fleet in the world It would be very probable for someone to think that this would be a result of a number of beneficial advantages that Cyprus and the Cyprus flag have to offer. I shall now attempt to mention some of them which I believe are of high importance:

• Member of the United Nations, the Commonwealth and the Council of Europe.
• Democratic country with a free market economy.
• Strategic location at the crossroads of three continents.
• Modern and efficient legal, accounting and banking services based on English practices.
• Double Tax Treaties with 27 countries.
• No tax on profits from the operation of a Cypriot registered vessel or on dividends received from a shipowning company.
• No capital gains tax on the sale or transfer of a Cypriot registered vessel or the shares of a shipowning company.
• No estate duty on the inheritance of shares in a shipowning company.
• No income tax on the emoluments of officers and crew.
• No stamp duty on ship mortgage deeds or other security documents.
• Signatory to numerous international maritime conventions.
• Extensive network of bilateral agreements through which Cypriot ships receive either national or favoured nation treatment in the ports of other countries.
• Competitive ship registration costs and annual tonnage taxes.
• Full protection for financiers and mortgagees.
• Favourable tax regime for ship management and other offshore enterprises.
• Low set up and operating costs.
• Excellent telecommunications and easy access by air and sea.
• Highly qualified managerial, clerical and technical staff available.

Administrative and Legal Framework

Maritime Administration

Responsibility for the development of maritime activities lies with the Ministry of Communications and Works. Its authority and jurisdiction are exercised through the Department of Merchant Shipping. The Department’s activities include: registration of ships, administration and enforcement of the merchant shipping legislation, control of shipping and enforcement of international conventions, investigation of marine casualties, resolving labour disputes on board Cypriot ships, and training and certification of seafarers.

Legal Framework

The administration of the Register of Cyprus Ships is governed by the Merchant Shipping (Registration of Ships, Sales and Mortgages) Laws, 1963 to 1996 which are based on the British Merchant Shipping Acts, 1894 to 1954. The Merchant Shipping (Masters and Seamen) Laws, 1963 to 2002 and the Merchant Shipping (Fees and Taxing Provisions) Laws, 1992 to 2003 are the other principal merchant shipping laws.

Ship Registration

The procedure for the registration of vessels under the Cyprus flag is contained in the Act. The Act also governs the registration of mortgages on Cyprus flagged vessels. For a ship to be registered in Cyprus, she must be owned by a Cyprus legal entity. A ship in order to register under the Cyprus flag certain requirements must be satisfied. Firstly, 50% of the shares in the ship must be owned:

1) By Cypriots; or
2) By a Cyprus registered company irrespective of whether such a company is totally owned by aliens; or
3) With special permission of the Council of Ministers, by a foreign corporation in which Cypriots have a controlling interest.

Secondly, the ship must be under seventeen years of age, or if over seventeen, up to twenty years of age provided that:
a) The ship undergoes a special inspection; or
b) the vessel is managed from Cyprus office.

Where the ship is between twenty and twenty-three years of age, it may be registered by meeting the following:

1. The beneficial owner has at least another two vessels registered under the Cyprus flag, each having a gross tonnage of over 1000 tons, with a good safety record, and whose average age, including the vessel to be registered, does not exceed seventeen years, or, its beneficial owner is Cypriot who resides abroad and he (she) fully manages his (her) vessel.
2. The vessel undergoes a special inspection.
3. The vessel is managed from Cyprus.
Where the ship is over twenty-three years of age, it may be registered by meeting the following:
a. it is owned by Cypriots permanently residing in Cyprus or by a Cypriot company;
b. the vessel undergoes a special inspection;
c. the vessel is managed from Cyprus office.

While waiting for permanent registration, which will take place after all the administrative formalities have been completed, a provisional registration procedure is available. Such provisional registration will allow time for all the administrative formalities of permanent registration, while in the meantime the ship will be registered under the Cyprus flag.

The approval of the Minister of Communications and Works is required for provisional registration. However, provisional registration is possible of taking place in countries where Cyprus has an Embassy, High Commission, Consulate or Honorary Consul. Provided all the necessary documents, details and safety confirmation certificates are provided, provisional registration usually takes place within 10 days. Once a ship is provisionally registered, permanent registration must take place within six months. However, an extension period of three months is available upon application. On confirmation of instructions the procedure begins to register a Cyprus company which will own the ship. At the same time, an application is made to the Department of Merchant Shipping for the registration of the ship in the Cyprus Registry. Apart from the company's certificates, the following documents accompanying the application are required:

1. A duly legalised Bill of Sale, by which the owner has acquired title to the ship.
2. Resolutions of the company's board sanctioning the purchase of the ship and her registration under the Cyprus flag.
3. A Power of Attorney authorising an Attorney, to execute all necessary documents on behalf of the ship owning company.
4. Declaration of Ownership (form M.S. 53).
5. Memorandum as to the Ship's Husband (form MS 10).
6. The application for a radio license for the ship.
7. Deletion Certificate from the previous registry where appropriate.
8. Copy of the agreement signed with the ship's International Radio Accounting Authority.

Provisional and Permanent Registration

It is advisable that ship owners have their ship provisionally registered first in order to gain time during which they will be able to complete the administrative formalities for permanent registration. This can be done so provided that at the time of registration the vessel is situated at a port outside the Republic and it was not a Cypriot ship.

The permanent registration of a provisionally registered vessel must be effected within 9 months from the date on which the ship was provisionally registered.

Parallel Registration

Parallel (bareboat) registration of vessels is possible according to the internationally accepted bareboat registration which can be 'Parallel-in' registration and 'Parallel-out' registration. The ship owner has a choice of more than 20 states with compatible legislation.

Parallel-in Registration

If the Minister of Communications and Works approves then a foreign flag vessel on bareboat charter to a Cyprus shipping company can be registered in 'parallel' under the Cyprus flag for a period, usually 2 years. This period is renewable and the deletion of the registration in the foreign register is not required.

Parallel-out Registration

Cypriot ships may be bareboat chartered to a foreign person or company and registered 'parallel' in a foreign register for the duration of the charter party in order to allow the financing of a ship and her mortgaging under the Cyprus flag and her registration in a foreign registry through a bareboat charter arrangement for a period of 3 years maximum. Such a period is renewable if the conditions imposed on first registration continue to apply. Like above, the Minister of Communications and Works has to give its approval.

Fees and Taxes Payable on Provisional Registration

The following fees and taxes are payable at the time of the provisional registration of a vessel:
• registration fees;
• tonnage tax for 6 months;
• fees for obtaining a licence to install and work a wireless telegraphy and/or telephony station;
• fee for the issue of the provisional certificate of Cyprus Registry.

These should be paid not later than the date on which the provisional registration of the vessel will be effected.
Fees and Taxes Payable for the Extension of the Period of Provisional Registration
For extending the period of the provisional registration of a vessel under the Cyprus flag for a maximum period of 3 months, the following fees and taxes are payable:

• one half of the registration fees;
• tonnage tax for 3 months.
These should be paid prior to the expiry date of the period of provisional registration.
Fees and Taxes Payable on Permanent Registration
If the relevant registration fees have been paid at the time of the provisional registration of the vessel and the period of provisional registration has not expired, then no other fees and taxes are levied for the permanent registration of a vessel apart from:
• fee for the issue of the certificate of Cyprus Registry;
• payment of any other statutory fees and taxes due or in arrears at the time of the permanent registration of the vessel.
No other fee is payable if the permanent registration takes place before the expiry of the provisional registration period. Otherwise the fees payable on provisional registration are payable anew..
Fees and Taxes Payable Annually
The following fees and taxes are payable each year:
• tonnage tax;
• fees for the renewal of the licence to install and work a wireless telegraphy and/or telephony station.

Fees and Taxes Payable on Parallel (Bareboat) Registration

The initial registration fees for the parallel registration of a foreign vessel under the Cyprus flag (parallel-in registration) are 20 percent higher than those applicable to the provisional or permanent registration of the vessel. If the foreign vessel under the Cyprus flag is deleted and thereafter re-registered and the chartering is effected to the benefit of the same charterer prior to the deletion, the re-registration fees are reduced by 50 percent. There is no increase in the tonnage tax or other dues payable and the vessel is subject to the same financial obligations as other Cypriot vessels.
A Cypriot vessel registered in parallel in a foreign register (parallel-out registration) has the same financial obligations as all other Cypriot vessels, with the exception of the fees for the issue or renewal of the radio licence. If the vessel is deleted from the Cyprus Registry prior to the termination of her status of parallel-out registration, that part of the tonnage tax which is proportional to the period from her deletion until the termination of her status of parallel registration is reimbursed upon application.
The financial obligations of vessels (Cypriot and foreign) registered in parallel are payable in advance for the entire period of the parallel (bareboat) registration.

Taxation of Cypriot Ship management Companies

Until recently, Cypriot ship management companies were taxed at the rate of 4,25 percent on their net earnings. Law 73 (I) of 1999 amending the Merchant Shipping (Fees and Taxing Provisions) Laws 1992-2003, introduced a new taxation regime for ship management services. The main characteristics of this new regime are the following:

-Profits or Dividends payable by a shipping company registered in Cyprus, which owns ships flying the Cyprus flag and operates in International waters are exempt from Cyprus taxation.

-Ship management companies providing services to vessels under other flags have choice to be either:

a) taxed at 4,25 on their net earnings (profits)
b) pay 25% of the tonnage tax corresponding to the vessel.
Te salaries of the officers and the staff of a ship which is registered in Cyprus, fly the Cyprus flag and operates in international waters are exempt from tax.

The special tax on ship management services is not applicable in the case of Cypriot ships which by virtue of section 8 (3) (b) (i) of the Merchant Shipping (Fees and Taxing Provisions) Laws 1992-2003, benefit from a 30 percent reduction on the annual tonnage tax payable by their owners, on account of their technical and crewing management being entirely carried out by a Cypriot ship management company.

• For a specific fiscal year, a ship manager may opt to be taxed either according to the special tax method or according to the rates provided by the current income tax laws in force. This option may be exercised by interested parties with a written notice addressed to the Department of Merchant Shipping with a copy to the Commissioner of Income Tax. For a specific fiscal year, the notice must be filed at least 30 days prior to 1 January of the relevant fiscal year, and may remain in force until its withdrawal by the same procedure.
• Section 4 of the principal Law provides for an exemption from income tax upon the dividends received from the rendering of ship management services.
• Administrative and procedural aspects of the new tax system are governed by the Merchant Shipping (Taxation of Ship management Services) Regulations of 2000 (P.I. 395/2000).

Admiralty

Admiralty jurisdiction in Cyprus is exercised by the Supreme Court of Cyprus which, in accordance with Section 19(a) of the Courts of Justice Law has: "exclusive original jurisdiction as a Court of Admiralty vested with and exercising the same powers and jurisdiction as those vested in or exercised by the High Court of Justice in England in its Admiralty jurisdiction on the day immediately preceding Independence Day..." A claimant before the Cyprus Admiralty court has a choice of whether to proceed by way of an action in personam or an action in rem. An action in rem is particularly effective for the protection of claims as it can provide security by arresting a ship situated within the Jurisdiction of the Cyprus Admiralty Court. Maritime lien is also another concept common to Cyprus law which recognises and uphold the same causes, giving rise to maritime liens, identical to those under English law. Admiralty litigation in Cyprus has also considerably increased proportionally to the ever-increasing importance of Cyprus as a world-shipping centre.