Sector Profile
Maritime & Shipping
118
Competitive Tonnage Tax
A famous seafaring nation since antiquity, Cyprus began building its modern shipping industry in the early 1960s when it established its shipping registry and introduced legislation providing ship managers and owners with a more tax-efficient business environment. Among the country’s other evident advantages were its strategic location at the crossroads of maritime transport lines between East and West, low operating costs, a highly educated, multilingual workforce and its sophisticated professional services industry. Cyprus is also signatory to numerous international maritime conventions and has bilateral cooperation agreements with 25 countries, among them leading suppliers of labour. Foreign shipmanagement executives enjoy the renowned holiday island’s pleasant lifestyle and are reassured by statistics that show it is one of the safest places in the world to raise a family. Limassol, where the vast majority of shipping companies are based, has undergone a major transformation in recent years. Bustling cafes and restaurants fill its revamped historic old town while its long coastal road is now flanked by cycle paths, pedestrian walkways and prestigious, high-rise residential developments. An added boost for shipping executives comes from new legislation providing tax incentives for high-earning expats. But the major driver of the sector’s success was put in place in 2010 when, after more than 10 years of negotiations with Brussels, Cyprus secured agreement for an upgraded and competitive EU-approved tonnage tax (TT) system. The main benefit of the TT regime is the certainty it provides companies on their annual tax obligations, enabling them to do their business planning accordingly. While other jurisdictions might have less expensive TT regimes, Cyprus’ incorporates all three types of maritime activities – ship owning, shipmanagement and chartering, making it unique in the EU where other jurisdictions might specialise in just one or two of these areas. In the past six years there has been an increase of more than 65% in the number of shipping companies that have registered with Cyprus’ specialised shipping taxation system, boosting the sector’s revenue by 25%. In 2019, the Shipping Deputy Ministry has plans to ramp up the global promotion of the TT system to attract more ships to its register and companies to its shores, and introduce new tax incentives and simplify shipping fees. The TT regime has ensured the country’s status as an attractive jurisdiction despite the Turkish embargo, which was unilaterally Country Report CYPRUS 2019
imposed in 1987 on Cyprus flag ships calling at Turkish ports. The Cyprus flag is also considered one of the highest quality EU flags available today and ranks at the top of various Port State Control Agreement ‘White Lists’ – including the Paris and Tokyo MOUs. Ensuring Competitiveness
The creation of an independent Shipping Deputy Ministry, whose head reports directly to the country’s President, was a major milestone in 2018 for the industry’s development, serving to further attract quality shipping companies and tonnage to Cyprus. Based in Limassol, the Deputy Ministry is the first ministry outside the capital city of Nicosia and as such is ideally located to work with the CSC – the voice of the resident industry – and the Cyprus Union of Shipowners. These influential associations have played a key role in developing the industry through their lobbying efforts and expert advice to the government, with which they cooperate closely. The expertise and proactive approach of maritime specialists in both the private and public sector have long been the driving force of the local maritime cluster, which has supported the development of Cyprus into the world-class maritime centre it is today. A year after its establishment, the Deputy Ministry has created a roadmap to ensure Cyprus maintains its competitive edge. The goal is to protect the stable and business-friendly framework provided to foreign investors in shipping by further expanding the island’s registry and maritime cluster, strengthening international relations, improving maritime safety and environmental protection, implementing a blueprint for blue development and to upgrade available services. Key to hitting all these targets is to secure Cyprus’ competitive tax policy, to reduce bureaucracy and to launch a single service centre for shipping companies. In addition, Cyprus has plans to expand its presence in leading ports around the world, and is looking at establishing a permanent representation in Asia due to the importance of China and Japan in world trade. The move would complement its current list of offices in Hamburg, Rotterdam, London, Piraeus, New York and its permanent representation in Brussels. Technology is also front and centre in efforts to upgrade services, with, for example, plans to implement more automation in the ship registration process. In addition, the Ministry and the shipping industry support innovation programmes that contribute to shipping-related tech solutions. The country’s start-up and innovation
Although Cyprus is already established as a significant international shipping centre, a number of factors such as: the lifting of the illegal Turkish embargo on Cyprus ships, the further promotion of the Cyprus taxation system, maritime education and ‘Blue Growth’, can significantly drive the growth of the Cyprus shipping industry, resulting to the further expansion of the Cyprus registry. Also, the recent discovery of natural gas in the Exclusive Economic Zone of Cyprus creates even greater prospects for Cyprus shipping and of course, the country as a whole. Thomas A. Kazakos Director General Cyprus Shipping Chamber
Cyprus has entered a new era. The era of shipping and hydrocarbons. The discovery of huge deposits of hydrocarbons comes as a huge endowment which together with the establishment of an international economic and shipping centre guarantee the success for Cyprus. If we seize the opportunity opening up from Brexit, Cypriots can once again become masters of trade and international business. Rarely such strong elements come together to support a country and its people to rise. Andreas Hadjiyiannis President Cyprus Union of Shipowners