In International Shipping News 07/11/2016
Following years of fluctuations in the size of the Cyprus-registered or Cyprus-owned maritime fleet, due to a major facelift and infrastructure change, whereby in the last decade there has been a decrease in the number of vessels flying the Cyprus flag, but there has been a significant increase in the gross tonnage, taking advantage of a unique taxation system that is now being emulated by other shipping hub nations.
Transport Minister Marios Demetriades said in his speech at the “Shipping Industry Gala” on May 17, that although shipping in Cyprus has been growing in the last two years, that “we need to do more because it is a very competitive sector”.
The Cyprus Registry ranked as the tenth largest merchant fleet worldwide and the thirrd largest fleet in the European Union, with Greece having the leading share, followed by Malta that has the second largest fleet in the EU. In addition, Cyprus is considered to be the largest third party shipmanagement centre in the EU and one of the largest globally, with the contribution of the shipping sector to the Cyprus economy reaching 7% of GDP.
At a similar event, Transport Minister Demetriades also declared that the aim is to raise the maritime sector’s contribution to GDP to 8.5%, an attainable goal, he said, due to the advantages that Cyprus offers.
The “Tonnage Tax” System (TTS) is still the strongest asset in attracting more quality ships and shipping companies. According to data from the Department of Merchant Shipping, the number of new shipping companies has increased by almost fourfold in the last six years, reaching 136 in 2015 compared to 35 in 2009.
Thus, with the TTS introduced in 2010, there was an increase in the registration of new companies from 35 in 2009 to 53 in 2010, a percentage increase of 5.1%. Furthermore, during the years 2010 to 2015, a steady increase in the number of registration of companies has been observed.
Before 2010 only shipmanagement companies were established, but following the introduction of TTS companies by charterers and owners of foreign ships were established in Cyprus.
The new TTS for Cyprus Merchant Shipping was approved by the European Union on March 24, 2010 and it is applicable from the fiscal year 2010. The European Commission considers that the scheme is in line with the EU’s Guidelines on state aid to maritime transport and authorised the scheme up until 31 December 2019.
According to legislation, the TTS is available to any qualifying person which are either owner, charterer or ship manager who owns, charters or manages a qualifying ship in a qualifying shipping activity. The beneficiaries of ownership, owner of Cyprus ships, foreign ships, charterers and ship managers, are subject to an annual tax which is called the tonnage tax calculated on the basis of net tonnage of the qualifying ships in a qualifying shipping activity.
According to legislation, a qualifying activity for ship-owners and charterers means maritime transport of goods or people between Cyprus ports and foreign ports / offshore installations, or between foreign ports or offshore installations and specifically includes towage, dredging and cable laying.
A qualifying vessel is a sea-going vessel that has been certified in line with international principles and legislation of the flag country, and is registered in the register of a member country of the International Maritime Organisation (IMO) and the International Labour Organisation (ILO).
The TTS regime applies to any owner of qualifying vessels that carry out a qualifying activity with Cyprus flag vessels, EU/European Economic Area (EEA) flag vessels that exercised the option to be taxed under tonnage, and fleet of EU/EEA and non EU/EEA vessels that exercised the option to be taxed under tonnage.
Cyprus registered shipping companies
Cyprus flag vessels and EU/EEA flag vessels exercise the option to be taxed under tonnage.
The Cyprus registry of ship is considered to be the third largest fleet within the European Union with a percentage of 12% of the fleet of 28 EU number states, according to statistics of development of the Cyprus fleet over the ten years from 2005 to 2015 recorded by the Department of Merchant Shipping.
The number of ships registered in 2015 is 1704 compared to 1802 in 2005, thus recording an overall decrease of 5.4% in the registration of the Cyprus fleet.
Over the past ten years, an overall decrease in the number of registered ships has been observed. From the years 2005 to 2009, there was a fluctuation in the registration of the Cyprus fleet reaching its peak in 2008 with a fleet of 1869. In the years 2009 to 2010 there was an increase in the registration of the fleet from 1853 to 1862. Thus, from 2005 to 2010, there was an increase in the registration of the Cyprus fleet, but from 2010 to 2015 there was a decrease in the registration of fleet under the TTS by 9.2%.
According to the legislation, full exemption is allowed to shipowners, charterers and shipmanagement from all profit taxes, corporation and income taxes. The rate of tonnage tax is imposed according to the net tonnage of the following vessels at the following rates.
Even though a fluctuation in the registration of ships was noticed, the gross tonnage of the ships increased by 8%; in 2015 the Gross tonnage was 22,870,616, up from 2005 when the gross tonnage was 21,094,415.
In correlation with the number of fleet registered each year under the TTS and the gross tonnage each year, in 2015 there was a decrease in the registration of fleet but an increase in the gross tonnage.
Over the years 2005 to 2009, before the implementation of TTS, the total fleet increased by 3%, while from 2009 to 2010 alone an overall increase in tonnage system of 1.5% was recorded. From 2010 to 2015, the overall increase in the gross tonnage was 3.7%, even though there is a decrease in the registration of the fleet.
In conclusion, it was noticed that there is a decrease on the number of registration of ships. According to the Cyprus Shipping Chamber, the reason for the “stagnation” of registry of ships could be due to the Turkish embargo on Cyprus registered ships, as well as limited promotion of shipping abroad and due to the lack of sufficient public funds.
Ship management companies.
Referring to Bank of Cyprus data, in 2015 there was a decrease in ship management revenues from non-residents in the second half of the year (December-June) by 0.43%, as compared on the first half.
Even though there is a small decrease in the percentage (not value added), total revenues now correspond to 5.2% of Cyprus’s GDP, reaching its maximum GDP within the years 2009 to 2015. Comparing the years of 2009 to 2010, there was a year-on-year increase in the revenue of 17.87% from the second half of 2009 to the second half of 2010.
From the years 2010 to 2014, there was an overall increase in revenue by 2.93%, with a revenue of EUR 421,000,000 in comparison to 409,000,000. Between the years 2014 to 2015, a noticeable increase was recorded in revenue by 9.7% reaching EUR 462,000,000.
Revenue contribution by flag
The graph shows the revenue contribution by flag as referred to the Central Bank of Cyprus statistics, in the year 2010.
The statistics indicate that the contribution of revenue of foreign flag vessels greatly surpass the Cyprus flag. Separating the Cyprus flag revenue contribution, from 2009 to 2015 there was an increase in the percentage from 5% to 22%.
Most of the market share is contributed by foreign flag vessels, however from 2010 to 2015 there was a decrease from the first half of the year which stood at 95%m, while by the second half of the year in 2015 this had dropped to 78%. Predominantly, in the year 2015 a decrease of 7% was recorded in revenue contribution by foreign flag vessels.
In conclusion, even though there was a decrease in the registration of fleet, the revenue of the Cyprus flag has increased. This could be due to the increase in the overall gross tonnage in the fleet which could have led to the increase of the tonnage tax.
The CSC stated that “based on a study which was recently commissioned by the Ministry of Transport, Communications and Works on the ‘Future of Cyprus Shipping’, we were pleased to note that the contribution of the shipping sector to the Cyprus Economy (according to data from the Statistical Service) is even higher, than what was originally expected and currently stands at 7% GDP.”
Source: Financial Mirror
