Registration of Yachts and Vessels in Cyprus

May 25, 2023 > Cyprus > Merchant Shipping Law

I. Overview

The Cypriot merchant fleet ranks among the 10 largest fleets in the world and ranks third in the European Union, with 12℅ of the total fleet of the 27 Member States of the EU. It has 1,857 ocean-going vessels of a GT exceeding 21 million.

Ship or yacht registration in Cyprus has never been easier or more beneficial for anyone looking for the best global shipping center and some of Europe’s most luxurious new marinas, thanks to a modern and appealing shipping scheme.

All matters relating to the registration of ships and the related transactions in the Register of Cyprus Ships or in the Special Book of Parallel Registration are governed by the Merchant Shipping (Registration of Ships, Sales and Mortgages) Law of 1963, as amended, and the provisions of the Government Policy on the Registration of Ships under the Cyprus flag, which is established pursuant to the provisions of the aforesaid law.

Applications for the registration of ships and for the related transactions in the Register of Cyprus Ships or in the Special Book of Parallel Registration must be submitted to the Registrar of Cyprus Ships, by a lawyer registered with the Cyprus Bar Association as a practicing lawyer in Cyprus.

 

II. Advantages of registering yachts and vessels under Cypriot flag

Cyprus imposes a special reduced tax on companies engaged in international maritime transport, which replaces the corporate tax, and this without unduly distorting competition. This scheme allows companies to opt for a tax calculated on the net tonnage of the fleet that they operate (tonnage tax) instead of being taxed on the actual profits their maritime transport activities. The scheme is authorized until 31st December 2029. The tonnage tax system is available to any owner, charter or manager who owns, charters or manages a “qualifying” ship in a “qualifying shipping activity”. The tonnage tax is calculated on the net tonnage of the ship according to a broad range of bands and rates prescribed in the legislation. The rates applicable to ship managers are 25 per cent of those applied for shipowners and charterers.

Shipowners of Cyprus-flagged ships automatically fall within the scope of the tonnage tax system and must remain in the system for 10 years. Early withdrawal will result in penalties, calculated as the difference between the amount paid the period the shipowner was under the tonnage tax system and the amount that would have been paid had it been subject to corporation tax in the same period. In addition, the shipowner will lose the right to opt for tonnage taxation until the expiration of the 10 years from the date the option was first exercised.

The tonnage tax system covers profits from shipping operations or management, income or dividends paid directly or indirectly out of such profits, profits on the sale of the ship and interest earned on funds as working capital or for the financing, operation or maintenance of the ship.

Other tax benefits:

    • No estate duty imposed on inheritance
    • No income tax imposed on the wages of the officers or crews
    • Low tonnage tax based on gross tonnage
    • No stamp duties for ship mortgage deeds or security documentation
    • More than 43 countries have double tax treaties with Cyprus

Other benefits include:

    • Attractive, low-cost registration of a ship
    • Low operating cost for Cyprus-owned companies
    • EU Flag and access to the European economic area
    • Cyprus has signed all international maritime conventions regarding pollution and safety
    • More than 23 countries have bilateral agreements with Cyprus for favored treatment in worldwide ports
    • Maritime offices around the globe
    • Highly skilled professionals and infrastructure in place
    • White-listed high-quality flag recognized globally
    • Luxurious marinas with elegant residences and world-class sailing facilities, with an enticing mix of restaurants and shops.

 

III. Recent developments in the CY Law:

In 2021, the Ministerial Counsel approved the Strategic Vision for Cyprus Shipping dubbed “Sea Change 2030” (https://maritimecyprus.com/wp-content/uploads/2021/10/SeaChange.pdf ) which included the development of a regulatory and administrative framework for the incorporation of shipping entities. As a result of this strategy, the Cypriot parliament voted in favor of the Cypriot Shipping Limited Liability Company Law of 2022 (161(I)/2022) (the “SLLC Law”).

The SLLC Law was shaped after the Companies Law, Cap.113 (the “Companies Law”), thus offering shipping entities a familiar regulatory framework and corporate environment.

Shipping Limited Liability Company

The purpose of the SLLC Law is to simplify the procedures and operation of shipping companies for the ownership and exploitation of ships. To that effect, the SLLC Law introduces a new type of legal entity, the Shipping Limited Liability Company (“SLLC” or «ΝΕΠΕ – Ναυτιλιακή Εταιρεία Περιορισμένης Ευθύνης») which is the equivalent of a limited liability company.

The SLLC Law applies to newly incorporated SLLCs and to shipping companies incorporated under the Companies Law that wish to transfer on the SLLC register under the SLLC Law.

Administration and management of SLLCs

The objective of the SLLC Law is the creation of a “one-stop-shop” within the Shipping Deputy Ministry for the servicing of shipping companies and their shareholders, and the handling of matters which were previously under the responsibilities of the Registrar of Companies. In effect, SLLC Law maintains the advantages and flexibility offered under the Companies Law as it includes provisions for the administration and management of SLLCs and provisions regulating matters which concern SLLCs from their incorporation up to their liquidation.

Features of the SLLC Law

The SLLC Law mirrors a number of functions exercised by the Registrar of Companies. The following list outlines some of the matters regulated under the new law:

    • The creation of the Registrar of SLLCs as the competent authority for the registration of SLLCs and any other corporate matters relating to SLLCs, for the promotion of a “one-stop-shop”;
    • The creation of the SLLC register;
    • Provisions on the incorporation of SLLCs, their share capital and other management arrangements;
    • The appointment of a secretary of the SLLC who, as per the SLLC Law, must be a lawyer;
    • Provisions for the transfer of companies registered in the register of the Registrar of Companies under the register of the Registrar of SLLCs;
    • The power of the Registrar of SLLCs to approve the use of electronic signatures in relation to documents submitted to or issued by the Registrar of SLLCs;
    • Τhe power of the Registrar of SLLCs to impose administrative fines.

Why incorporate or convert into an SLLC?

Despite the seemingly identical legal frameworks between a limited liability company (incorporated under the Companies Law) and a SLLC (incorporated/transferred under the SLLC Law), the SLLC Law contains small but rather significant differences which are tailored to the operations of SLLCs:

  • Simplified procedures for the increase and reduction of share capital

The Companies Law requires a court approval for the reduction of a company’s share capital.

On the other hand, the reduction of share capital for SLLCs does not require a court order and is achieved under a simpler and time-effective manner.

  • Simplified procedures for amending the SLLC’s memorandum

Under the Companies Law, a change in the memorandum of association is not effective unless approved by the court following a related application.

In contrast, the memorandum of SLLCs is based on a template prescribed under a notification of the Registrar of SLLCs and its amendment is permitted only in circumstances specified under the LLC Law.

  • A law tailored to SLLCs

SLLCs have the opportunity to benefit from a legal framework distinct from other entities. The SLLC Law is tailored to their business activities and creates a sustainable environment for SLLCs by setting the ground for further targeted improvements in the shipping industry.

 

IV. Ownership conditions for registering a ship under Cypriot flag

The shareholding requirements for registering a ship under a Cypriot flag provided under The Merchant Shipping (Registration, Sale and Mortgage of Ships) Law 1963 (45/1963) are as follows:

(A) More than 50% of the shares of the ship are owned by:

    1. Cypriot citizens, or
    2. EU citizens including citizens of contracting parties to the Agreement on the European Economic Area (EEA) which, in the event that they are not permanent residents of the Republic, shall have appointed and maintained an authorized representative of their in the Republic, or

 

(B) All 100% of the shares of the ship are owned by one or more legal entities, which have been established and operate:

    1. under the laws of the Republic and have their registered office within the Republic, or
    2. under the laws of another Member State and have their registered office, central administration, or principal place of business within the EEA and either have appointed and maintain an authorized representative in the Republic, or have outsourced the management of the ship entirely to a Cypriot or community ship management company which has its main establishment in Cyprus, or
    3. outside the territory of the Republic or another Member State but which are controlled by Cypriot citizens or by natural persons who are citizens of another Member State and have either appointed and maintain an authorized representative in the Republic or have entrusted the management of the ship entirely to a Cypriot or community ship management company which has its main establishment in Cyprus. The legal entity is considered to be controlled by Cypriot citizens or citizens of other Member States when more than 50% of its shares are owned by Cypriot citizens or citizens of other Member States or when the majority of the Directors of the legal entity are Cypriot citizens or citizens of other Member States.

 

V. Other conditions

Ships of any type or size other than those constructed for exclusive use on inland navigation, or which are to be used exclusively on inland navigation or are banned on port state control grounds, may be registered in the Register of Cyprus Ships or the Special Book of Parallel Registration, provided the applicable age-related requirements and the applicable type-related requirements are complied with.

 

VI. Types of registration

There are three types of ship registration in Cyprus:

      • Provisional (this will allow the shipowner time – up to 9 months, including the 3-month extension – during which it will be able to complete the administrative formalities for permanent registration);
      • Permanent (it must be affected within 6 months, or 9 months if the 3-month extension has been obtained, from the date on which it was provisionally registered); and
      • Bareboat charter registration (parallel). The legislation provides for the two forms of internationally accepted bareboat registrations: “parallel-in” registration and “parallel-out” registration. These two options offer some very interesting opportunities for leaseback, hire-purchase, and finance arrangements. The “parallel-in” and “parallel-out” registration may be effected with more than 20 states whose legislation is compatible with Cypriot legislation.

As of the publication date, the information in this article is accurate. This article serves merely as a succinct introduction to the topic. Before taking or abstaining from taking any action as a result of the information in this article, careful, specialized advice should be sought.

Mrs. Marilena Tofali

HAVIARAS & PHILIPPOU LLC

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