Cyprus is a signatory to and has ratified:

1. The 1929 Convention for the Unification of Certain Rules relating to International Carriage by Air.
2. The 1944 Chicago Convention on International Civil Aviation.
3. The 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards;
4. The 1970 Convention for the Suppression of Unlawful Seizure of Aircraft.
5. The 1971 Convention for the Suppression of Unlawful Acts against the Safety of Civil Aviation.
6. The 1999 Convention for the Unification of Certain Rules for International Carriage by Air.
7. The 2001 Convention on International Interests in Mobile Equipment and The Protocol to the Convention on Matters Specific to Aircraft Equipment (the “Cape Town Convention”)

a. Which qualifying declarations (opt-in and opt-out) has your jurisdiction made under the Cape Town Convention

Cyprus has made declarations under the Cape Town Convention pursuant to:

1. Convention Article 39(1)(a): Rights having priority without registration – priority of non-consensual rights or interests (“NRCRIs”) over registered international interests.
2. Convention Article 39(1)(b): Rights having priority without registration – right of arrest or detention by State or public services provider for non payment of amounts due.
3. Convention Article 39(4): Rights having priority without registration – priority of NCRIs over international interests registered prior to date of accession (i.e. 20/07/2023)
4. Convention Article 40: Registrable non-consensual rights or interests – list of NCRIs registrable under the Convention.
5. Convention Article 53: Determination of courts – District Courts of the Republic of Cyprus declared as the relevant court
6. Convention Article 54(2): Remedies – Self-help /non judicial remedies permitted.
7. Protocol Article XXX(1): De-registration and export request authorization – applicability of IDERA in Cyprus.

b. Does the Cape Town Convention take priority over conflicting national law?

Under Article 169(3) of the Constitution of the Republic of Cyprus, once international conventions, treaties or agreements entered into by decision of the Ministerial Council have been ratified by law and published in the Government Gazette, they have supremacy over any national law (with the exception of the Constitution) and, in the event of conflict with such laws, they take precedence, provided that they are similarly applied by the counterpart.

Since the Cape Town Convention and the Protocol have been ratified by L.10(III)/2022 and L.11(III) respectively and published in the Official Gazette, they take priority over conflicting national law.

(a) Lease

A Cyprus court will, pursuant to the Regulation No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (the “Rome I Regulation”), uphold a choice of a foreign governing law by the parties to the Lease with the following exceptions provided by the said Regulation:

(i)        If all other elements of the contract at the time of choice are located in a country other than the one whose law has been chosen and that country’s laws cannot be derogated from by contract, then those laws must be applied.

(ii)       Similarly, where all other elements of the contract are located within EU, but the parties’ chosen law is not the law of any EU Member state, the provisions of EU law which cannot be derogated from by contract will be applied.

(iii)      Overriding mandatory rules of law of the forum (i.e. the country whose courts are hearing the dispute) will be applied irrespective of the governing law.

(iv)      If the application of the parties’ chosen law is manifestly incompatible with the public policy of the forum.

(b) Security document (for example, mortgage).

A Cyprus court will uphold a choice of governing law by the parties to a security document with the exceptions provided by the Rome I Regulation outlined in (a) above.

It is neither customary nor necessary to take a Cyprus law governed mortgage.

5.1       Foreign judgments are recognised and enforced in Cyprus in many ways depending on the country where the judgement originated.

(a) EU Judgments

Any judgment issued by a court of an EU member state, other than Denmark, will be recognised and enforced in the Republic of Cyprus without retrial or examination of the merits of the case subject to the requirements and restrictions of Regulation (EU) No 215/2012 of 12 December 2012 of the European Parliament and of the Council on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the “Brussels Recast Regulation”).

(b) Icelandic, Norwegian and Swiss Judgments

Any judgment issued by a court in Iceland, Norway or Switzerland will be recognised and enforced in the Republic of Cyprus in accordance with the provisions of the Convention on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial matters of 30 October 2007 (the “Lugano Convention”) between the EU and said countries, without the need to follow special procedures.

(c) English judgments

Any final and conclusive judgment to be issued by a superior court in England will be recognised and enforced in the Republic of Cyprus either

1. pursuant to the 2005 Hague Convention on Choice of Court Agreements, if the documents or any of them, which will be the subject matter of such judgment, provide only for the exclusive jurisdiction of English Courts or
2. in all other cases pursuant to the provisions of the Reciprocal Enforcement of Certain Judgments of the Courts of Commonwealth Countries Law, Cap 10 of the Statute Laws of Cyprus.

(d) Other Judgments

Any final judgment issued by any other court may be enforced in the Republic of Cyprus either:

1. pursuant to the Judgment of Foreign Courts (Recognition, Registration and Enforcement by Convention) Law of 2000 (Law 121(I)/2000) if such judgment is issued by a court of a country with which Cyprus has concluded or is connected with an agreement for the mutual recognition and enforcement of judicial decisions; or
2. under the common law by the institution of an action in the Republic of Cyprus on the basis of the judgment debt.

5.2       The extent of the documentary requirements will ultimately depend on the enforcement regime applicable to the foreign judgement at hand. In general, however, the judgment creditor must be able to provide the Cypriot enforcing courts with the following documentation:

• a certified copy of the foreign judgment;
• if the foreign judgment was rendered by default, the documents required to establish that the summons was duly served on the judgment debtor;
• all documents required to establish that the foreign judgment is no longer subject to ordinary forms of review in the country of origin and, where appropriate, that the judgment is enforceable in the country of origin.

6.1       Registration at the Cyprus Aircraft Register can be made either in the name of the owner or the operator – please see 6.2(d) below

If the registration of the aircraft is made by a qualified lessee, details of both the owner/lessor and the operator/lessee are recorded.

6.2       The Civil Aviation Laws of L.213(I)/2002 (the “Civil Aviation Laws”) provide that only aircraft which satisfy the following prerequisites may be registered in the Aircraft Register:

1. Aircraft not registered in a foreign register;
2. Airworthy aircraft, as certified by a certificate of airworthiness;
3. Environmentally compatible aircraft, as certified by a noise certificate;
4. If the person who, by a percentage of more than 50%, is its owner or is the holder of a right of purchase, or is the lessee pursuant to a lease for a period of not less than six months is:

1. a citizen of Cyprus or of a Member State of the EU, or the European Common Aviation Area (EU/ECAA MS) even if not residing in Cyprus; or
2. a legal person who satisfies the following criteria:

• • it is established under Cyprus law, or the law of an EU/ECAA MS;
  • it has its constitutional seat or its principal establishment in the territory of Cyprus or EU/ECAA MS;
  • its capital is owned by a percentage of more than 50% by citizens of Cyprus or of EU/ECAA MS; and
  • those who have the power to represent it or who are personally responsible are by majority citizens of Cyprus or of an EU/ECAA MS.

6.3       Persons wishing to register an aircraft in Cyprus should submit with the Department of Civil Aviation (“DCA”) the prescribed application accompanied by the following documents:

1. Evidence of qualification under 6.2(d) above i.e. ID or passport for natural persons or constitutional documents/ certificates for legal persons.
2. Aircraft Ownership Certificate, or Bill of Sale.
3. Lease agreement (if applicable)
4. Insurance Certificate
5. De-registration certificate from the State of previous registry (if applicable).
6. Aircraft Customs and VAT clearance documents.
7. Aircraft Noise certificate.
8. Valid Certificate of Airworthiness.
9. Radio Licence.
10. Proof of payment of the relevant aircraft registration fees

Upon satisfactory completion of the investigation by the DCA and upon payment of the appropriate fees, the aircraft will be issued with, inter alia, a Certificate of Registration.

7.1       There is not a separate security document register in Cyprus where a mortgagee’s interests can be recorded.

However, mortgages and rights over aircraft registered in the Aircraft Register may also be entered therein.

7.2       See also 14.2 for registration at the Companies’ Registry (if applicable)

a. Ownership interest (for example, proof of title to third parties of ownership).

Upon registration in the Aircraft Register, an aircraft acquires Cypriot nationality. Registration does not confer title to the aircraft and does not constitute actual notice or constructive notice of ownership.

b. Lease (for example, perfects the status of the Lessor under the Lease).

Registration of a lease in the Aircraft Register constitutes constructive notice of the registered particulars.

c. Security document (for example, secures priority over later registered security). If there are any interests that could rank prior to the security document please state these.

Registration of a mortgage or a security right over aircraft at the Aircraft Register does not ipso facto, give priority. Priority, where the matter is governed by Cyprus law and the Cape Town Treaty does not apply, is determined according to common law rules and the principles of equity save where they may be invalidated or amended by statutory provision.

All types of leases are recognized in Cyprus. The most common ones are finance leases and operating leases.

Pursuant to Article 11 of the Rome I Regulation, a contract is considered formally valid if it satisfies the formal requirements of either the law of the country where it was concluded or the governing law of the lease.

If the lease is governed by Cyprus law or it is signed in Cyprus, there are no specific formalities required to make it valid. It does not need to be under seal or to be made by deed and does not require witnessing or attestation.

For the lease agreement to be submitted to the DCA, for purposes of registration of an aircraft, the agreement must be:

1. in one of the official languages of the Republic or in English. Otherwise it must be accompanied by a certified translation; and
2. attested by a Cypriot certifying officer (if executed in Cyprus) or notarised, apostilled or otherwise legalised (if executed outside Cyprus).

The ownership rights relating to engines are recognized as separate and distinct from the ownership of the rest of the aircraft but there is no separate register for engines in Cyprus.

Title to an engine may, however, be registrable with the International Registry if the relevant requirements are met.

In Cyprus, security over an aircraft usually takes the form of a mortgage which can be either legal or equitable.

1. Under a legal mortgage, the mortgagor conditionally transfers its ownership to the mortgagee as security for a debt while retains the right to reclaim ownership of the aircraft upon repayment of the mortgage debt.
2. An equitable mortgage arises where there is a specifically enforceable contract to create a legal mortgage, where a mortgage has failed to comply with the formalities for a legal mortgage, or where an equitable interest is mortgaged. There is no actual transfer of ownership but the mortgagor retains the absolute right to reclaim the aircraft once the mortgage debt is repaid.

Another type of security that can be established over an aircraft (which, however, cannot be recorded in the Aircraft or any other Registry) is a lien which grants to the lien-holder the non-transferable right to keep possession of the aircraft until a debt or obligation is fulfilled. However, it only allows the holder to retain the aircraft and does not provide the right to sell or otherwise dispose of it. Liens can be created by equity, contract or statute.

There are no statutory requirements relating to the terms of aircraft mortgages or liens in Cyprus.

As regards mortgages, they are usually “tailor made” to suit the aircraft financing in question.

14.1     Following the abolition of stamp duty on mortgages on aircraft registered in the Cyprus Aircraft Register, there are no specific formalities that are required to perfect the mortgage granted by a foreign mortgagor.

14.2     In the unlikely scenario that the mortgagor is a company that is either (i) incorporated in Cyprus or (ii) incorporated outside Cyprus but has transferred its registered office or redomiciled to Cyprus, and the company maintains possession of the aircraft, the mortgage (covering the aircraft and/or spare parts), along with any assignments, amendments, or changes to the details of the mortgage or assignment, must be registered with the Registrar of Companies. Failing to do so will render the mortgage unenforceable against the company’s liquidator or creditors.

Not applicable.

Whether cut-through clauses are enforceable in Cyprus will depend on the law governing the insurance and reinsurance contract and the specific provisions thereof. If the reinsurer undertook a direct relationship of indemnity with the original insured, then a cut-through clause in those circumstances (where no privity of contract issues would arise) should be enforceable in Cyprus.

On the other hand, if the reinsurer has not agreed with this directly in favour of the insured party and the arrangement is between the insured and the original insurer only, it is doubtful whether the Cypriot courts would enforce such a cut-through clause.

Every air carrier (air transport undertaking with an operating license) is required to be insured to cover its own liability in respect of passenger, baggage, cargo and third parties pursuant to sections 121 and 241 of the Cyprus Civil Aviation Laws.

Mandatory insurance coverage requirements are those imposed by Regulation (EC) No 785/2004 of 21 April 2004  in Insurance Requirements for Air Carriers and Aircraft Operators (the “Insurance Regulation”), which sets out the minimum levels of insurance.

In respect of liability for third parties, the minimum insurance cover per accident, for each and every aircraft depends on the Maximum Take-Off Mass of the aircraft (as per Article 7 of the Insurance Regulation.

18.1 If the Cape Town Treaty does not apply.

Following the occurrence of an event of default under a lease or a mortgage, the lessor or mortgagee (as the case may be), may take possession of the aircraft provided that this has been stipulated for in the lease or mortgage. This can be done without the need of a permission of a court or any other party in Cyprus.

However, in practice, there may be reasons for the lessor/ mortgagee proceeding by way of court order in the case where the lessee/mortgagor opposes repossession or there is uncertainty whether an event of default has occurred. For example the DCA or the Air Transport Licencing Authority may refuse to grant to the mortgagee the requisite operating licence, Certificate of Airworthiness or other permissions necessary for the continued flight of the aircraft.

18.2 If the Cape Town Treaty Applies.

Where the lease /mortgage constitutes a validly created international interest under the Cape Town Treaty, the lessor/ mortgagee of a Cyprus aircraft has the benefit of the default remedies under Articles 8, 10 and 13 of the Convention and Arts IX to XIII of the Aircraft Protocol. These remedies include taking possession or control of the aircraft and selling or leasing the aircraft. The mortgagee can take possession of the aircraft without judicial intervention pursuant to the declaration lodged by the Cyprus under Article 54(2) of the Convention which permits that these remedies may be exercised without the leave of the court.

If an aircraft is subject to an Irrevocable Deregistration and Export Request Authorisation (IDERA) which was recorded in the Aircraft Register and the person in whose favour the IDERA was issued (known as the authorised person or certified designer) requested the deregistration of an aircraft, the DCA will expeditiously honour the request for deregistration without the need of a court order.

However, the prior written consent of the holder of a registered interest ranking in priority to that of the creditor, must be provided.

The DCA has not yet published the exact procedural steps required to deregister the aircraft on the basis of an IDERA.

The owner may (pursuant to the Cyprus Constitution) be deprived of title to the aircraft by reason of compulsory acquisition or requisition by the Cyprus Government for a purpose which is to the public benefit (as specifically provided in the case of compulsory acquisition by the Compulsory Acquisition of Property Law 1962, or in the case of requisition by the Requisition of Property Law 1962). The public benefit will include, inter alia, the defence or security of Cyprus, the maintenance of services which are essential to life and the maintenance of air communications.

The procedure for the taking of the aircraft and the enforcement of the mortgage is similar to that of any other claim in respect of chattels.

There is no general right of pre-trial attachment, but the court has a discretion in this regard, both pre and post judgment. Proceedings will be commenced by way of the issue of a writ.

The body of the writ may contain, inter alia the following claims by the mortgagee:

• the mortgage debt, interest thereon and costs;
• such other charges as the mortgage provides are for the account of the mortgagor;
• delivery up of possession of the mortgaged aircraft;
• an injunction when necessary; and
• such further or other relief as the court may order.

The period from the service of the writ until the trial of the action (whether or not an injunction has been granted) depends upon whether the mortgagor has sought to raise a defence against the claim for payment of the debt or possession of the aircraft.

It also depends on any other claims raised by third parties who assert their rights in respect of the mortgaged aircraft.

The documents that are required are:

• the original (or a certified copy) of the mortgage/lease together with evidence that the lessee is in default of its obligations under the lease; and
• evidence of the service of a notice of default on the lessee.

Title of an aircraft is transferred at such time and by such means agreed to by the parties. However, a transfer of legal title is typically effected upon delivery of the bill of sale. The sale/ assignment of an ownership interest of an entity that owns an aircraft is considered a transfer of a beneficial interest only and would not be effectively recognized as a sale of the aircraft itself.

If the aircraft is registered in the Cyprus Aircraft Register, the buyer must be registered as the new owner of the aircraft (even if the application for registration of the aircraft was made by a qualified lessee – under 6.2(d) above)

Submission to the DCA of the following documents is required in order to record the transfer of legal title of an aircraft registered under Cyprus flag:

• Bill of Sale (duly attested by a Certifying Officer if executed in Cyprus or legalized by Apostille if executed abroad)
• Directors’ Resolutions
• Constitutional documents of Buyer/new owner

This will depend on a number of factors including

• the terms of the lease/mortgage agreement
• whether enforcement was made following a court order and if so, whether there were any terms that the court imposed
• whether any injunction was ordered

1. Withholding tax: There is no Cyprus withholding tax for payment of lease rentals.
2. Corporation tax: A leasing company tax resident in Cyprus is subject to corporation tax  at a rate of 12.5% on the profits from its business, whether the source of the income is in, or outside, Cyprus. Under the Double Taxation Treaties between Cyprus and a number of foreign countries, if the lessee is resident in another country lease rentals are taxable only in the contracting state in which the place of effective management of the lessor is situated.

Whether taxes will be payable on the sale of an aircraft depend on a number of factors including whether the aircraft is in free circulation, whether it is a qualifying aircraft for VAT purposes, whether the seller is a tax resident of Cyprus whose main business is the selling of aircraft, the type of aircraft, the physical location of the aircraft at the time of sale.

1. Value Added Tax (VAT): If the aircraft is located in Cyprus at the time of sale, Cyprus will be considered the place of supply for VAT purposes and therefore the seller will be liable for Cypriot VAT at a rate of 19%. However, if the aircraft will be used by an airline primarily operating international routes, the Cypriot VAT rate will be 0%. If the aircraft will be used outside the EU then it falls outside the scope of Cypriot VAT and no VAT liability will arise in Cyprus.
2. Stamp Duty: Cypriot stamp duty is applicable on the sale agreement of an aircraft located in Cyprus, unless the aircraft is already registered in the Cyprus Aircraft Register.
3. Income Tax: If the seller is a tax resident in Cyprus and selling aircraft is part of its business, the sale will be subject to a 12.5% corporation tax in Cyprus.
4. Customs Duties: No customs duty will be charged on the transfer of title of an aircraft which is in free circulation. If not in free circulation but registered in a civil aircraft register then again no customs duty will apply. If not in free circulation and not registered in a civil aircraft register, then customs duty will apply upon the importation of an aircraft in Cyprus.

As an EU Member state, the general import and export restrictions and requirements set out in Union Customs Code and other EU legislation apply to Cyprus.

Please also see 25(d) above on the customs duties payable.

Subject to any applicable sanctions dictated by the European Union or the United Nations, there are no foreign exchange controls in operation in Cyprus for transactions through a banking institution and no Central Bank or other official consents are required for the transfer of funds.

In Cyprus, a very small aviation leasing market, there were not many incidents of default under a loan agreement/ lease where foreign creditors and lessors had to repossess the aircraft.

One of the very few such events in the aviation leasing history of Cyprus involved Cobalt Airlines (“Cobalt”) which in October 2018 ceased all operations because of financial difficulties. Due to a number of factors (including the obtaining of interim injunctions by local creditors against Cobalt), repossession by the lessors and deregistration and export of the four aircraft leased by Cobalt took a long time and resulted in losses for the lessors.

However, with the Cape Town Convention now in place and the authorities’ commitment to implement it, it is certain that the unfortunate situation of the lessors of Cobalt will not be repeated in Cyprus.

The only major government led reform affecting creditor and lessor rights is undoubtedly the entry into force of the Cape Town Convention on 1 November 2023.

Other than the milestone referred to in 29 above, there have not been any other interesting legal developments in Cyprus affecting creditor and lessor rights.

N/A