Financial incentives of Cyprus flag for greener and environmentally friendly vessels

As a leading maritime nation, Cyprus recognises the need to encourage and reward those realising emissions reductions. To this extent, the Shipping Deputy Ministry of Cyprus (SDM) has announced a new range of green incentives to reward vessels that demonstrate effective emissions reductions.

The green incentives programme of the SDM supports shipowners in making sustainable choices and investing in new green technologies and cleaner operations. This includes the use of cleaner fuels, the deployment of the relevant fuel infrastructure, the electrification of ships, and the use of energy efficiency technologies. A combination of all of these options has the potential to improve the commercial and environmental sustainability of the sector, but shipowners need to be rewarded for investment in sustainable practices to accelerate uptake.

a)?????State aid scheme for coastal vessels (de minimis)

Since September 2019, the Shipping Deputy Ministry has been implementing the state aid scheme for coastal vessels (de minimis), beneficiaries of which are the owners of coastal passenger vessels (registered under the Cyprus flag) engaged in the coastal passenger industry. The scheme will be valid for the period 2019–22 with a EUR3 million allocated budget (EUR1 million per year), provided that the minimum investment of the beneficiaries is at least EUR20,000. Among the scheme’s aims are:

• the enhancement of the protection of the marine environment;
• the upgrading of coastal vessels;
• further improvement of health and safety conditions for crew and passengers; and
• advancement of accessibility for people with disabilities.

Currently, more than 120 coastal passenger vessels exceeding 8,000 gross tonnage (GT) are registered under Cyprus flag.

b)?????Reduction of the Cyprus tonnage tax

In recent years, the SDM has been promoting environmental protection as one of the major goals on its agenda. To that extent, from fiscal year 2021, a reduction of up to 30% of the annual tonnage tax is possible in the case of a Cypriot ship or EU/EEA ship using mechanisms for the environmental preservation of the marine environment and the reduction of the effects of climate change.

More specifically, sections 9(1) and 13(1) of the Merchant Shipping (Fees and Taxing Provisions) Laws of 2010-2020 (Law No. 44 (I) of 2010 as amended by Law 39(I)/2020) provide for the reduction of tonnage tax up to 30% for environmentally friendly vessels. The SDM gives particular importance to the environmental protection, internationally and locally, with the re-approval of the Cyprus tonnage tax, introducing discounted rates for greener vessels.

Each ship can only receive a maximum 30% rebate on the annual tonnage tax. An eligible ship for any of the environmental incentive is a ship that engaged in a qualifying shipping activity as per the Merchant Shipping (Fees and Taxing Provisions) Laws of 2010-2020.

For the purposes of implementing the provisions of sections 9(1) and 13(1) of the Merchant Shipping (Fees and Taxing Provisions) Laws of 2010- 2020 the Council of Ministers, in exercise of the powers conferred on it under the aforementioned provisions issued the Tonnage Tax (Environmental Incentives) Order of 2021 (P.I. 42/2021).

According to the previously mentioned Order, the Cyprus flag will provide a “discount” on its TTS by comparing what emissions reductions are required of a vessel with what it achieves. For example:

• the Energy Efficiency Design Index (EEDI) – vessels that have achieved further reduction of their attained EEDI compared to the required EEDI (Regulation 20/MARPOL ANNEX VI) will obtain a respective annual tonnage tax rebate of between 5 and 25%;
• the IMO data collection system (DCS) – the environmental incentive relating to the IMO DCS applies to ships of 5,000 GT and above that comply with Regulation 22A of MARPOL ANNEX VI, and ships that demonstrate reduction of the total fuel oil consumption in relation to the distance travelled, compared to the immediately previous reporting period, will obtain an annual tonnage tax rebate of between 10 and 20%; and
• alternative fuels – vessels using an alternative fuel and achieving CO? emissions reductions of at least 20% in comparison with traditional fuels will receive a rebate on annual tonnage tax of between 15 and 30%, which will be reviewed on a case-by-case basis, following a review of the documents submitted from a class society.

?However, any vessel detained for any reason during a Port State Control inspection – that violates any European Commission regulation/directive related to environmental protection, or in laid-up condition (warm or cold) during the calendar year – will not be eligible for the incentive.