Cyprus: Shipping Companies - Part 1

Cyprus is one of the main centres for shipping services in the world. It currently ranks 6^th according to the Lloyd’s Register list of leading maritime nations with around 1407 vessels under the Cyprus flag, totalling around 23 million gross tonnage.

Cyprus has many advantages to offer as a maritime centre. It has a well established maritime infrastructure and offers substantial tax incentives for the shipping industry. Also, it is a member of the International Maritime Organisation (the "IMO"), the Council of Europe, the Commonwealth and many other international organizations. It is a signatory to many international maritime conventions and has concluded bilateral agreements of co-operation in merchant shipping and double tax treaties with a large number of countries. A significant number of Cyprus vessels are managed from ship management companies operating from fully manned offices on the island.

Cyprus’ accession to the European Union on 1 May, 2004 has boosted the registration of vessels under the Cyprus flag. On the date of accession, some 25% of the EU fleet fell under the Cyprus flag.

Administrative and Legal Framework

All maritime matters are under the jurisdiction of the Ministry of Communications and Works (the "Ministry"). The Ministry exercises its authority through the Department of Merchant Shipping. The Department of Merchant Shipping deals with registration of ships, administration and enforcement of merchant shipping legislation, control of shipping and enforcement of international conventions, investigation of marine casualties, resolving labour disputes on board Cypriot ships and training and certification of seafarers.

Shipping legislation in Cyprus is essentially based on the British model. The Register of Cyprus Ships is regulated by the Merchant Shipping (Registration of Ships, Sales and Mortgages) Laws 1963-1996. These correspond to the British Merchant Shipping Acts 1894-1954. The other principal merchant shipping laws are the Merchant Shipping (Masters and Seamen) Laws 1963-2002 and the Merchant Shipping (Fees and Taxing Provisions) laws 1992-2003.

Cyprus shipping companies are regulated by Chapter 113 of the Statute Laws of Cyprus (as amended) which is, again, modelled on the UK Companies Act, 1948.

Cyprus is a signatory and has ratified the major international conventions on maritime safety, prevention of pollution of the sea, training certification and watch keeping of seafarers and limitation of ship owner’s civil liability in case of oil pollution damage and conventions on maritime labour. It has also concluded double tax treaties and bilateral agreements with a large number of countries for the avoidance of double taxation and enhancement of co-operation in the field of merchant shipping. These agreements provide additional financial advantages, tax incentives and advantages on the engagement of foreign seafarers on board Cypriot ships.

Commercial and banking arrangements and practices in Cyprus follow the British model. There is a strong correspondence network with international banks. Cyprus also enjoys a well developed insurance industry and all types of risk are accepted, mainly through agents and intermediaries.

The Cyprus Shippng Company

A non-resident wishing to register a ship under the Cyprus flag must form a Cyprus Shipping Company (the "Company"). The Company will acquire the vessel in its name. It will be registered as a private company with limited liability (by shares).

To incorporate the Company, one must file the memorandum and articles of association (both must be in Greek) with the Registrar of Companies. On formation of the Company, the Registrar of Companies will issue a certificate of incorporation. Upon issue of the certificate, the company may begin to trade and register a ship in its name.

It usually takes 3 days from the filing of the Company’s incorporation documents to incorporate the Company. However, the process can be accelerated on request. Only local lawyers can draft the necessary documents for the incorporation of Cyprus companies.

A non-resident company may buy vessels from, or sell them to, non-residents without any exchange control approval. It is not necessary to keep a bank account in Cyprus. However, the company may open an external account with a commercial bank in Cyprus (in any currency). The deposits in such an account are freely transferable and fully convertible into other currencies.

The name must end with the word ‘limited’ and must be approved by the Registrar of Companies. Broadly speaking, very general or deceptive names or names that are likely to lead to confusion with existing ones will not be approved. It usually takes 4 days to obtain approval for the Company’s name but the process can be accelerated on request.

This must be in Cyprus. Where the Company does not have offices on the island, it is usual practice for the registered address to be the address of the lawyers or accountants who act for the company on the island. The registers and minute books are kept with the secretary.

(c) Share Capital.

The share capital may be nominal. It may be paid up in full or by calls and this can be done in cash or for other consideration. The shares may be allotted a par value. Any class of share is acceptable (ordinary, preference and with different voting and dividend rights). All shares must be nominative. Bearer shares are unacceptable. A typical Cyprus ship owning company has a nominal share capital of CY£1000 divided into 1.000 of CY£1 each.

The Company must have a minimum of 1 shareholder. Nationality is immaterial. The shareholder/s may all be foreigners residing outside the island. Foreign individuals and corporations require exchange control permission in order to subscribe to or hold shares in a Cyprus company. The transfer of shares to and from foreigners also requires authorization. For shipping companies, such permission is usually given as a matter of course in all bona fide cases.

Trust relationships are recognized under Cyprus law both by statute and in equity. The law corresponds to the regime in the English legal system. The security documentation of the beneficial owner usually comprises of:

(i) the trust deed;

(ii) the original share certificates that are issued in the names of the nominee shareholders;

(iii) an instrument of transfers of shares executed in blank, directors’ resolutions approving the transfer of shares (where nominee directors are appointed);

(iv) undated letters of resignation of the nominee directors, and

(v) Irrevocable dividend mandates for payment of dividends to the beneficial owners or to an account designated by them.

General meetings of the company may be held abroad and, as a rule written resolutions signed by all the shareholders will suffice in lieu of a meeting. Annual general meetings must be held every year, the first to be held within 18 months from incorporation.

One or more directors may be appointed. Their nationality is immaterial. There is no obligation to have local directors. Directors are appointed and removed by the shareholders. A class of shares may be given special rights in this respect. Board meetings can be held in any country. Directors’ resolutions may be taken either at a duly convened meeting or without a meeting provided that the resolutions are signed by all the directors. The names of the directors are submitted to the Registrar of Companies and are kept on a public record.

The secretary is appointed by the directors and is removable by them. There are no restrictions on who may be appointed as a secretary, however, it is practical for the secretary and the directors to reside in the same country (to facilitate the holding of board meetings) and for an assistant secretary to be appointed in Cyprus to attend to the Company’s annual formalities on the island. A director may also act as secretary.

Annual returns showing the names of the shareholders must be filed with the Registrar of Companies. Any charges against the company must also be filed and registered. The Registry is a public record open to inspection.

A limited liability company can be incorporated in one of the following ways:

(i) by the actual shareholders appearing as subscribers to the memorandum and articles of association and signing the same, or

(ii) By two Cypriot nominees (usually the company’s lawyers) subscribing to the memorandum and articles of association and later transferring their subscription shares to the actual shareholders by instruments of transfer.

To proceed with the formation of a Cyprus shipping company, the following information is required:

(i) the desired company name;

(ii) the amount of authorized share capital;

(iii) whether shareholders will subscribe to the memorandum and articles of association themselves or through nominees;

(iv) whether shares will be held in trust for Cypriot nominees;

(v) the name, address, nationality and occupation of beneficial shareholders;

(vi) the name, address, nationality and occupation of directors, and

(vii) The name and address of the secretary.

They are appointed at the Company’s Annual General Meeting and are removable in the same way. Any auditor who is entitled to audit an English company is acceptable.

Unless a company is exempt, it must file annual accounts with the Registrar of Companies. A company is exempt if it does not have another company as a shareholder. As the Register of Companies is a public record, if a company wishes to avoid its accounts being open to inspection, then it must have physical persons as shareholders.

In the case of a foreign owned shipping company, the books may be kept abroad and denominated in any currency.

The fees payable on incorporation of a company are:

There are no annual fees in order to keep the company in good standing and operative but there is a stamp duty of CY£7 for filing annual returns.

There are charges for the registration of mortgages against the company with the Registrar of Companies. There are also stamp duties payable for the filing of other returns, documents and charges. On winding up of a company, the official fees are CY£75.

Registration of Ships

A vessel may be registered under the Cyprus flag if more than one half of the shares in the ship are owned by:

(a) A Cypriot, or

(b) a corporation established and operating under and in accordance with the laws of the Republic of Cyprus and having its registered office in the Republic; or

(c) A corporation incorporated outside the Republic in which the controlling interest is vested in Cypriots (physical persons), if specially authorized by a decision of the Council of Ministers of the Republic.

This is why, all non-Cypriot owners who wish to register their ships under the Cyprus flag must incorporate a company in Cyprus. The Company which will either acquire the ship in its name, or bareboat charter the ship.

The main types of vessel registration in Cyprus are provisional, permanent and parallel registration.

All documents which refer to Cypriot ships must be drawn up in a language comprehensible to the competent officers under the law. This provision makes the registration of vessels faster and saves on translation expenses as the documents do not have to be in Greek. In practice, most of the documents are admissible in English.

The age of a vessel is calculated by deducting the year when its keel was laid from the year when the application for registration of the vessel was filed with the Registrar of Cyprus Ships. The year of conversion or modification or major reconstruction and the year of completion or delivery of a vessel, are considered irrelevant and will be ignored.

Vessels are divided into two main categories according to their age:

(a) Vessels of less than 15 years of age. Vessels of any size and type (except fishing vessels) having an age not exceeding 15 years may be registered under the Cyprus flag as long as they comply with the provisions contained in the merchant shipping legislation and the circulars of the Department of Merchant Shipping.

(b) Vessels over 15 years of age. Vessels over 15 years of age, including fishing vessels, may be registered in the Cyprus Register of Ships under additional conditions. These conditions must be met concurrently with the submission of the application for registration and must be complied with at all times while the vessel remains registered, irrespective of any subsequent transfer of ownership.

(i) Over 15 years but not exceeding 17 years of age - vessels in this category may be registered provided they pass a special inspection;

(ii) Over 17 years but not exceeding 20 years of age - a vessel in this category may be registered provided it passes a special inspection and is operated by a ship management company certificated for compliance with the ISM Code;

(iii) Over 20 years but not exceeding 23 years of age – a vessel in this category may be registered provided it passes a special inspection and is subject to subsequent annual special inspections. It must also be operated by a Cyprus ship management company, which is certificated for compliance with the ISM Code.

(b) Cargo vessels with a gross tonnage of less than 1000. Only cargo vessels not exceeding 20 years of age may be registered. However, they are subject to a special inspection if they are subsequently detained on account of deficiencies or violations of international conventions by flag or port state control authorities.

(i) Over 15 years but not exceeding 25 years of age – a vessel in this category may be registered provided it passes a special inspection and is subject to subsequent annual special inspections;

(ii) Over 25 years of age - A vessel in this category may be registered provided it passes a special inspection and is subject to subsequent annual special inspections and it is operated by a Cyprus ship management company, which must be certificated for compliance with the ISM Code.

In both cases, whenever the vessel is engaged in regular service, which includes at least two calls per month to a Cypriot port, at least 25 percent of its crew should be Cypriot. This requirement can be waived if a confirmation is given by the Limassol District Labour Office that no Cypriot seamen are available. Also, in that case, the vessel must engage at least 1 Cypriot student or graduate of a Marine Officer's School, if available for sea training for a period of up to 6 months.

There are detailed requirements for the registration of fishing and fish factory vessels of any age covering ownership, safety, fishing activities and hygiene. Further information can be obtained from the Department of Merchant Shipping.

(i) Vessels up to 25 years of age may be registered without any additional conditions;

(ii) Vessels over 25 years of age may be registered provided they belong beneficially to residents of Cyprus and their management and operations are controlled from Cyprus.

Further information can be obtained from the Department of Merchant Shipping.

Applications for registration must be accompanied by all relevant documentary evidence attesting compliance with the various conditions that need to be fulfilled at the time of the provisional registration (or the directly permanent registration, as the case may be.).

Residents of Cyprus, for the purposes of this policy, include:

(a) Cypriot citizens, and;

(b) Persons who have had their ordinary residence in Cyprus for the last 12 months have been issued with a work permit and are liable to Cyprus income tax.

Where a special inspection is required, it is carried out by the surveyors of the Department of Merchant Shipping at the expense of the ship-owner. The inspection of the ship should be carried out before its provisional or directly permanent registration. If this is not practically possible, it should be conducted within 3 months from the date of provisional or parallel-in registration, or within 1 month from the date of permanent registration, if affected directly.

The information about the management and operation of a vessel is shown on the Joint Declaration on the Operation of a Ship. A vessel is considered as managed and operated by a ship management company if that company holds, or is issued with, a valid Document of Compliance (the "DoC") or Interim DoC. In addition, the vessel is issued with a Safety Management Certificate (the "SMC") or Interim SMC indicating that it is operated by the company in question. The Doc and SMC must be issued either by or on behalf of the Cyprus government.

All vessels, irrespective of type, of 500 gross tonnage and upwards must hold a valid SMC. The management companies must hold a valid DoC.

Cyprus has established a worldwide network of inspectors of Cyprus ships. They verify and enforce compliance, by Cyprus ships, with national and international maritime legislation on matters of safety, pollution prevention and the living and working conditions on board Cyprus ships. Some of these inspectors are also authorized to perform inspections. The number of inspectors is increasing every year. The government aims to be able to perform inspections in all major ports in the world. Currently, there are inspectors in around 30 ports, including Buenos Aires, Rio de Janeiro, Vancouver, Hamburg, Piraeus, Calcutta, Osaka and Singapore.

All applications for the registration of ships under the Cyprus flag must be made by a local lawyer to the Ministry of Communications and Works through the Registrar of Cyprus Ships. The Registrar will accept applications to register ships when the Company is still under formation so that the incorporation of the Company and the registration of the ship can progress simultaneously. However, the Company must be duly incorporated before the registration of the vessel can take place.

Provisional and permanent registration

If at the time or registration to the Cyprus Ship Register, a vessel is situated at a port outside the Republic of Cyprus and provided that it is not already a Cypriot ship, then it will be provisionally registered first. Once the vessel is provisionally registered, the owner must proceed with the permanent registration within 9 months (including the 3 month extension period available for provisional registration.

A ship may be provisionally registered under the Cyprus flag at any diplomatic mission or consular post of the Republic of Cyprus abroad. The officer effecting the registration will act on the instructions issued by the Registrar of Cyprus Ships. At the time of provisional registration, the ship must be at a port so that she may be surveyed and certified on behalf of the Cyprus government. It is not necessary for the ship to be at the port as the one where the provisional registration is taking place.

(a) Application for provisional registration. In applying to the Registrar for provisional registration, the following information is required:

(i) name and flag of vessel at the time of application;

(ii) name of Cyprus company applying for the registration;

(iii) name under which vessel will be registered;

(iv) particulars of vessel (type, year of built, gross and net tonnage);

(v) Name of the classification society with which the ship is entered. If the new owners intend to change the classification society, this should also be stated;

(vi) intended trading area for the vessel

(vii) If known, place where the ship will be at the time of her provisional registration. In any case, this information must be communicated to the Registrar prior to the time of provisional registration;

(viii) name of consular officer who will effect the provisional registration; and

(ix) Name and address of the shareholders and directors of the Cypriot company in whose ownership the vessel will be registered.

(b) Change of name. If the ship’s name will change, there must be a period of 7 days between the day when the application is submitted and the day on which the ship may actually be registered and her name changed.

(c) Registration particulars. The following are also requirements that have to be met before the consular officer can proceed with the provisional registration:

(i) The vessel must be classed with one of the classification societies that the Cypriot government recognizes;

(ii) The vessel must be covered by one of the radio traffic accounting authorities that the Cypriot government recognizes. All maritime radio communications accounts must be paid by an accounting authority. Payments made directly through land earth stations or international service providers are not allowed; and

(iii) For the purpose of activation and deactivation of maritime mobile earth stations, vessels should nominate their preferred PSA. This must again be one that the Cypriot government recognizes.

(d) Supporting documentation. Together with the application for the registration of the vessel, the Registrar requires some additional supporting documentation. These must be submitted prior to the issuing of the instructions for the provisional registration of the vessel but not necessarily at the same time as when the application is submitted. They are:

(i) copies of the memorandum and articles of association of the Company in whose ownership the vessel will be registered;

(ii) copy of the certificate of incorporation of the company;

(iii) copies of the certificates of shareholders, directors and secretary of the company;

(iv) Confirmation of class of the vessel. This confirmation must include a statement that the society is ready to proceed with a survey and certification of the vessel on behalf of the Cyprus government. (Any recommendations that may arise as a result of the survey must be dealt with). The societies have been instructed, at the time of provisional registration under the Cypriot flag, not to issue to ships any statutory certificates that list outstanding recommendations of whatever nature; and

(v) Confirmation from the radio traffic accounting authority that will cover the vessel whilst under the Cyprus flag, that a contract has been signed between them and the owners of the vessel providing for the settlement of the ship’s radio traffic accounts with the telecommunications authorities of the different countries which may serve her.

If the vessel is over 15 years old, there are additional requirements and conditions to be met imposed by the Department of Merchant Shipping before registration can proceed.

(e) Instructions for provisional registration. On receiving all the necessary documentation, the Registrar will instruct the consular office to proceed with the provisional registration of the vessel. The consular officer will need the following documents before he can proceed with the registration:

(i) directors’ resolutions of the Cyprus company resolving to acquire the vessel and register her under the Cypriot flag and the appointment of one or several attorneys who will appear before the consular officer for matters concerning the registration;

(ii) Power of attorney expressly authorising those who will be acting for the Company on matters concerning the registration. The power of attorney must be executed pursuant to the resolutions described in paragraph (i) above and under the common seal of the company. It must be signed by one or two directors (depending on the provisions regarding this in the company’s articles of association) and must be either notarially attested or legalized by a Cyprus consular officer;

(iii) declaration of ownership;

(iv) memorandum of appointment of ship’s husband;

(v) Bill of sale duly executed by the registered owners. This must be certified by the consular authorities of the country of the previous registry;

(vi) certificate of ownership and encumbrances from the ship’s previous registry attesting that the ship is free of encumbrances and that she may be transferred to another registry; and

(vii) Application for licence to install and work a wireless telegraphy and/or telephony station on board ship under Cyprus flag.

(f) Completion of provisional registration. Provided that all the appropriate fees have been paid and all the necessary documents submitted, the consular officer instructed to carry out the ship’s provisional registration will proceed to:

(i) Issue a provisional certificate of the Cyprus registry. This is valid for 6 months from the date of issue;

(ii) issue a provisional radio license, and

(iii) Advise the vessel’s classification society to proceed with the survey and certification of the vessel on behalf of the Cyprus government.

The ship must not leave the port where she is lying until she has been duly surveyed and certified.

The ship’s provisional registration may be extended for another 3 months provided that the appropriate fees have been paid. The application for the extension must be submitted by a local lawyer on behalf of the ship-owner. The application must name the consular officer to whom the provisional certificate will be presented for extension. On approving the application, the Registrar of Cyprus Ships will instruct the consular officer to effect the necessary endorsement of the provisional certificate.

(a) Application and documentation. To permanently register a vessel, the following documents must be submitted to the Registrar of Cyprus Ships:

(i) application for permanent registration made by the local lawyer acting on behalf of the Company to the Ministry through the Registrar of Cyprus Ships, requesting the permanent registration of the vessel in the Register of Cyprus Ships;

(ii) certificate of deletion of the vessel from the previous register or certificate of cancellation of registry or closed transcript of registry, if this was not filed at the time of provisional registration;

(iii) copy of the agreement signed with the vessel’s radio traffic accounting authority;

(iv) certificate of survey;

(v) Cyprus tonnage certificate;

(vi) international tonnage certificate;

(vii) duly verified ship’s carving and marking note;

(viii) copies of the ship’s statutory certificates as these apply to the ship’s type and size, ie:

(A) cargo ship safety construction;

(B) cargo ship registry equipment;

(C) cargo ship safety radio;

(D) international load lines certificate (1966);

(E) international oil pollution prevention;

(F) international noxious substances pollution prevention;

(G) passenger ship safety, and;

(H) Certificate of fitness.

If the vessel is over 15 years of age the requirements or conditions under which her registration has been approved must also be complied with.

(b) Ship’s Tonnage, Carving and Marking. The certificate of survey and the Cyprus tonnage certificate or international tonnage certificate are prepared by any one of the classification societies recognised by the Cypriot government or by the Department of Merchant Shipping.

On receiving the above forms the Registrar allots to the ship her official number and issues, to the owner, the ship’s carving and marking note. The owner must then instruct a surveyor of ships (surveyors of any of the recognised and authorized classification societies or of the Department of Merchant Shipping) to inspect the ship’s carving and marking. On the surveyor completing the survey, the owner will return the carving and marking note to the Registrar so as to proceed with the permanent registration of the vessel.

(c) Certificate of Cyprus Registry. On receipt of all the documents set out above, and provided that the appropriate fees have been paid, the Registrar will proceed with the permanent registration of the vessel and issue a certificate of Cyprus Registry.

A Cypriot ship must be deleted from the Cyprus Registry as soon as more than half of its shares are sold or transferred to a person or company not entitled to own them under Cyprus law. The deletion of a ship does not require an export license.

As soon as the registered mortgages and other encumbrances are discharged and all matters pending with the Registry, including financial obligations, are settled, a deletion certificate or a closed transcript of registry is issued.

To view the 2nd part of this article please click on the link below.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.