Cyprus flag: A flag of progress and quality

Posted on 11 Jul 2013, by Esme Palas

In the small island of Cyprus “shipping is almost as old as time itself.” With an ideal geographical location at the crossroads of Europe, Asia, Middle East and Africa, Cyprus is constantly striving for perfection in the field of merchant shipping.

It is only after the island’s independence in 1960 that its role as an international centre for business and commerce has evolved. After 1960 the demands on trade increased, the offshore activities expanded and the economy of Cyprus rapidly grew leading to the island establishing a reputation as a strategic and significant international business centre. By 1978 the shipping industry grew to such a degree that the Government established a separate shipping department and since then there is a tremendous increase in numbers of ships registered in Cyprus.

There was a point where the Cyprus flag developed a reputation as one of convenience, meaning that Cyprus registered ships and companies other than that of its own nationality. Unfortunately, this attracted less scrupulous ship owners. Having become aware that the island’s shipping industry developed a bad reputation the Cyprus maritime administration changed its policy and their focus shifted from increasing numbers to improving the safety and quality of registered ships. Their main focus relied on three pillars; quality, competitiveness and reliability. The Cyprus government took serious measures including the revision and approval of new laws and regulations in order to improve the standard of ships flying the Cypriot flag and maintain the high standards for the Cyprus merchant fleet.

The safety and implementation of environmental protection standards are the reasons why Cyprus is now reputed as a serious maritime flag and a base for international operations. A strict registration procedure is followed and extensive surveys of ships applying for registration under the Cyprus flag are undertaken in an attempt to eliminate substandard vessels that will undermine the reputation of the Cyprus flag. For example, certain categories of ships have a certain point up to which they can be registered. Also, a network of independent inspectors of Cyprus ships is set up at the most important ports around the world.

As a result, the number of detentions of Cyprus ships around the world is reduced significantly enabling Cyprus to achieve a white list status in the flag assessment system maintained by the Paris and the Tokyo Memorandum of Understanding on Port state control. The Paris Memorandum of Understanding is a coalition of 22 maritime nations and it monitors ship detention rates through port state control. Its aim is to eliminate the operation of sub-standard ships through a harmonised system of port state control. Cyprus’ reputation received a great boost when it was placed on the Memorandum of Understanding on port states controls white list in 2005. Cyprus became a full member of the Paris MOU in 2006.

The Cypriot government also updated its maritime legislation to bring it in line with European standards. Cyprus’ accession to the European Union on the 1st of May 2004 reinforced the quality of the Cypriot registered fleet. At the same time, Cypriot registered vessels enjoy the benefits of flying the flag of a European Union Member State, which remains highly competitive up to this date.

The department of merchant shipping has a complete system for adopting and implementing the International Maritime Organisation (IMO) conventions. In 2006, the IMO initiated an audit Scheme as a means of identifying weaknesses in systems, which implement IMO conventions for the purpose of refining and perfecting the system. Cyprus is the second country worldwide following Denmark who voluntarily participated in this Audit Scheme. The findings of this audit is that the Cypriot department of merchant shipping has substantially complied with the IMO assembly principles established under Resolution S974(24) and with the code for the implementation of the mandatory IMO instruments included in Resolution A973(24).

Another area in which the department of merchant shipping attached particular importance to is the area of maritime security. This is the reason why the International Ship and Port Facility (ISPS) code is adopted and implemented. All ships under the Cyprus flag as well as port facilities in Cyprus are duly certified as complying with the requirements of the ISPS code.

In the area of pollution prevention Cyprus harmonised its legislation with the legislation prevailing in the EU. Cyprus is bound in bilateral agreements of cooperation in merchant shipping with 23 countries through which Cypriot ships receive either national or favoured national treatment in ports of other countries. These agreements provide specific terms of employment and resolution of labour disputes, which are beneficial to both the ship-owners and the sea-farers.

Cyprus has offices in New York, London, Rotterdam, Piraeus, Brussels and Hamburg that offer services to Cyprus ships. Following a joint effort by the Cyprus Shipping Chamber and the maritime administration the Cyprus flag was removed from the US Coast Guard targeting system, a fact that clearly indicates that Cyprus is committed to exceptional operational and safety standards. This has resulted to fewer inspections of the ships and less delays at the ports of both MOU and the United States.

Cyprus is an active member of all reputable international organisations in an attempt to regulate the shipping industry, such as the IMO (International Maritime Organisation), the ILO (International Labour Organisation) and the European Council and Commission. Cyprus’ ship registry is ranked 3rd in Europe and 10th internationally with the 10th largest merchant fleet globally and the 3rd largest fleet in the EU.

A novel tonnage tax system was introduced in 2010 that allows ship owners to pay taxes based on the tonnage of the ship instead of taxing the profits. This means that throughout the lifetime of a ship the tax rate remains steady. Accordingly, there is no tax on profits from the operation or management of a Cyprus registered vessel or on dividends received from a vessel owning company or on capital gains from the sale of a vessel. Also, there is no income tax on the wages of officers or crew and no stamp duty has to be paid on ship mortgage deeds or other security documents.

With the above fiscal incentives afforded to the shipping sector and to vessels sailing under the Cyprus flag there is no doubt that the Cyprus flag has an impeccable reputation. Cyprus has acquired the reputation of a flag of progress, quality and choice.