Cyprus gives greener ships 30% tax break

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Cyprus is entering the ‘green era’ by introducing a host of incentives to encourage and reward shipowners who opt for lower emissions by their vessels or use alternative drives, such as dual-fuel ‘hybrid’ ships.

This could be an incentive for foreign-flag ships to switch to the Cyprus register, especially if they use LNG with the category of ‘alternative’ fuels benefitting from a discount of up to 30% off their tonnage tax.

“We want to reward shipowners who are already working to reduce emissions or are trying out new technologies towards sustainable shipping efforts,” Deputy Shipping Minister Vassilis Demetriades told the Financial Mirror on Tuesday.

The junior ministry, that secured European Commission approval for its tonnage taxation system for ten more years in December 2019, announced: “Annual tonnage tax will be reduced by up to 30% for each vessel that demonstrates proactive measures to reduce its environmental impact, ensuring shipowners are rewarded for sustainable shipping efforts.”

The maritime industry hailed the incentives.

“Cyprus shows the way forward for the shipping industry to become even greener,” said Thomas Kazakos, Director General of the Cyprus Shipping Chamber.

He welcomed the package and said that, “Minister Demetriades announced environmental incentives for ships under the Cyprus and EU flag.

“(This includes) a reduction of tonnage tax up to 30% for shipowners that use environmental protection mechanisms.”

The new incentive scheme, that enjoys EU approval, comes into effect immediately and can be applied by shipowners for the fiscal year 2021.

It is part of a global drive towards decarbonisation and provides a ‘discount’ on its tonnage tax system by comparing what emissions reductions are required of a vessel, with what it actually achieves.

Last November, Cyprus welcomed new regulations drafted by the International Maritime Organisation’s Marine Environment Protection Committee to drastically reduce greenhouse gas emissions by existing ships once these are implemented in June.

The target is to cut the carbon intensity of international shipping by 40% until 2030, compared to 2008 levels.

Demetriades said in a statement that such incentives “will encourage greater environmental sustainability across the industry while also enhancing Maritime Europe’s competitive advantage in new green technologies.”

He added, “this creates opportunities for jobs and growth, providing a first-mover advantage to the EU shipping industry.

“Clear objectives for 2030 and 2050 have been set by the IMO and all industry stakeholders must unite to create a clear pathway to achieve and exceed these goals.”

The shipping ministry said “broad and diverse measures are needed at both a global and regional level to achieve emissions reduction targets and a sustainable future for the industry.

“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.”

The incentives are based on three pillars:

  • Energy Efficiency Design Index – vessels that have achieved a further reduction of their attained EEDI compared to the required EEDI (Regulation 20 / MARPOL Annex VI) will obtain the respective annual tonnage tax rebate of 5% to 25%.
  • IMO DCS – the environmental incentive relating to the IMO Data Collection System (DCS) applies to ships of 5,000 gross tonnes and above that comply with Regulation 22A of MARPOL Annex VI. Ships which 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 10% to 20%.
  • Alternative fuels – vessels using an alternative fuel and achieving CO2 emission reductions of at least 20% in comparison with traditional fuels will receive a rebate on annual tonnage tax of between 15% and 30%. This will be reviewed on a case-by-case basis, following review of documents submitted from a class society.

However, the ministry said that any vessel detained for any reason during port state control (PSC) inspection, that violates any European Commission regulation related to the environmental protection, or in laid-up condition (warm or cold) during the calendar year will not be eligible for the incentive.

“As a leading maritime nation, we have an obligation to support efforts in reducing greenhouse gas (GHG) emissions,” Demetriades said.

He added that flag states are well-positioned to support ship owners in making sustainable shipping choices which they can benefit from, both operationally and financially.

“Striking the right balance between the green transformation and competitiveness is a challenge but also presents opportunities.”

Ranking amongst the top international fleets, with over 1,000 oceangoing vessels with a total gross tonnage exceeding 24 million, Cyprus is in the process of formulating a long-term strategic vision for shipping, maritime and marine-related activities (2021-2040).