Reductions in Cyprus Tonnage Tax for Environmentally Friendly Vessels

The Cyprus Shipping Deputy Ministry (SDM) announced incentives for encouraging emission-reduction and protection of the environment by vessels. Starting from 2021, the Tonnage Tax will be reduced by up to 30% for each vessel that demonstrates proactive measures to reduce its environmental impact. The Green Incentives Programme, as it is known, is set to ensure that sustainable shipping efforts are generously rewarded.

As mentioned in the announcement, the SDM is a leading advocate for sustainable shipping. It believes 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. Such measures include the use of cleaner fuels, the deployment of the relevant fuel infrastructure, the electrification of ships, and the use of energy efficiency technologies. Not only are these measures believed to improve the environmental sustainability of the sector but also they are expected to make it also more successful from a commercial point of view. To aid these objectives, shipowners need to be rewarded for investment in sustainable practices in order to accelerate the adoption of such measures and practices and increase their acceptance.

Vessels bearing the Cyprus flag will qualify for a reduction on the Tonnage Tax they have to pay on an annual basis, by comparing the reduction in emissions required, with what the vessel actually achieves. For example:

• Energy Efficiency Design Index (EEDI) – vessels, which manage to achieve a higher reduction of their EEDI compared to the required level (as per Regulation 20 / MARPOL ANNEX VI) will be eligible for a respective reduction in Tonnage Tax, with a minimum of 5% and a maximum of 25%.

• International Maritime Organisation (IMO) Fuel Oil Data Collection System (DCS) – the IMO DCS applies to ships of 5,000 Gross Tonnage and above, which they have to 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 qualify for a reduction in Tonnage Tax of between 10% and 20%

• Alternative fuels – vessels using alternative fuels and achieving reductions in CO2 emissions of at least 20% in comparison with traditional fuels will receive a rebate on Tonnage Tax of between 15% and 30%. This will be reviewed on a case by case basis, based on documents to be submitted from a class society.

Any vessel detained for any reason during Port State Control inspection, which violates any regulation of European Commission related to protection of the environment, or in laid-up condition (warm or cold) will not be eligible for the incentives in that year.

The Shipping Deputy Minister mentioned that striking the right balance between the green transformation and competitiveness is a challenge but also presents opportunities. He added that the incentives offered by Cyprus are expected to encourage greater environmental sustainability, while enhancing the competitive advantage of the European maritime sector. They are also believed to lead to opportunities for creation of jobs and growth.

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