TaxLegi 30.4.2024

The initiation of the world’s pioneering carbon market for shipping, the EU shipping Emission Trading System (ETS), on January 1, 2024, marks a significant milestone in the industry's transition towards sustainability. However, an examination of the surcharges imposed by major European container shipping companies reveals a other implications: in the form of Tax – Accounting – VAT.

Policymakers must acknowledge that tax – accounting - VAT implications arise out of this new regime and tax authorities will need to take action. While emissions pricing is a crucial step, aside from sustainability the tax angle needs to be evaluated.

ETS Multiple Implications for Shipping Groups:

The recent introduction of the EU ETS for Maritime has sparked considerations among Shipping Groups. With the implementation of the ETS, there are several tax-related implications that Shipping Groups must address:

1. Accounting: The accounting treatment of emissions trading under the EU ETS varies depending on specific features such as trading/compliance purposes and the role of the entity involved (e.g., charterer/owner/ship manager).
2. VAT: VAT treatment varies according to transaction type, place, and the involved parties. It is essential for Shipping Groups to understand the VAT implications of their transactions related to emissions trading.
3. Direct Tax: Direct tax implications are subject to country-specific practices. Shipping Groups operating across multiple jurisdictions must navigate the diverse tax regulations to ensure compliance and optimize tax efficiency.

All three fields are interconnected and key to identifying contractual flows and ensuring regulatory compliance. As Shipping Groups navigate the complexities of the EU ETS, it is crucial for them to integrate their tax and ESG functions into a consistent enterprise ETS strategy. By aligning policies with organizational ETS approaches and addressing key steps such as setting up a framework ETS policy and establishing domestic tax treatments, Shipping Groups can effectively manage their tax implications and contribute to sustainable practices within the shipping industry.
 

By:

Justin Hadjilambris, Head of Tax & Legal Business Development & Tax Technology 

Simos Simou, Senior Manager | Indirect and Environmental Taxes – Tax Transformation & Controversy Leader

Introduction

It looks like Cyprus is ready to stand out by ensuring and strengthening its competitiveness in the European shipping industry. The Deputy Ministry of Shipping of Cyprus has recently announced a variety of outcomes as a result of its first year of governance, evidencing its continuous effort to develop Cyprus to an important shipping competitor among other stronger shipping countries.

There’s been an upward trend in country's GDP due to the launching of new policies and actions taken by the Ministry, successfully serving its shipping strategies and eventually becoming a quality shipping hub in both domestic and international level.

Cyprus Flag Shipping moving a step forward to become an International flag shipping with enviable flag shipping services

It seems that more and more shipowners and shipping companies are choosing and trusting the Shipping Cyprus flag to register their vessels in the Registry of the country.

The last 6 months, Cyprus flag shipping rates relating to the total fleet of seagoing vessels registered under the Cyprus flag indicated a significant increase of 5.5% or by approximately 1.1 million tons.

New Cyprus Shipping Registry action plan to enhance its global competitiveness

To attract new high-quality vessels and cement Cyprus as a Shipping hub, the Deputy Ministry of Shipping of Cyprus has initiated a focused action plan both domestically and internationally.

This strategy involves active participation in major shipping conferences and events held in key maritime hubs around the world, including Piraeus, Athens, London, Hamburg, Genoa, Tokyo, Singapore, Miami, and Dubai. These efforts underscore Cyprus's commitment to fortifying its maritime sector and enhancing the global competitiveness of its registry.

New Green incentives for carbon footprint reduction of the Shipping industry

New climate, environmental, sustainable and eco-friendly incentives have been approved to reward ships that demonstrate effective reductions in greenhouse gas emissions. Commencing in January 2024, the annual tonnage tax for vessels registered in the Cyprus registry will be reduced by up to 30% for those implementing climate impact reduction measures using renewable energy incentives with the purpose to incentivize sustainable maritime practices and green policies.

Cyprus’s implementing Blue Charter Centre of Excellence to strengthen governance for a sustainable bluer economy 

The government of the Republic of Cyprus and the Commonwealth have proceeded with the signature of a three-year Memorandum of Understanding to establish a Blue Charter Centre of Excellence support scientific research on ocean protection, develop policies around marine conservation, restoration and sustainable resource management which will benefit Commonwealth island and coastal states.

Equal opportunities for all genders and advocacy of women’s rights in the shipping sector

In an effort to promote gender equity, gender pay gap, diversity and inclusion and gender discrimination prevention but at the same time to break gender stereotypes, the Deputy Ministry of Shipping of Cyprus is supporting gender equality initiatives, adopting campaigns for gender equality in the workplace, closing the gender gap by strengthening gender-inclusive policies to encourage more women to join this androcratic industry, creating a safe environment and providing opportunities for training and mentoring.

One of its most important initiatives is the celebration of feminism through the Cyprus Shipping Gender Equality Award 2024 for the empowerment of all women and marginalized genders in Cypriot shipping.

Acceleration of digital transformation framework for a seamless shipping experience

The Deputy Ministry of Shipping of Cyprus is embarking on a comprehensive digital incentive, strategy and technology in order to provide digitalization and transform all its services into a fully digital and automated platform that will also support the provision of One Stop Service. This includes the establishment of an Electronic Maritime Library (e-Maritime Library) and an "Electronic Help Desk" (e-Helpdesk) to enhance customer service for shipping companies with flexible, timely, and integrated support available around the clock.

The project is scheduled for completion by 2024, positioning the Deputy Ministry of Shipping of Cyprus as a pioneer in fully digital transformation services and digital solutions within the government sector.

All-in one shipping offering shipping convenience to Cypriot shipping companies through One-stop Shipping Center

This new innovative and comprehensive Shipping Center was implemented in November 2023 by the Deputy Ministry of Shipping of Cyprus, fulfilling a long-standing demand of the shipping sector, aiming to ensure efficient and integrated shipping solutions to any issues arising from the shipping sector and therefore to provide high quality shipping services to all shipping companies which are established and operated in Cyprus, for matters pertained to the responsibilities of the Department of Population Records and Immigration.

Conclusion

During its second year, the Deputy Ministry of Shipping of Cyprus will continue offering its best effort to bring new shipping participants closely to the industry and spread awareness on how these shipping players can be benefited from Cyprus as it is in line with the European incentives and builds an out of borders communication and cooperation with most of the countries.

Recognizing the importance of the shipping industry to both collective and individual level, the Deputy Ministry of Shipping of Cyprus commits to be improved even more in the future.

Sophia Panagiotidi – Business Tax Advisory Services

Era Xenofontos – Indirect and Environmental Taxes