TaxLegi 28.05.2025

A year and a half into its application, the EU ETS Maritime framework has moved from theory to practice, revealing not just compliance burdens, but also critical traces around what shipping companies can legitimately exclude. This article unpacks what we’ve learned so far about emissions coverage and, more importantly, the exemptions that matter most for vessels over 5,000 GT operating in and out of EU ports.

What is Covered

The EU ETS was extended to include maritime transport from 1 January 2024. Under the amended ETS Directive and the revised MRV Maritime Regulation, shipping companies operating cargo and passenger vessels over 5,000 GT are required to monitor, report, and surrender allowances for carbon dioxide (CO₂) emissions. From 2026 onwards, methane (CH₄) and nitrous oxide (N₂O) will also be brought into scope.

The geographical coverage of the system includes 100% of emissions from voyages between ports under the jurisdiction of EU/EEA Member States, as well as all emissions at berth or while moving within such ports. For voyages between an EU port and a non-EU port, the ETS applies to 50% of emissions, regardless of direction.

It is important to highlight that the EU ETS applies only to emissions linked to the commercial transport of cargo or passengers. This limitation defines the significance of a ‘port of call’ and consequently informs the scope of obligations for shipping companies.

Recognised Exemptions

Over the past year, practical application of the EU ETS framework, together with guidance from the European Commission and European Maritime Safety Agency (EMSA), has helped clarify the types of voyage activities that do not trigger EU ETS surrender obligations. EU ETS Maritime explicitly excludes a number of stops from qualifying as ‘ports of call’ where the purpose is not commercial transport.

Specifically, stops made solely for the following purposes are not considered ports of call under the EU ETS framework:

• Refuelling
• Repairs or dry-docking
• Crew changes (except for offshore vessels)
• Provisioning
• Ship-to-ship transfers outside port limits
• Emergency or weather-related diversions
• Stops for assistance or distress
• Stops of containerships in neighbouring container transhipment ports.

These stops do not define the beginning or end of a monitored voyage for EU ETS purposes.

However, emissions released during such excluded stops may still be within EU ETS scope if:

• The stop occurs during a commercial voyage between two qualifying ports of call, and
• At least one of the ports is under the jurisdiction of an EU/EEA Member State.

Example: A refuelling stop between two EU ports on a commercial voyage does not exclude the voyage leg from monitoring and allowance surrender obligations.

Nevertheless, where no cargo or passengers are transported for commercial purposes, such as a maiden voyage from the shipyard or a final voyage to a scrapping facility, these journeys are entirely outside the MRV and EU ETS frameworks.

Crucially, the availability of an exemption hinges on the nature of the stop, not on whether emissions are released. Even if emissions occur, a stop may still be exempt from triggering EU ETS obligations if it does not qualify as a port of call under the regulation.

Administrative Considerations

From a compliance perspective, shipping companies must ensure that their Monitoring Plans clearly distinguish between voyage types and accurately document the purpose of each stop. Any exemptions claimed must be substantiated in the emissions report and align with the EU Commission’s definition of a port of call.

Moreover, shipping companies are also reminded that they must submit an aggregated emissions report by 31 March, with allowances surrendered by 30 September for the preceding calendar year. This cycle requires not only accurate monitoring, but also sound legal understanding of where and how exemptions apply.

Where ships are frequently engaged in voyages with exempt stops, for example, for technical reasons or crew management it becomes essential to structure operational and compliance processes accordingly. Misclassification of stops can result in over-surrendering of allowances or, regulatory disputes due to under-reporting.

Conclusion

A year and a half into the EU ETS Maritime regime, one of the clearest insights for shipping companies is that exemptions are nuanced, not absolute. While certain stops are excluded from the definition of port of call, emissions during those activities may still be within scope if the voyage is not structured correctly.

The focus now must be on strengthening internal compliance systems, ensuring clarity in Monitoring Plans, and documenting voyage intentions in a manner that aligns with both EU ETS and MRV Maritime expectations. In doing so, companies will not only avoid compliance risks but also better manage their emissions exposure under an evolving regulatory environment.

By

Anthony Charalambous, Indirect Tax Services

• Cyprus has implemented new rules introducing documentation requirements for certain payments, effective from 17 April 2025.
• Companies making dividend, interest or royalty payments to associated companies for which no tax is withheld must maintain supporting documentation for the recipient company for six years, unless the recipient meets specific residency or tax criteria.
• Noncompliance with documentation requirements may result in administrative penalties, ranging from €2,000 to €10,000 depending on the delay in providing requested information to tax authorities.

Executive summary

New laws in Cyprus that enact defensive tax measures targeting low-tax and "blacklisted" jurisdictions entered into force on 16 April 2025, upon publication in the Official Gazette of the Republic. However, the relevant measures against low-tax jurisdictions will enter into effect on 1 January 2026. Blacklisted jurisdictions are those included in the European Union (EU) list of noncooperative jurisdictions (Annex I) at the time of the transaction and in the previous calendar year. (For background, see EY Global Tax Alert, Cyprus introduces defensive tax measures targeting low-tax and 'blacklisted' jurisdictions, dated 15 April 2025.)

On 17 April 2025, the Council of Ministers issued two decrees that stipulate the provisions for applying the anti-abuse rules in relation to the defensive measures for blacklisted jurisdictions. Two decrees were necessary because royalty withholding tax is imposed under the Income Tax Law, whereas withholding tax for interest and dividend is imposed under the Special Contribution for the Defense Fund of the Republic Law.

Detailed discussion

GAAR provisions included in the law

As discussed in the previous Global Tax Alert referenced above, a general anti-avoidance rule (GAAR) mechanism is included in the law to counteract arrangements lacking commercial substance that are primarily designed to circumvent the application of the defensive measures. Essentially, the GAAR is aiming to combat arrangements for interposed entities that are not in a blacklisted jurisdiction.

The law provides that if (1) the main purpose, or one of the main purposes, of an arrangement or series of arrangements is to obtain a tax advantage that defeats the object or purpose of the defensive measures, and (2) considering all relevant facts and circumstances, the arrangement or series of arrangements has not been put into place for valid commercial reasons that reflect economic reality, the defensive measure shall apply ignoring the arrangement or series of arrangements.

Moreover, the law directs the Council of Ministers to issue a decree for the application of this provision. To the extent that the relevant conditions described in the decree are not met, the defensive measure shall apply unless the company making the payment demonstrates that (1) the arrangement or series of arrangements was put in place for valid commercial reasons that reflect economic reality or (2) obtaining a tax advantage was not the only purpose of the arrangement or series of arrangements.

Decrees issued for the application of the GAAR provisions

On 17 April 2025, the Council of Ministers issued relevant decrees for applying the anti-abuse provisions in relation to withholding tax provisions for payments to EU blacklisted jurisdictions. It is expected that additional decrees will be issued toward the end of 2025 for the defensive measures pertaining to low-tax jurisdictions.

The decrees provide that every company making a payment of dividends, interest or royalties to an associated company (as defined in the law) for which no tax is withheld, as required under the relevant provisions of the law for blacklisted jurisdictions, must maintain for six years supporting documentation about the company receiving the income.

The documentation requirements do not apply if the recipient company is:

1. A tax resident of Cyprus
2. A tax resident in another EU Member State or in the European Economic Area
3. Part of a multinational group and subject to a minimum tax of 15% based on legislation adopting the EU Directive 2022/2523 on global minimum tax or the Organisation for Economic Co-operation and Development Model (GloBE) Rules
4. A member of a consolidated group for accounting purposes that does not have a presence in a blacklisted jurisdiction, either through a company or through a permanent establishment

The decrees do not make any reference to situations in which a payment is made to a company that is tax resident in a jurisdiction with which Cyprus has concluded a tax treaty for the avoidance of double taxation.

Substance and other requirements for satisfying the anti-abuse provisions

To satisfy the anti-abuse provisions on payments to associated entities, the recipient company must satisfy at least five of six criteria outlined in the decrees (listed below). A company making payments to an associated company without applying the defensive measure must check and retain supporting documentation for at least six years from the end of the tax year in which the transactions occurred, supporting the following matters in relation to the company receiving the income:

1. Effective decision-making: At least one board member is qualified and authorized to make decisions regarding the company's activities, assets or rights that generate the income of the company and is actively and independently exercising his duties.
2. Local presence of decision-makers: At least one board member resides in the jurisdiction where the company is tax resident or within a distance that allows the individual to commute daily.
3. Office space: The recipient company has office space at its disposal in the jurisdiction of its tax residence that allows its directors and employees to exercise their duties.
4. Board meetings: The majority of the board meetings take place in the tax-residence jurisdiction of the recipient company.
5. Operational expenses: The recipient company's operational expenses (including the remuneration of directors and employees) that are paid to persons in the jurisdiction where the recipient company is tax resident for the tax year to which the transactions relate are proportional to its activities.
6. Beneficial ownership: The group of companies of which the recipient company is a part is not structured such that the company's only activity is to collect the income from the Cypriot company and then transfer that entire amount (or almost the entire amount) to another associated company very soon after the income is received so that it realizes an insignificant amount of taxable income while effectuating the transfer of funds to the beneficial owner of the income.

If the recipient company fails to satisfy at least five of these conditions, the arrangement (or series of arrangements) shall be disregarded and the defensive measure shall apply, unless the taxpayer provides evidence that (1) the arrangement (or series of arrangements) was put in place for valid commercial reasons reflecting economic reality or (2) obtaining a tax advantage was not the only purpose of the arrangement or series of arrangements.

Administrative enforcement and penalties

To support the new framework, the Assessment and Collection of Taxes Law was amended to give tax authorities the right to request that taxpayers submit returns for confirming compliance with the documentation requirements as described in the relevant decrees.

The law includes administrative penalties for failure to provide the tax authorities with the requested information within 60 days as follows:

• €2,000 if documents are submitted between days 61-90 from the request
• €4,000 if submitted between days 91-120
• €10,000 if submitted after day 121 or not submitted at all

For additional information, please contact our team:

• Philippos Raptopoulos Partner, Head of Tax & Legal Services
• Petros Krasaris Partner, Head of International Tax and Transaction Services 
• Petros Liassides Partner, Direct Tax Services 
• Myria Saparilla Partner | Direct Tax Services 
• Anna Papamichael Partner | Direct Tax Services 
• Eleni Sofocleous Partner | Direct Tax Services 
• Panayiotis Tziongouros Partner | International Tax and Transaction Services 

From Innovation to Investment: EU Financial Support for green business

Nowadays, more than ever before, the green, innovative business solutions and decarbonization projects can benefit a generous funding from the European Union. By switching your company’s activity to less polluting or developing your business that contributes to achieving EU climate goals, you can grow your enterprise stronger and greener in a cost-effective way.

EU Funds supporting green business and projects

Innovation Fund

The Innovation Fund is one of the world’s largest funding programs dedicated to deploying net-zero technologies. With a revenue of €40 billion allocated from the EU Emissions Trading System (ETS) in the period 2020 - 2030, the fund supports projects like, among others, Renewable Hydrogen production, Carbon Capture and Usage/ Storage, energy storage, mobility and building solutions. Both large companies and SMEs, are eligible to apply. The Innovation Fund provides grants through regular calls for proposals and competitive bidding procedures (auctions).

InvestEU
The InvestEU program plays a crucial role in providing long-term funding, by leveraging both private and public investments to support sustainability initiatives. The InvestEU Portal serves as a comprehensive database that connects investors with project promoters across the EU, Norway, and Iceland. The €26.2 billion EU budget guarantee backs the investments of financial partners (the “implementing partners”), what significantly increase their risk-bearing capacity, allowing to mobilise at least €372 billion in additional investment between 2021-2027. The Program’s financial partners are such credible institutions like, inter alia, the European Investment Bank, the European Investment Fund, and the European Bank for Reconstruction and Development.

Renewable Energy Financing Mechanism (RENEWFM)

The RENEWFM fosters collaboration among EU countries in promoting renewable energy. This mechanism connects countries with limited renewable development potential with those having greater capacity for new installations. It applies across various sectors, including electricity, heating, cooling, and transport. Funding is allocated through competitive tenders for grants, which can support either the installation of renewable facilities or the production of renewable energy. RENEWFM presents two options of participation for the private sector: to create new renewable projects or to make a payment to the mechanism as a private investor. The latter can contribute to company's green portfolio. The Commission runs the process together with the European Climate, Infrastructure and Environment Executive Agency (CINEA).

LIFE

The LIFE programme is the EU’s funding instrument, divided into two strands: for the environment and climate action.  Each year, LIFE publishes calls for proposals for different types of projects. For 2025, calls were published in April, more than €600 million available for nature, environment, climate, and clean energy projects. The Programme is managed by the CINEA.

Horizon

Horizon Europe is the EU’s key funding programme for research and innovation. The indicative funding amount for the period 2021-2027 is EUR 93.5 billion. Applications are to be sent via calls for tenders. Horizon uses lump sum funding, which are defined up-front and fixed in the grant agreement. They are paid upon completion of the activities in work packages.

EU Banks supporting green business and projects

European Investment Bank (EIB)

The European Investment Bank collaborates both with public and private sectors to enhance investments in green projects. EIB is the main implementing partner of the InvestEU program. Its aim is to support climate and sustainability investments with €1 trillion by 2030. For private sector the Bank offers:

• loans covering up to 50% of project costs, with amounts typically starting at €25 million (can be lower in some cases),
• equity financing, primarily investing or co-investing (EIB’ s investments represent 10% to 20% of the fund size, with a maximum of 25%).
• Guarantees, mitigating risks both for large and small projects.

EIB is also a leading issuer of green and sustainability bonds, having raised over €100 billion for climate, renewable energy and sustainability projects. In addition, EIB has launched a pilot programme for corporate PPAs with an indicative amount of 500 million EUR, where it will counter-guarantee part of the PPAs undertaken by companies. The Bank is also going to introduce a ‘Grids Manufacturing Package’ in which it will provide counter-guarantees (of at least 1.5 billion EUR) to manufacturers of grid components.

European Hydrogen Bank

The European Hydrogen Bank’s aim is to secure investments in renewable hydrogen production in Europe and globally. Important to notice, is that this is not a physical institution, but is a financing instrument, operated by the Commission.  It seeks to unlock private investments in hydrogen value chains by connecting renewable energy supply with demand. Funding is awarded as a fixed premium per kilogram of certified renewable fuel of non-biological origin (RFNBO) hydrogen produced. It works via auctions (first auction awarded 7 projects with a total of €720 million and the second one – 15 projects with  a total of €992 million in EU funding from the Innovation Fund). In addition, the ‘auction-as-a-service’ scheme is available to support additional projects in the participating county (Spain, Lithuania and Austria already participated).  The EC is working on the international component of the Bank to attract imports of renewable hydrogen into the EU (most likely in the form of joint European auctions).

Industrial Decarbonisation Bank (IDB)

Announced in the Clean Industrial Deal, the new Industrial Decarbonisation Bank will target €100 billion in funding. This initiative will utilize resources from the Innovation Fund, additional revenues from the ETS, and revisions to InvestEU. IDB will operate under the future Competitiveness Fund, leveraging ETS allowances reserved for decarbonization. The Bank will be proposed as part of the 2026 EU ETS review.

National-Level Funding Opportunities

In addition to above, national authorities have the option to redirect portions of their Cohesion policy funds, including the Cohesion Fund, the European Regional Development Fund, Just Transition Fund, and the Recovery and Resilience Facility, towards green initiatives. These resources are often available as grants but can also be in the form of procurements or financial instruments such as equity, loans, and guarantees.

Conclusion

The European Union provides substantial financial support for businesses eager to embrace sustainable solutions. Various funding mechanisms available help your company to invest in green projects.

By Martyna Szlufik, Senior, Green Tax | EY Cyprus

On 30th April 2025, the Tax Department of Cyprus announced that the Individual’s Personal Income Tax Return (Form T.D.1) for the tax year 2024 is now available for electronic submission through the TaxisNet online platform. It is noted that the said tax return (Form T.D.1) is addressed to employees and pensioners as well as to self-employed individuals (Form T.D.1 self-employed) with gross annual turnover above EUR 19,500.

It is also relevant to note that the filing deadline of the said Tax Forms, for the tax year 2024, as well as the deadline for the settlement of any tax due, via self-assessment for the same tax year, is by the 31st of July 2025

On 20th May 2025, the Tax Department of Cyprus announced that the Withholding Tax and Contributions Declaration (TD7) for the year 2024 is expected to be released in the TAX FOR ALL (TFA) platform by July 2025, at which point it will be available for submission. The deadline for submitting the TD7 Form for the year 2024 is 31st October 2025.

Seeking to set up a legally binding framework aiming to reduce GHG emissions, IMO during its 83^rd session (MEPC 83) from 7–11 April 2025 has proceeded with the approval of a new fuel standard and a global mechanism for emissions which will eventually be further considered by October 2025 and potential to enter into force by 2027 for large ocean-going vessels over 5,000 gross tonnage. Under the draft regulations, vessels must comply with:

Global fuel standard: vessels must progressively reduce their annual 'greenhouse gas fuel intensity' - GFI (quantity of GHG emitted per unit of energy used, calculated using a well-to-wake approach).

Global economic measure:  vessels emitting above GFI thresholds will have to acquire remedial units to balance its deficit emissions (those using zero GHG technologies will be eligible for financial reward).

Two cumulative targets are set to achieve compliance with GHG Fuel Intensity

Base Target: GHG intensity standard to be set at a minimum rate 4% annual reduction in 2028 with incremental change up to 30% reduction in 2035) and

Direct Compliance Target: (17% reduction in 2028 with incremental change up to 43% reduction in 2035) at which ships emitting above thresholds can balance their emissions deficit by transferring surplus units from other ships, using surplus units they have already banked or using remedial units acquired through contributions to the IMO Net-Zero Fund.   

Penalties expected to arise as below for failing to meet:

• the Base Target: USD 380 per tonne of CO2 emitted
• the Direct Compliance Target: (while achieving the base target): a reduced rate of USD 100 per tonne of CO2-equivalent emissions

Other MEPC 83 developments

It is worth mentioning that the proposal of the designation of North-East Atlantic Ocean as an Emissions Control Area was approved, 2025 Action Plan for addressing marine plastic litter from vessels and onboard Carbon Capture Storage System development of framework were also among the IMO’s approvals.

In parallel, approvals were given for the development of framework for controlling and managing vessel’s biofouling aiming to minimize transferring of invasive aquatic species and for the amendments of implementing Hong Kong Convention.

IMO has also decided the finalization of short term GHG reduction measures and continue its review on Ballast Water Management Convention for addressing harmful aquatic organisms in ballast water.

It is worth noting that pricing contributions as a result of emissions paid, will be disbursed to rewarding vessels with low emissions, supporting clean vessel technology and training, assisting developing countries and funding research, innovation and infrastructure.

Taking proactive and strategic steps to enhance market position

As a first step, shipping companies shall assess the strategic profile and safeguard their footprint position as to evaluate readiness in meeting two level compliance targets, essential for their sustainable growth.

As a second step, companies shall be aligned with the interpretation and navigation of IMO’s updated guidelines for vessel modernization, adoption of alternative fuel types and cleaner technologies.

As a last step, the development of a monitoring, reporting and verification roadmap in order to manage remedial units and minimize emissions expenses by avoiding the imposition of penalties if not compliant with IMO’s requirements.

By Era Xenofontos, ESG Taxes | EY Cyprus