Tonnage Tax Reductions - Provisions of Green Incentives Programme

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Based on Sections 9(1) and 13(1) of the Merchant Shipping (Fees and Taxing Provisions) Laws of 2010-2020 (Law No. 44 (I) of 2010 as amended by Law 39(I)/2020), the Cyprus Shipping Deputy Ministry (SDM), has announced a new range of green incentives aiming to reward vessels that demonstrate effective emissions reductions, applicable as from the fiscal year 2021.

According to the above, the Law encourages the owners of Cyprus and Community ships to reduce their environmental impact and simultaneously it ensures that they are also rewarded for their sustainable energy efforts.

In this respect, the tonnage tax of each vessel can be reduced up to 30% if they have proactively demonstrated measures to reduce their environmental print.

In more detail, environmental incentives as a “discount” on the Tonnage Tax are offered in three categories, by comparing emissions reductions required by a vessel with what a vessel actually achieves.

 

1.  Energy Efficiency Design Index (EEDI)

 

This incentive applies to vessels that are subject to Reg. 19, Reg. 20, and Reg. 21 of MARPOL ANNEX VI, as amended.

i. Ships that achieved a further reduction of the attained EEDI compared to the required EEDI (Regulation 20 / MARPOL ANNEX VI) as per the below Table 1 shall obtain the respective Annual Tonnage Tax rebate.

 

Table 1

Attained EEDI % of reduction in comparison to the required EEDI

Percentage of annual Tonnage Tax rebate (%)

>10 5
>15 10
>20 20
>30 25

 

For Phase 2 and Phase 3, an additional 10% and 30%, respectively, at the respective percentage of Table 1. The total rebate is limited to a maximum of 30% on the annual Tonnage Tax for each ship.

 

ii. For ships that the Reg.19,20,21 of MARPOL ANNEX VI, as amended, does not apply, but however demonstrate voluntary implementation and compliance with Phase 1 or Phase 2 or Phase 3, thus going voluntarily beyond the relevant environmental standards, Annual Tonnage Tax rebate as per the Table 2 shall apply.

 

Table 2

Compliance with Phase 1 / Phase 2 / Phase 3

Percentage of annual Tonnage Tax rebate (%)

Phase 1 5
Phase 2 15
Phase 3 30

 

2.  IMO Data Collection System (DCS)

 

The Environmental Incentive related to the IMO Data Collection System (DCS) applies to ships of 5000 GT and above that comply with Regulation 22A of MARPOL ANNEX VI, as amended and with reported Hours Underway of 4380 and above for each year.

Ships demonstrating reduction of the total fuel oil consumption in relation to the distance traveled compared to the immediately previous reporting period, shall obtain Annual Tonnage Tax rebate as per Table 3.

 

Table 3

Percentage of reduction between two consecutive reporting period

Percentage of annual Tonnage Tax rebate (%)

From 2% up to 4% 10
Up to 6% 15
Greater than 6% 20

 

3. Use of alternative fuels

 

The Environmental incentive related to the Alternative fuels applies to eligible ships of 5000GT and above.

A Ship that consumes Alternative fuels shall obtain a rebate at the Annual Tonnage Tax as per Table 4 on a case-by-case basis after a successful review of the submitted documents.

 

Table 4

Type of alternative fuels

Percentage of annual Tonnage Tax rebate (%)

Bio – Fuels, Methanol, Electric, Other achieving reductions of CO2 emissions of at least 20% in comparison to a similar ship which consumes fossil fuels 15
Bio – Fuels, Methanol, Electric, Other achieving reductions of CO2 emissions of at least 30% in comparison to a similar ship which consumes fossil fuels 30

 

The ship(s) shall maintain the same rebate at the Annual Tonnage Tax as far as consumes the alternative fuel. Reduction to the CO2 emissions as per Table 4, shall be achieved by consuming alternative fuel solely. Statement by the ship’s Classification Society or other objective studies/document shall be submitted every year.

 

Based on the provisions of the law, the outlined environmental incentives are cumulative and as per the Merchant Shipping (Fees and Taxing Provisions) Laws of 2010-2020, each ship can only receive a maximum 30% rebate on the Annual Tonnage Tax.

Finally, we would like to inform that an eligible ship for any of the environmental incentive is a ship that engages in qualifying shipping activities as per the Merchant Shipping (Fees and Taxing Provisions) Laws of 2010-2020.

 

 

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George Themistocleous
Managing Partner, CEO