Trends and Developments in Cyprus – Ship Finance

Introduction

The shipping industry in general, including the shipping finance sector, has not been “sailing” in calm waters during the last 15 years or so. The industry has stormed through many black swan events, ranging from the 2008 financial crisis, the ensuing imposition of stricter regulations which saw the traditional banks of Europe and US reducing their exposure to the shipping sector, and the exponential rise of non-traditional financing structures such as Chinese leasing, the French tax lease structure and the Japanese operating lease with call option. Additionally, a flurry of environmental regulations, specifically aimed at reducing emissions, led to, among other things, the implementation of regulations such as the EU ETS and the FuelEU Maritime resulting to all sorts of challenges to shipowners.

Despite the various obstacles over the years, Cyprus remains at the forefront of international shipping for over six decades and today has the third largest merchant fleet in Europe and the eleventh largest globally.

Cyprus is also the largest third-party ship management centre in Europe and among the top three worldwide. It is home to 250 shipping companies, providing 9,000 jobs onshore, while 55,000 seafarers are employed on Cyprus-flagged vessels.

The Cyprus flag is a high quality sovereign flag, included in the “White List” of both the Paris and Tokyo Memoranda of Understanding.

The Shipping Deputy Ministry – latest developments regarding the Cyprus flag

The Cypriot government established the Shipping Deputy Ministry¹The “Establishment of a Shipping Deputy Ministry and Appointment of a Shipping Deputy Minister to the President and for Matters Connected Therewith Law of 2017, as amended” (“SDM”) as an autonomous Deputy Ministry dedicated entirely to the Cyprus Maritime Industry, replacing what previously was the Department of Merchant Shipping within the Ministry of Transport, Communications and Works. This has proved to be a great success and has enhanced the already excellent provision of services by offering 24/7 service from more than 150 maritime specialists in seven maritime offices around the globe (including Piraeus, London, New York, Rotterdam, Brussels and Hamburg).

The current Deputy Minister, Mrs. Marina Hadjimanolis, and her predecessors have been working tirelessly to overcome ongoing challenges by implementing a targeted action plan to attract new and high-quality vessels to the Cyprus Registry. Their efforts are reflected in the figures recorded, particularly in the past two years. There has been remarkable growth in vessel registration, and specifically, from September 2023 until the end of 2024, the Cyprus fleet has increased by 18%, with 198 newly registered vessels. Additionally, in 2024, there was a 15% increase in the number of companies registered under the Cyprus Tonnage Tax System.

• Registration of Ships

Vessels can be registered in the Cyprus Ship Registry through two methods: ownership (provisional and permanent registration) and bareboat charter (parallel registration). Such registrations are effected at the SDM in Limassol, Cyprus. The Registrar of Cyprus Ships, however, offers flexibility to shipowners by allowing provisional registration of a vessel through a Cypriot maritime or consular office abroad if the vessel is not in a Cypriot port at the time of her registration (subject to the explicit authority of the Registrar of Ships). Permanent registration and parallel registration, however, must take place at the SDM in Limassol.

• Abolition of Vessel Registration and Mortgage Fees

The SDM has abolished government fees for the registration of a vessel under Cyprus flag, as well as fees for the registration of a mortgage as an encumbrance on a Cyprus flagged vessel²The Merchant Shipping (Fees and Dues with respect to Ocean Going Commercial Cyprus Ships) Regulations of 2019.

• Technical Standards

The SDM established technical requirements³SDM Circular No. 17/2021 for certain categories of vessels below 500GT with respect to their registration in the Register of Cyprus Ships and their operation under Cyprus flag.

The purpose of such technical standards is to specify the technical requirements for such vessels (with a particular focus on yachts and mega yachts) in areas not covered, up to that date, by national legislation, or EU and international law.

• Green Incentives

The SDM has also made steps towards aligning its policies with the EU’s “Fit for 55” legislative package, aiming to reduce net greenhouse gas emissions by at least 55% by 2030. To that effect, the SDM has introduced⁴SDM Circular No.8/2021 a new range of green incentives in order to reward owners of Cyprus and Community flagged-vessels that demonstrate effective emissions reductions.

As from 2021, a vessel’s annual tonnage tax can be reduced by up to 30%, if it fulfils the prescribed criteria⁵the Merchant Shipping (Fees and Taxing Provisions) Laws of 2010-2020 (Law No. 44 (I) of 2010 as amended by Law 39(I)/2020).

• Digitalisation

A complete digitalisation of the SDM, scheduled for completion by the end of 2025, aims to enhance efficiency and enable even faster delivery of its services. The SDM will expand its online services for ship registration and certification, and generally all its services will be provided digitally, most of which will also be available through a mobile application (CYSHIP), which is currently being developed. This digital transformation is in line with the SDM’s environmental goal to reduce its environmental footprint and also to achieve its vision for a sustainable, innovative and resilient Cyprus maritime industry.

• Cyprus Shipping One Stop Shop Portal

The SDM announced in August 2025 the launch of the Cyprus Shipping 1-Stop-Shop Portal (CYSh1P), which is a centralised digital platform designed to streamline and digitalise all SDM maritime services. The CYSh1P will provide shipowners, ship managers, crew managers, seafarers, lawyers and all stakeholders with easy access to a wide range of services such as ship registration and Registry transactions, transactions related to technical (safety and security) and environmental matters for Cyprus-flagged vessels, seafarer training and certification, tonnage tax system services, and even services aimed towards small and high speed vessels.

This portal will be rolled out gradually, and the SDM has already issued a Circular informing the public that from 14/10/2025 it will commence issuing certificates of competency, certificates of proficiency, documentary evidence of training of seafarers, endorsements and Seafarers Registration Certificates in digital (electronic) form. Cyprus and foreign companies must register and enrol in the relevant services to use the Portal, and as of 18 August 2025 the Portal has been accepting such user registrations and applications for enrolment.

Legal System

Cyprus is generally considered an attractive destination for doing business, and one of its main advantages is its stable legal framework. Cyprus is a common law jurisdiction, and most Cypriot laws are modelled on English law. As far as shipping is concerned, Cyprus has a wide array of legislation governing most critical matters relating to the shipping industry, including the registration of ships⁶The Merchant Shipping (Registration of Ships, Sale and Mortgages) Law of 1963, as amended., seafarers on board Cyprus-flagged vessels⁷The Merchant Shipping (Master and Seamen) Law of 1963, as amended, working conditions⁸The Maritime Labour Convention 2006 (Ratification) and for Matters Connected Therewith law of 20212, as amended and taxation matters, including the Cyprus Tonnage Tax System⁹The Merchant Shipping (Fees and taxing Provisions) Laws of 2010, as amended..

Additionally, all EU Regulations apply to Cyprus-flagged vessels, and Cyprus has ratified most international shipping conventions.

• Tonnage Tax System

The Cyprus Tonnage Tax System (TTS) was initially approved by the European Commission in 2010 for a period of 10 years, deemed compatible with the requirements of the EU acquis and aligned with the guidelines on state aid to maritime transport. Before its expiry, the SDM, in collaboration with other government departments and the private shipping industry, secured its extension for another 10 years, until December 2029. According to the TTS, qualifying owners of Cyprus-flagged vessels, as well as owners of foreign-flagged vessels, charterers, and ship managers, may be subject to an annual tonnage tax which is calculated on the net tonnage of the qualifying ships they own, charter, or manage, in lieu of income or corporate tax.

• Amendments to the Cyprus Merchant Shipping (Registration of Ships, Sales and Mortgages) Law

The SDM has announced that following review of the current legislation, a number of amendments have been considered which will make the flag more competitive and also assist in various matters where certain restrictions appear in the current text of the law. An example is the proposed amendment in the law permitting the amendment of the mortgage deed, whereas at present, only the deed of covenants collateral to the mortgage may be amended and not the mortgage deed itself.

• Shipping Limited Liability Company (S.L.L.C.)

Another important development, following the efforts of the SDM and the private shipping industry in Cyprus, was the enactment of new legislation¹⁰The Shipping Limited Liability Company (S.L.L.C.) Law of 2022 governing the creation of the SLLC. The SLLC will only be used for the ownership and operation of a vessel registered under Cyprus flag and its incorporation and all administration will take place through the SDM.

While the SLLC framework is not yet operational, it is expected to commence soon, once the engagement of new personnel by the SDM and the digitalisation programme for the SLLC is completed.

• Cyprus Banks in Ship Finance

Over the last decade, the largest banks in Cyprus (Bank of Cyprus Public Company Limited, Eurobank Cyprus Ltd, Hellenic Bank Public Company Limited, and Astrobank Public Company Limited) have been involved in the shipping finance sector, primarily focusing on clients within Cyprus and Greece. These banks have established and maintain shipping finance departments, thus enhancing the Cyprus maritime cluster.

Recently, there have been significant developments concerning banks in Cyprus. Specifically, Eurobank has transferred its banking operations to Hellenic Bank, which subsequently rebranded as Eurobank Limited. Additionally, earlier in 2025, Astrobank and another Cypriot bank, Alpha Bank Cyprus Ltd, agreed on the sale of all their banking assets and liabilities to Alpha Bank. These developments will further strengthen the positions of the two “newly” formed banks and create new opportunities, while also continuing to support the Cyprus maritime economy.

Cyprus as a Ship Financing Centre

The Cyprus legal framework also provides loan security tools, which have been favoured for many years by financiers in ship finance transactions. The main Cyprus law governed securities are the statutory mortgage¹¹Article 31 of the The Merchant Shipping (Registration of Ships, Sale and Mortgages) Law of 1963, as amended over a Cyprus flagged-vessel, the pledge of shares¹²Article 138 of the Contract Law, Cap.149, as amended in a Cyprus company and the charge of bank account(s).

• Mortgage

A Cyprus flagged vessel may be mortgaged as security for a loan made to the vessels’ owning company or for the obligations of a third party. The instrument creating such mortgage may secure either “principal sum and interest” or “account current” (the latter being used in the vast majority of cases). A collateral deed of covenants dealing with all matters relating to the mortgage must be attached to such mortgage instrument. A Cypriot statutory mortgage must be filed for registration in the Register of Cyprus Ships (the date and time of registration determining priority) either at the SDM or through a Cypriot maritime or consular office abroad (by specific authority of the Registrar of Ships).

• Pledge of Shares

Pledge of the shares of a Cyprus company is a widely used security tool in commercial transactions but it is also included in the standard security packages in ship financing transactions where the owning company is a Cypriot entity. The pledge of shares is governed by statute which prescribes for strict formalities to adhere to. A Cyprus pledge of shares which complies with all the requirements of Cyprus law may be enforced through self-help remedies without the involvement of the Courts by making use of certain ancillary documents normally executed and delivered by the pledgor to the pledgee at the time the pledge is entered into, i.e. instrument of transfer of shares signed by the pledgor, undated letters of resignation of the directors, signed but undated resolutions of the directors and others. After an Event of Default (as defined in the Contract of Pledge) occurs, the pledgee may enforce the share pledge and exercise the powers given to the pledgee therein. For example, to sell the shares to a third party or assume control of the company. This can be done by completing and dating the ancillary documents referred to above.

• Bank Account Charge

In view of the recent rise of involvement of Cypriot banks in the ship-financing sector the charge of account(s) maintained with such Cypriot banks is now a commonly used security document.

All the aforementioned render Cyprus as one of the key ship financing centres, which has also developed into a significant and influential player in global shipping that the SDM continuously works to maintain and enhance. It is worth noting, that ship owners and their advisers often show preference to Cyprus when choosing single purpose companies to be used in ship leasing structures. The ship finance framework which Cyprus has established over the years, also includes legal professionals specialised in shipping and ship financing for decades, providing confidence and reliability to shipowners, banks, and their lawyers who trust Cyprus for their business transactions.