Greeks and ships are the stuff of ancient myths and modern fortunes, making it difficult to imagine a large-scale exodus of shipping companies from Greece, where the world’s largest merchant fleet is registered. But a looming sea-change in the country’s tax laws may serve as a catalyst for just that, as chief editor Gary Lakes reports.
EARLIER this year, Greek ship owners and shipping companies began to express their concern about the future of their operations in Greece under a stricter tax regime. With the government in Athens facing a debt of €323 billion to the International Monetary Fund (IMF), the European Central Bank and other creditors and the IMF-ECB-EC Troika pushing Athens to come up with new sources of revenue, it only stands to figure that Greece’s lucrative shipping industry would be a likely target for the taxman. With that anxious thought in mind, many ship owners – and other Greek companies – are looking to Cyprus as an alternative.
The likelihood of Greece introducing a personal income tax has sent a shudder through the Greek business sector, particularly the shipping industry, which the government of Prime Minister Alexis Tsipras has identified as the realm of oligarchs. The thought of being forced to disclose the full value of one’s wealth and then pay tax on it has prompted many ship owners in Athens to give consideration to relocating company headquarters outside the country.
“There was a fear amongst ship owners during the last discussions with the Europeans in July and August that the government would impose a tax on shipping – which finally didn’t happen,” Thomas Varvitsiotis, president of the Athens-based international communications agency V&O Group, told Global Sources Magazine.
“But now there is a fear about Greece as a whole, and secondly there is a fear about a personal income tax that would include accounts and properties outside Greece,” Varvitsiotis said.
“According to some sources, the Greek government will ask each citizen to announce all their sources of income,” he said. “This is data that the ship owners don’t want the government to have for fear that an annual tax will be leveled on their total wealth.”
Ship owners saw the tax issue coming and agreed voluntarily last year to a pay double the tax on ship tonnage until 2017, but it is the fear of what’s next that has set some of them looking for new locations from which to base their operations. During the dark days last summer, shipping companies found themselves struggling with capital controls. Now with signs of new taxes looming, Germany, London, Singapore, Vancouver, Luxembourg and Malta are reported to be vying for Greek shipping companies whose relocation could very well do further damage to the Greek economy.
For many – and not just Greek shipping companies – Cyprus appears an attractive location, not only because it is Greek, but because it is only a couple hours flying time from Athens, it is a member of the EU, and it doesn’t pry into personal fortunes all that much. Furthermore, Cyprus is beginning to emerge from its financial crisis, whereas Greece will see continuing tough times.
For its part, Cyprus empathizes with Greece and has not been lobbying to woo Greek shipping companies away from their home base, knowing from its own experience that for the sake of Greece’s economic requirements, Greek companies need to stay put. The industry accounts for 7.5% of the country’s economic output, employs thousands, and is Greece’s brightest sector.
“Cyprus is not going to steal away Greek shipping companies,” one source in the Cypriot shipping industry told Global Sources Magazine.
Still, despite its own tough negotiations with the Troika, the island continues to offer a favorable corporate tax rate, and traditionally, Greek-owned ships have accounted for 40 to 50 percent of the Cypriot ship registry.
In recent months five Greek shipping companies have established new offices in Cyprus and another 40 shipping firms have prepared themselves for the move by registering company structures with the Cypriot authorities.
Because it is relatively easy for shipping companies to move their base of operations, they have been the focus of media attention, but according to a knowledgeable source in Cyprus’s business sector, other Greek firms have ventured to the island to examine the tax regime and the legal system.
“It’s not just the shipping companies,” the source said, “medium-size companies with turnovers of €20-30 million per year are looking to move or set up subsidiaries in Cyprus. They are seeking advice on how to move a company headquarters from one country to another in accordance with EU law.”
And it is just not the worry of a personal income tax that is causing this, the source said.
“It’s the instability and unpredictability of the Greek tax system. If you keep moving the goal posts, you create a lot of uncertainty about the country,” the source said. “There is also the level of taxes. Corporate tax is 29%, VAT is as high as 23% and employer contributions for social security contributions are sky high.”
“Companies and corporations are listening to remarks made by the members of government and wondering what is next. There is no trust, people are suspicious and discouraged by the business environment,” the source said.
Medium-size businesses aside, the departure of but a few shipping companies could have a big impact on hundreds or thousands of people whose jobs are connected with the Greek shipping sector – an invitation for more gloom in Greece.
“In November the Greek government will have to implement the agreement with the Troika regarding higher taxation on various sectors of the economy, including, of course, shipping,” the Cypriot shipping industry source said. “It is only then that you will see the impact of any possible exodus of companies from Greece.”
But it doesn’t appear to be time to abandon Mothership Greece just yet according to recent data. Athens-based Petrofin Research recently reported that the Greek fleet grew by 4.3% year-on-year for September 2015 to 4,909 vessels and that dead weight tonnage rose by 7.52% during that period to 328,254,495 DWT. The average age of vessels in the fleet has continued to decline, Petrofin reported, to an average 8.7 years.
“In light of the Greek political and economic crisis that continues and huge uncertainty surrounding the future of Greek shipping operated out of Greece,” Petrofin said in its monthly statement, “[and] due to the expected increase in taxation, the growth in vessels’ capacity and improvement in age comes as a surprise.”
Apparently, Greek ship owners have every faith in their industry, but their patience with the Greek government could sail with the tide.