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What to consider if you plan to invest in Cyprus

In Cyprus there is a strong business-friendly environment with one of the lowest corporate tax rates in Europe (12.5%, the lowest in Europe together with Ireland). Cyprus is member in the European Union and the eurozone.

Advantages

The geographical position of Cyprus is at the crossroads of three continents, offering access to markets in Europe, the Middle East and the Maghreb. The workforce of Cyprus is multilingual, experienced and inexpensive.

Cyprus has created a high-quality transport and telecommunications infrastructure, particularly in the ports sector and the sectors of tourism, international business and financial services, maritime transport, real estate and intellectual property are particularly developed.

People in Cyprus enjoy an attractive lifestyle in a secure, neat and healthy environment, with a high standard of living.

There is a friendly business environment with solid regulation and legal system aligned with British common law.

Disadvantages

However, the internal market of Cyprus is small with a population of around 1.2 million inhabitants. Cyprus has a high public debt (118.4% of GDP in 2020, IMF) and significant external debt linked to bank deposits of many non-residents. The banking sector is still weakened by the 2009 crisis, despite numerous reforms imposed by the EU, the IMF, and the ECB.

In addition, the Cyprus economy is heavily dependent on Russia and the United Kingdom as export markets and sources of funding with excessive dependence on the service sector (84% of total output), especially tourism, finance, and housing.

FDI in Cyprus

Government has taken measures to motivate FDI. The Cypriot government has created a positive environment for business as proven by its 54th place in the 2020 Doing Business ranking of countries where it is easy to do business. The government’s liberal policies have promoted investment development. Some key points of the country’s appeal are the possibility of 100% foreign shareholding in almost all sectors of the economy, the low corporate tax rate (12.5%), its attractive tax environment (Cyprus has signed double-taxation treaties with over 69 countries) and the low cost of establishing and developing a company.

The country manages to create an attractive environment for investors by strengthening weaknesses in its economy. For example, since 2013, the government has been restructuring the country’s banking sector. This, combined with the recapitalisation, enabled it to avoid bankruptcies and improve stability. Likewise, progress has been made to modernise and make its legal, accounting and banking services more efficient.

Bilateral Investment Conventions Signed by Cyprus has signed bilateral conventions with about 69 countries. Double Tax Treaties define the protection framework of FDIs in Cyprus for each signatory country.

Freedom of business establishment in Cyprus is guaranteed. Acquisition of holdings by foreign investors based in the European Union are free, they can acquire stakes in Cypriot companies, without any limit on the percentage of stake acquired or on minimum capital invested. Moreover, investors from the European Union can acquire up to 100% in the capital of companies listed on Cyprus Stock market except for the banking sector where such a percentage is limited to 50% only. Obligation to Declare Licenses are required when operating in some sectors of the economy, like construction.

Tax incentives

The tax system of Cyprus provides numerous tax incentives to foreign investors, some of them are listed below:

IP Box Tax Regime

Royalty income, embedded income and other qualifying income derived from qualifying intangible assets in the ‘new’ Cyprus intellectual property (IP) box (provision applies with effect from 1 July 2016). 80% of the net profit as calculated using the modified nexus fraction.

  • Royalty income, embedded income and other qualifying income derived from qualifying intangible assets in the ‘old’ Cyprus IP box. 80% of the net profit.
  • Tax amortisation on any expenditure of a capital nature for the development of IP (provision applies with effect from 1 July 2016), Allocated over the lifetime of the IP (maximum period 20 years)

Headquartering

The Holding Company will be holding the general structure and will need a head office in order to cover and perform its activities and its subsidiaries. A combination of the tax benefits of a Cyprus Holding Company along with the stable regulatory framework, low operational costs relating to office rental, office equipment and well-educated English-speaking labour force and exceptional climate and exquisite lifestyle, provide the ideal location for setting up of Headquarters allowing businesses to grow and thrive.

A holding company can set up its headquarters in Cyprus providing an umbrella for all the companies of the Group.

There are incentives offered by the government in order to set up in Cyprus such as the registration of the company as Foreign Interest Company allowing it to employee third country nationals by providing them with work permits.

Eligible Cyprus companies are the ones that:

  • The majority of the company’s shares to be owned by Third-country nationals.
  • Foreign direct investment of capital amounting to at least € 200.000, legally admitted to Cyprus from abroad. This should be proved by an appropriate bank and other documents.
  • To operate in independent offices in Cyprus

The eligible Cyprus holding companies can employ third country national as Directors with minimum acceptable gross monthly salary for Directors is €3872 and the Maximum number of 5 persons for this category.

Middle Management Executives and other key personnel can have a minimum acceptable gross monthly salary for this category is between €1936 – €3871 and the Maximum number of Ten (10) persons for this category.

For employing a greater number of third-country personnel under the above categories, duly justified and documented requests by the company can be submitted.

With regards to the Support staff, please note that there is no maximum number of third-country nationals employed under this category, provided that the necessary approvals from the Department of Labour have been obtained.

Using the above scheme will also give the opportunity and right to the Founder / owner of the company to be relocated in Cyprus and manage the structure through the permanent establishment of the Holding company from Cyprus.

The above relocation can also include Family members that would like to relocate along with the third country national employee.

Shipping

Shipping companies:

The Merchant Shipping Legislation fully approved by the EU (approval extended up to 31 December 2029) provides for exemption from all direct taxes and taxation under tonnage tax regime of qualifying shipowners, charterers and ship-managers, from the operation of qualifying community ships (ships flying a flag of an EU member state or of a country in the European Economic Area) and foreign (non-community) ships (under conditions), in qualifying activities. The legislation allows non community vessels to enter the tonnage tax regime provided the fleet is composed by at least 60% community vessels. If this requirement is not met, then non community vessels can still qualify if certain criteria are met. The legislation includes an “all or nothing” rule, meaning that if a shipowner/ charterer/ ship-manager of a group elects to be taxed under the Tonnage Tax regime, all shipowners/ charterers/ ship-managers of the group should elect the same.

Exemption is also given in relation to the salaries of officers and crew aboard a community qualifying Cyprus ship.

Shipowners

The exemption applies to:

  • profits derived from the use/chartering out of the ships
  • interest income relating to the working capital of the company
  • profits from the disposal of qualifying ships
  • dividends received from the above profits at all distribution levels
  • profit from the disposal of ship-owning companies and its distribution

The exemption also applies to the bareboat charterer of a vessel flying the Cyprus flag under parallel registration Bareboat charter out agreements remain eligible for tonnage tax, with restrictions introduced for bareboat charter agreements to third parties. The legislation provides a definition, as well as a specific list, of what are ancillary services. Moreover, it clarifies that the revenue from the ancillary services may fall under the tonnage tax regime, provided that the income therefrom does not exceed 50% of the total income generated from Maritime Transport Activities (‘Core Activities’).

Charterers

Exemption is given to:

  • profits derived from the operation of chartered in ships
  • interest income relating to the working capital of the company
  • dividends received from the above profits at all distribution levels

The law grants the exemption provided that the option to register for Tonnage Tax is exercised for all vessels and provided a composition requirement is met: at least 25% (reduced to 10% under conditions) of the net tonnage of the vessels owned or bare boat chartered in.

Ship-managers

The exemption covers:

  • Profits from technical and/or crew management
  • Dividends paid out of these profits at all levels of distribution
  • Interest income relating to the working capital of the company

In order to qualify ship-managers must satisfy the following additional

Requirements:

  • Maintain a fully-fledged office in Cyprus with personnel sufficient in number and qualification
  • At least 51% of all onshore personnel must be community citizens
  • At least 2/3 of total tonnage under management must be managed within the community (any excess of 1/3 taxed under corporation tax). The application of the tonnage tax system is compulsory for owners of Cyprus flag ships and optional for owners of non-Cyprus flag ships, charterers and ship-managers. Those who choose to enter the Tonnage Tax regime must remain in the system for at least 10 years unless they had a valid reason to exit such as disposal of their vessels and cessation their of activities.

Non-Domiciled Tax Status

Foreigners who decide to move their personal tax residency in Cyprus, will automatically be considered as non-domiciled in Cyprus for a maximum of 17 years. For tax purposes, non-domicile persons who become Cyprus tax residents will now be completely exempt from Special Defence Contribution tax (“SDC”).

Income Tax Incentives to New Cyprus Tax Residents

Remuneration from any employment exercised in Cyprus by an individual who was not a resident of Cyprus before the commencement of the employment, exemption applies to 50% of the remuneration for a period of 10 years for employments commencing as from 1 January 2012 provided that the annual remuneration exceeds €100.000.

For employments commencing as from 1 January 2015 the exemption does not apply in case the said individual was a Cyprus tax resident for 3 (or more) tax years out of the 5 tax years immediately prior to the tax year of commencement of the employment nor in the preceding tax year. In certain cases, it is possible to claim the exemption where income falls below €100.000 per annum.

Remuneration from any employment exercised in Cyprus by an individual who was not a resident of Cyprus before the commencement of the employment. The exemption is available for a period of 5 years for employments commencing during or after 2012 and it applies from the tax year following the year of commencement of the employment, with the last eligible tax year being 2030. This exemption may not be claimed in addition to the immediately above mentioned 50% exemption for employment income. Exemption is granted on 20% of the remuneration with a maximum amount of €8.550 annually.

Notional Interest Deduction

Equity introduced to a company as from 1 January 2015 (new equity) in the form of paid-up share capital or share premium may be eligible for an annual notional interest deduction (NID). The annual NID deduction is calculated as the new equity multiplied by the NID interest rate. The relevant interest rate is the yield on 10 year government bonds (as at December 31 of the prior tax year) of the country where the funds are employed in the business of the company plus a 5% premium. A taxpayer may elect not to claim all or part of the available NID for a particular tax year. Certain anti-avoidance provisions apply.

Other exemptions

Type of income Exemption limit:

  • Profit from the sale of securities, the whole amount
  • Dividends (excluding, as from 1 January 2016, dividends which are tax deductible for the paying company), the whole amount.
  • Interest not arising from the ordinary activities or closely related to the ordinary activities of the company, the whole amount.
  • Gains relating to foreign exchange differences (forex) with the exception of forex arising from trading in foreign currencies and related derivatives, the whole amount.
  • Profits from the production of films, series and other related audio-visual programs. The lower of 35% of the eligible expenditure and 50% of the taxable income. Any restriction may be carried forward for 5 years.

Provisional Job Stability of Disabled Employees due to Pandemic

At the end of 2019 and beginning of 2020, the world observed the disastrous trajectory of the Sars-Cov-2 Coronavirus, which infected thousands of people in the city of Wuhan, China, and spread to several provinces in that country, and then around the world.

In Brazil, the Ministry of Health published, on February 3, 2020, Ordinance (Portaria) no. 188/2020, which declared a Public Health Emergency of National Importance (ESPIN), due to Human Infection by the new Coronavirus (2019-nCoV).

On February 6, 2020, Law no. 13.979/2020 was published, containing measures for countering the ESPIN, due to the outbreak of the virus. The Law has suffered subsequent changes.

On March 11, 2020, the Director-General of the World Health Organisation, Tedros Adhanom Ghebreyesus, declared the existence of a pandemic, resulting from COVID-19, motivating the Brazilian National Congress to establish a state of calamity, until December 31, 2020, through Legislative Decree no. 6/2020. A series of Provisional Measures (MPs) were issued in order to counter the pandemic.

One of the MPs was no. 936, converted, on July 6, 2020, into Law no. 14.020/2020, which created the so-called Emergency Program for the Maintenance of Employment and Income, and provided, in article 1, for complementary measures to combat the public health emergency caused by the coronavirus.

When MP no. 936 was converted into Law 14.020, article 17 was introduced, which prohibits the unjustified dismissal of disabled persons while the state of calamity persists. This category of employees was not singled out in the texts of the MP or of Law 13.979/2020 and its subsequent amendments.

It is an undoubted fact that persons with disabilities deserve differential treatment, in order to provide them with protection and ensure their inclusion in society and in the job market, as in Law no. 8.213/91, which provides for the mandatory hiring of these persons, pursuant to a pre-established quota.

Portaria no. 188 of February 3, 2020, of Ministry of Health, accessed on February 10, 2021. (Click here to read.)

Note that the social security legislation imposed, on a permanent basis, an obligation on the employer to hire a certain number of persons with disabilities, unlike article 17 of Law no. 10.020/2020, which guarantees protection to this group of employees only for the duration of the state of calamity due to the COVID-19 pandemic.

However, the state of calamity, which is the subject of Legislative Decree no. 06/2020, was not extended by the National Congress and, furthermore, Justice Ricardo Lewandowski of the Federal Supreme Court (STF), when hearing Direct Unconstitutionality Action (ADI) no. 6.625 MC/DF, maintained the validity of a number of articles of Law no. 13.979/20, but made no reference to the provision dealing with persons with disabilities. From this standpoint, there would be no question of stability of employment for this category of employees.

On the other hand, termination, on December 31, 2020, of the validity of Legislative Decree no. 6/2020, to which Law no. 13.979/20 is linked, unfortunately did not put an end to the state of calamity and the hardship imposed by the Sars-Cov-2 Coronavirus, reported on a daily basis by all the media. On the contrary, Brazil still faces great difficulties in combating COVID-19, which takes the lives of hundreds of people every day, and incapacitates many others.

This fact was stressed by Supreme Court Justice Ricardo Lewandowski, in the decision rendered in ADI no. 6.625 MC/DF. He considered that it was prudent and advisable that the exceptional measures contained in Law no. 13.979/2020 be maintained to combat the pandemic. The STF also ruled that the States may, through their Legislative Assemblies, decree the maintenance of the state of public calamity, as done by Minas Gerais (Decree no. 48.102/2020), Paraná (Decree no. 6.543/2020) and Tocantins (Decree no. 6.202/2020), besides several Brazilian municipalities.

Another question comes up. In view of the state and/or municipal decrees, which extend the state of public calamity, is it possible to maintain the employment of persons with disabilities, as provided for in item V, article 17, of Law no. 10.020/2020.

The exclusive competence of the Federal Government to legislate on Labour Law, provided for in art. 22, I, of the Constitution of 1988, prevents state or municipal governments from doing so. However, in this specific case, the federal law exists and may be applied, in theory, since the state of calamity remains.

The discussion on the subject is still far from over, and, little by little, lawsuits are reaching the Courts seeking the reinstatement of persons with disabilities dismissed after the enactment of Law no. 10.020/2020.

We suggest caution, therefore, when dealing with this issue, taking care to verify possible collective rules issued during this period and that may have regulated the matter in a similar or even wider manner than the law under comment.

Renata Gallo Tabacchi Gava de Oliveira and Patrícia Salviano Teixeira
Associate lawyers in Labour Law Area – São Paulo
[email protected] and [email protected]

Advisory Excellence Announces the Appointment of Dr. Samir Abdelly

Dr. Samir Abdelly is the Chief Executive Officer at Abdelly & Associates. Dr. Abdelly has wide experience in a variety of humanitarian and philanthropic matters, including serving as candidate for the Tunisian Presidential Election in 2014. In 2021, Law.com named Dr. Samir Abdelly as a Top 5 Influential Lawyer Around The World.

Abdelly & Associates was established as a continuity of a long standing legal tradition and has grown considerably. Abdelly & Associates developed their extensive network via partners in Dubai, Cairo, Paris and London.

Abdelly & Associates has all the needed legal authorisations for the most complicated deals in the Tunisian energy market, including:

  • PetrofAc / Perenco Group: Legal assistance on various areas of law and regulatory, strategic assistance, drafting, negotiation of Asset purchase agreements between the Vendor and Buyer and preparation of all closing documents between the parties for the purpose of getting important and complex phased governmental approvals of their acquisition of interests in, till the gazetting dated last week and all transaction approvals including with UNION GTT related to hundreds of employees and STEG related to the gas and electricity;
  • Ashtart Concession: Owned by OMV together with the acquisition of their shares in the Joint Operating Venture created with ETAP (SEREPT) and establishment of their Tunisian Branch and received the gazetting and all approvals;
  • Sumitomo Corporation / Mitsubishi Legal: Assistance, negotiation, drafting and closing deal and getting the approval of their bid tender application and selection as contractor for the purpose of building a power station Radès 2 and the establishment of their Tunisian Branch in Tunisia;
  • China Engineering Harbour: Project of construction of the quai 8/9 Radès Port and the next project of Enfidha deep water ($1.5M).

Abdelly & Associates is available for the purpose of facilitating investment opportunities in Tunisia and surrounding markets.

If you would like to find out more information, please visit their website.

DRBF 20th Annual International Conference

On June 30, DRBF’s 20th Annual International Conference was held in Lisbon, Portugal. Advisory Excellence Member, Giovanni Di Folco, was a speaker at the event. Giovanni is the President of Techno Engineering & Associates, which is a key player in the industry.

Mr Giovanni Di Folco speaking at the prestigious 2021 event.

Mr Giovanni Di Folco speaking at the prestigious 2021 event.

Event details:

  • 30 June: Q&A about DBs –  Mr Giovanni Di Folco, together with Mr. Sean Gibbs, Mr. Ignacio Palacios, and Mrs. Giorgiana Tecuci; 
  • 1 July: Effective Project Delivery: DBs and Quantum Assessment – Mr Giovanni Di Folco together with Mrs. Marianne Ramey and Mrs. Patricia Sulser;
  • 2 July: Dispute Board Seminar for Public Entities – Mr Giovanni Di Folco together with Mr. Leo Grutters and Mr. João Mora.

If you would like to find out more information, please visit the Techno Engineering & Associates website.

U.S. Importers of Automotive Parts & Vehicles Save Major Duties & Taxes

There are a number of ways that vehicle and automotive parts companies can lower the duty that they pay for items imported into the United States. While these strategies have been in existence for many years, the use of these strategies has grown tremendously in recent years given the increase in taxes imposed on various goods imported into the United States (especially those manufactured in China).

Tariff Classification and Engineering

Vehicle and automotive parts companies importing goods into the United States may be able to lower the duty that they pay for articles imported into the United States by changing the tariff classification that is used to enter these items. This can be done lawfully when the tariff classification being used is found to be incorrect or when slight changes are made to the design and manufacture of the articles at issue.

For example, in a ruling issued by U.S. Customs and Border Protection (“CBP”) in December of 2020, an importer successfully argued that its two-post vehicle lifts were classifiable as “Other lifting, handling, loading or unloading machinery” in heading 8528 of the tariff schedule as opposed to “Jacks [or] hoists of a kind used for raising vehicles” in heading 8525. CBP had previously ruled that the company’s lifts were classifiable as “jacks [or] hoists” but overturned its decision after finding that the articles did not “pull a vehicle up using a hook and chain or a rope” (which was the function of a hoist) and that they “raise[d] vehicles more than a short distance” (whereas a jack was designed to lift loads over short distances only).

Additionally, in a ruling issued by CBP in May of 2017, an importer successfully argued that an oil cooler core (which cooled automatic transmission fluid in semi-trucks equipped with an Allision transmission) was classifiable as a “part of [a] heat exchange unit” in heading 8419 rather than as a “part of a motor vehicle” in heading 8708. CBP looked to the section notes of the tariff schedule before finding that the importer was correct in its assessment that the oil cooler cores were classifiable as parts of heat exchange units. This change in tariff classification resulted in a 2.5% duty savings for the importer.

To help importers who may not have the bandwidth or know-how to fully engage in the classification process, Sandler Travis & Rosenberg, P.A. (“ST&R”) has professionals with extensive knowledge of the classification opportunities that exist for automotive parts and vehicles. ST&R works with importers by reviewing their current classifications to ensure their correctness and by suggesting design changes to current products that may result in substantial duty savings.

Companies requiring expert assistance in identifying potential alternative classifications for the products that they import should contact ST&R. Charles “Chuck” Crowley can be reached at (914) 433-6178 or [email protected] and Mika M. McLafferty can be reached at (212) 549-0165 or [email protected].

Strategic Manufacturing

The assessment of duties on goods imported into the United States is dependent on a product’s country of origin as much as its classification. The more recent implementation of additional duties of between 7.5% and 25% on certain goods that are Made in China has meant that the country of origin of products imported into the United States has become increasingly relevant.

Where vehicle and automotive parts companies are manufacturing a specific product in more than one country, ST&R can review manufacturing processes to determine the proper country of origin of that product. ST&R can advise companies as to what steps in the manufacturing process may confer origin to a product so that companies can strategically perform origin-conferring operations for a product in the country that provides the most favourable duty rate. In the case of goods being produced in part in China, it is imperative that companies understand whether the operations being performed in China are origin-conferring such that the finished product may be subject to additional duties of between 7.5% and 25% upon importation into the United States.

As an example, CBP has recently analysed the proper country of origin of motors that were manufactured in multiple countries including China. Importers of those items were interested in understanding whether CBP would consider the country of origin of those motors to be China in which case additional duties of 25% would apply to the products at the time of importation. As recently as May of 2021, CBP has issued rulings in which it has found that rotors and stators are the dominant components of finished electric motors and has found that the origin of a motor was determined by the origin of the rotor and stator cores.

Those interested in understanding how to strategically manufacture their product to avoid the potential assessment of Section 301 duties of between 7.5% and 25% should contact ST&R. Charles “Chuck” Crowley can be reached at (914) 433-6178 or ccrowle[email protected] and Mika M. McLafferty can be reached at (212) 549-0165 or [email protected].

HULL INSURANCE AND GENERAL AVERAGE

General Scheme of The Marine Insurance

Marine hull insurance covers the damages that happen to an insured ship or other insurable parts of it, during the voyage, carrying cargo, during dispatch, anchorage, or repair. This coverage comprises all physical losses or perils, liabilities, and expenses of third parties, which arise from perils of the sea. They are known as “Marine Hull” among the Lloyd’s London market.

This insurance type has a small capacity, and they constitute %2 of the global non-life insurance. Nevertheless, it is a well-specialised field that provides exclusive coverages for different perils.

The main marine insurance market is in London which has the 18% of the global maritime premium. London market is represented by unions organised under Lloyd’s Underwriters Association and, on the other side also represented by International Underwriting Association. The second biggest market is in Japan which has the 16% of the global premium, and they are followed by the USA with %13 and Germany – Norway with 9%.

Marine insurance, especially Ocean Hull, has similarities with non-life reinsurance than other direct insurance types. It starts with the construction of the ship in foreign countries, and it does not have to be in a certain place. When the ship is launched, it can be open to traffic with cargo owners, insurers, and directors worldwide. In addition to this, in general, the crew is a combination of different nationalities. The flag of the ship is usually the flag of the owner’s country or any other country, where is not a part of the ship’s traffic.

Second, the type, which is named Ocean Hulls, has high insurance values. Therefore, in general, more than one insurer from different countries share the risk. These works proceed through brokers.

The third resemblance between marine insurance and non-life reinsurance is, those policies are usually issued for the one-year period except for one-time coverages.

As the fourth, mostly the result of the above explanation, the premium circulation is not stable (volatility) and therefore the demands are changeable. Apart from natural variations, that affect the occurrence of the damage, volatility may also be the result of changes in the deductible amounts, increased risks, variations of international regulations, or exposure of risk.

Hull and Machinery Insurances

The word “marine” is a comprehensive concept which embodies notions “hull”, “cargo”, “marine liability” and “offshore”.

In order to define “a ship”,; a ship is a sea vessel, which is not very small, that can move on the sea and the usage of the ship depends on its movability. Hull is a wider concept than a ship and it means a thing which is hallowed and voluminous. It is a general concept for ships and sea vessels. An insurance type HULL AND MACHINERY (H&M) provides a coverage for ship and its machinery. Although, in theory, H&M is not a compulsory insurance, it has become compulsory in practice to avoid problems that may happen on the controls of the international ports.

In the H&M Coverage, the insurable interests are, integral parts of the ship (when those parts are missing the ship is an incomplete ship; the hull, the mast, the deck, the tank, etc.) and additions of the ship that belong to the owner (maps, signal tools, etc.). In addition to this, subject to the insurer’s approval, sea vessels, which cannot be defined as a ship; houseboats, floating crane, barge, floating restaurants, sea motorcycles, etc. can be a subject of the policy.

From a different perspective, what real dangers in the marine industry are? They can be classified like in the below:

  • (A) Damage to the insured or loss of the insured, whether the insured is a ship or an oil rig, cargo, or another concept which is in the marine concept (partial or total loss).
  • (B) Every kind of liabilities. (Collision, environment, port, crew etc.)
  • (C) Loss of profit that arises from a temporary malfunction due to an accident (loss of profits insurance).
  • (D) Expenses arising from an accident, which can be compensated under Marine Insurance Policy. (Towage, salvage, etc.)

Hull Policy is a united assurance for risks under the scope of A, B, and D. Such that, for the united risks, an insurer can only be responsible for threefold of the insured amount. However, if the liability covered under the policy is exceeded, the exceeded amount is usually covered by P&I Clubs. Rules may show differences for every P&I Club since there are limited clubs that work under these conditions.

For the corporate objective, vessels are divided as Coasting Vessel and Ocean Vessel (Ocean Hull). Ocean Hull is also named “Bluewater Boat”. While ocean vessels have an international character, which refers to any ship that is part of international maritime trade, coasting vessels are generally used in inland waters.

Although coasting vessels can describe other small vessels such as fishing boats, coastal ferries, barges, etc., there is not a certain line to separate these notions. While damages to fishing boats and damages they have caused may be covered under the marine policy, the lives of fishers and loss of their profits may not be covered even if they are under the scope the marine insurance.

When we evaluate the other headline of our topic, General Average, it can be described as “voluntary sacrifices and extraordinary expenses in a voyage to protect the ship or cargo from a danger.”. At Article 1272 / III of the Turkish Commercial Code, it is stated that damages will be appropriated between ship, cargo, and carriage. This article is in accordance with Article A of York- Antwerp Rules. Because freight of a charterer, fuel for the time charter, or container of a commercial manager can also be subject to a general average.

For the existence of the general average, the ship and cargo should be together. Therefore, there will be no general average if the ship sails without cargo. However, a ship that sails without cargo and without charter-party, can be protected against extraordinary expenses and voluntary sacrifices with additional clauses to policy.

Being exposed to a sea danger is not a compulsory matter for declaring a general average. To illustrate it; the extension of the fire in the dock to the ship or cutting the anchor in order to prevent the spread of flames can also be a reason for the general average. In addition to this; even if the ship and cargo do are not damaged on the same level, declaration of the general average would be proper.

There is a condition for a proper general average declaration, real danger. Estimated danger or proximate danger (causa Proxima) is not sufficient for the general average. A precedent Supreme Court of Turkey decision states that the general average cannot be declared when the ship is grounded by its master’s own negligence. Therefore, the faulty party cannot claim any compensation and also is responsible to related parties for damage that arose by his own negligence (Turkish Court of Appeal 11th Circuit D: 25.11.1985, 1985/6087 and 1985/6406). Further, in the case “Watson v Fireman’s Fund Insurance”; the court held that; even if the master has a margin of error, spilling water because of the estimation that there is a fire and this fire will cause damage to goods in holds is not proper for declaring a general average and the master is responsible from the damages arose from the water.

Does the master have to wait until the appearance of real danger? An answer for this question is stated by Roche J. in “THE MAKIS” case. Roche J. held that; the danger does not have to be immediate or occur right away, the danger must not be imaginary.

In general average situation, actions and expenses should also be extraordinary. Although it is open for an opposite interpretation, there is an important case that can set an example. “Wilson v Bank of Victoria”; The ROYAL STANDARD was a large sailing ship with an auxiliary steam screw. She sailed on a voyage from Australia to England carrying a cargo of gold and about 500 tons of bunker coal. Eleven days into the voyage she hit an iceberg and suffered so much damage to her masts and sails that, in practical terms, she lost all power of sailing. She reached Rio de Janeiro under steam alone and nearly exhausted her stock of coal. The expense that made, in that case, was not held as extraordinary and the general average was not accepted.

After the above explanations about the “Hull Insurance” and “General Average”; it should be explained in such a circumstance which insurer bears which damage? This will be determined after the apportionment of damages (dispatch). In principle, H&M Insurer bears the “damages to the ship” and Cargo Insurer bears the “damages to the cargo”. “Gaps” that were left behind from the dispatch period, are filled by the liability insurer.

Due to article 66/4 of Marine Insurance Act 1906; if the assured has incurred a general average expenditure, without claiming from other relevant parties of the general average he may claim expenses directly from the insurer. If hull insurance does not cover the full expenses, the remaining amount will be covered by P&I (Protection and Indemnity) Club.

If some expenses are not under the coverage of the hull insurance, marine vessels liability insurance will bear those expenses. As an example, to this situation, if the real value of the ship is higher than the insured value, or rejection of the compensation claim by the cargo insurer because of breach of the carriage contract by the carrier.

The general average Absorption Clause is regulated with IHC 2002’s article 43 (additional Clauses), a part of the English Hull Clauses. Subject to insurer’s written approval, insured has right of choice. If the insured will not claim any demand from other relevant parties to the general average, the insurer will waive his right to subrogate. However, this situation is against article 1472 of the Turkish Commercial Code and therefore otherwise cannot be agreed upon since the code is compulsory.

Another point about Hull Insurances that should be mentioned; the question of whether there is a direct right to claim from the insurer. Although there is a chance to claim directly from the insurer in most countries and in Turkey, this right is not accepted under English Law. However, the direct claim right is provided, if the right of compensation of third parties are covered in the policy, in Denmark under Insurance Policies Code, Article 95.

As an example, “The Yusuf Cepnioglu” is an important case for this subject. The injured party brought an action in Turkey, directly to the P&I Club. High Court evaluated the case whether there is a need for an anti-suit injunction or not. The foreign law (Turkish Commercial Code) was discussed that gives a chance of a right of direct claim. Court of Appeal decided that, although the right of a direct claim is a contractual right, it is not an independent right and, the court allowed the anti-suit injunction. This decision of the Court of Appeal is important because it is about the right of a direct claim against and current.

In conclusion, Marine Insurance has an important role to ease maritime commerce and international trade. Since “Marine Insurance” is proceeded as a legal contract, “marine Insurance Law” plays a significant role in the field. English Law is the dominant law about maritime law.