Choosing the right yacht register
Gabriel Gonzalez, Register-a-Yacht, explains how buyers should choose where to register their yacht.
Registering a newly acquired yacht is often one of the last steps that yacht owners will need to complete before they can actually sail and enjoy the vessel. Registering a yacht is like obtaining a passport. You are effectively choosing the yacht’s nationality, with all the advantages and responsibilities that this entails: not least good functionality, constructive legislation, fiscal efficiency, well-recognised legal system, political stability and diplomatic clout. A yacht owner will want a flag that is competitive, accessible and enjoys a good reputation.
“Registering a yacht is like obtaining a passport. You are effectively choosing the yacht’s nationality, with all the advantages and responsibilities that this entails”
From a private law perspective, too, your choice of Flag State can be critical. Protecting the legal title of the registered owner or the interests of mortgagees is of great importance. In fact, many financial institutions may make it a condition that a yacht is registered in a particular Flag State when providing marine finance to yacht owners. Similarly, a yacht’s Flag State may affect the ability of the owner to secure competitive insurance cover.
So while yacht registration is simply a licensing procedure, involving broadly similar requirements in most jurisdictions, it is one that yacht owners should give very careful consideration to in order to ensure the best fit for their particular circumstances.
Many countries, including some that are landlocked, maintain their own yacht registries, but only a very few attract the majority of superyacht registrations worldwide. Their popularity is based upon careful analysis of the advantages that they offer to owners and their vessels.
There are three principal factors that will undoubtedly influence an owner’s choice of flag.
Getting the right legal and administrative framework
Firstly, a Flag State’s legal and administrative framework. By conferring nationality on a yacht, a Flag State acquires certain rights as well as certain responsibilities over it. The public law functions of registration give rights to diplomatic (and naval) protection and consular assistance by the Flag State. It might also offer other privileges, such as neutrality or access to particular waters, ports, activities or services. The private law functions of registration are to protect the title of the registered owner and persons holding security interests over the vessel.
“By conferring nationality on a yacht, a Flag State acquires certain rights as well as certain responsibilities over it.”
It is essential that a Flag State Registration is a key element to a yacht’s operation because there may also be specific yacht-related legislative, fiscal and other advantages (or disadvantages) attached to a particular kind of registration regime. For instance EU-flagged yachts will encounter fewer obstacles when obtaining permits and licenses to operate commercially within EU waters in comparison to non-EU flagged yachts. There are always exceptions to the rule and flags such as the Isle of Man, while remaining outside the EU, offer very similar benefits to EU flags when operating commercially. The Marshall Islands’ flag is also exempted for having to change from private to commercial status when operating commercially in France and Monaco.
VAT and other taxes
“The question of VAT liability is open to wide interpretation and should always be considered on a case-by-case basis.”
Secondly, the VAT status of the jurisdiction in which the yacht is to be domiciled. The question of VAT liability is open to wide interpretation and should always be considered on a case-by-case basis. Yet this is generally a matter of great concern to yacht owners and is often the main criterion in deciding where to register a yacht. The EU’s Temporary Admission (often referred to as Temporary Importation) rules are a mechanism that enables non-EU resident yacht owners to bring their yachts into Europe for a limited time, such as a holiday, and under certain conditions without having to pay VAT on the value of their yachts.
International rules and conventions
“Through registration and technical control procedures, the Flag State monitors the legality of the vessel’s condition and activities throughout its life”
Lastly, given the freedom that Flag States have to formulate their registration requirements, they are obliged to exercise administrative, technical and social controls – applying the international rules and conventions that govern navigation, usage, safety and crewing. Through registration and technical control procedures, the Flag State monitors the legality of the vessel’s condition and activities throughout its life, and intervenes through inspections and financial concessions.
As a back up to Flag State implementation, many of the International Maritime Organisation’s (IMO) most important technical conventions contain provisions for ships to be inspected when they visit foreign ports to ensure that they meet IMO requirements, a procedure known as Port State Control.
The IMO has encouraged the establishment of regional agreements on Port State Control – Memoranda of Understanding or MOUs – covering all of the world’s oceans, of which the best known are the Paris MOU (Europe and the North Atlantic) and Tokyo MOU (Asia and the Pacific). It is therefore of great importance that a Flag State can demonstrate a good track record on its performance under such MOUs. There is scope for a flexible approach and the expertise of a Flag State’s surveyors will be crucial for prudent assessment, good support on technical issues and to guarantee safety and seaworthiness.
In addition to these three main aspects, there may be many other reasons for choosing a Flag State. These could relate to: a yacht’s age, size or type; any ownership nationality restrictions; the size of registration fees and ongoing costs; the speed and ease of registration; the accessibility and availability of technical or administrative support. In some cases, it may simply be a matter of prestige.
“It is unquestionably the Red Ensign Group that lead the rankings of most popular flags”
Of all the Flag States available worldwide, it is unquestionably the British shipping registers, collectively known as the Red Ensign Group (REG), that lead the rankings of most popular flags. British law has enacted legislation that is specific to yachting and is a familiar, popular and workable system that is well known to practitioners, captains, brokers, bankers, builders, classification societies and service providers within the yachting industry. As well as having a reputation for efficient management and administration, they also benefit from British Consular support.
Within the REG, the following are the most common flags for yacht registration purposes – the UK itself, the Cayman Islands, the British Virgin Islands, the Isle of Man, Jersey, Guernsey and Gibraltar. These seven jurisdictions offer five different tax scenarios, with the UK – as a full EU Member state and part of the EU Customs Union and VAT area – lying at one extreme, with the Cayman Islands and BVI – which are wholly outside the EU – at the other.
In between lie the Isle of Man, the Channel Islands and Gibraltar, which have differing relationships with the EU. The latter in particular, being part of the EU territory but outside the EU Customs Union and VAT area, can offer a less bureaucratic procedure for obtaining chartering licences in Europe while at the same be of use to non-EU residents in benefitting from the Temporary Admission regime.
“Flying the British flag is not always the solution and other Flag States, such as Malta or the Marshall Islands for example, have been very successful in providing yacht registration”
Notwithstanding all the benefits that the REG may offer, flying the British flag is not always the solution and other Flag States, such as Malta or the Marshall Islands for example, have been very successful in providing yacht registration to yacht owners and yacht management companies.
The pragmatic approach of Malta with tax advantages for commercial yachts and a leasing scheme for pleasure yachts has made it a very attractive alternative to the UK for those wishing to flag a yacht within the EU. Marshall Islands-registered yachts have automatic rights to a cruising permit for sailing in US territorial waters and qualifying private yachts are permitted to charter up to 84 days a year, subject to detailed surveys when on charter. Together with the new Yacht Engage in Trade (YET) regime, the Marshall Islands is taking a lead in facilitating the mixed use of yachts. Other flags to be considered, within and without the EU, are Madeira, Italy, Luxembourg, Cyprus, the Cook Islands, St Vincent & the Grenadines and The Bahamas.
Finally, it is worth mentioning that the use of a company for yacht ownership purposes may also facilitate legitimate tax and estate planning scenarios, provide access to certain flags by circumventing nationality restrictions and offer enhanced levels of confidentiality. Using a company to own and operate a yacht not only provides privacy, but will also limit the owner’s liability in the event of a claim. Contracting with third parties through an entity provides legal security and may often simplify sale and purchase processes.
For more details please contact: [email protected]
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