Marine registration - where is best for you to moor up?
Sponsored by Vistra
10 April, 2012
Despite the weak economic climate, demand from wealthy individuals and company executives for yachts and the services associated with running and maintaining these assets remains strong.
After a difficult couple of years in 2009 and 2010, there is firm evidence emerging of a recovery in the luxury yacht markets, buttressed by a newly emerging class of wealthy individuals in emerging economies like Brazil and China. According to Boat International, 264 superyachts were sold in 2011, 29% more than in 2010, with total asking prices reaching USD2.6bn last year. Statistics routinely announced by the main offshore marine registries showing yearly growth in the registration of yachts and other pleasure craft also suggest that this is a business on the up.
Nevertheless, the path to yacht ownership is not an easy one! Unlike, say, buying a car, where you can simply hand over your cash to the salesman and roll off the forecourt with your new pride and joy, the international nature of sailing means that many financial pitfalls may await the owner of a shiny new yacht, especially in the area of taxation, and it is therefore vitally important that an appropriate ownership structure is put in place to minimize the impact of these potential traps. Thankfully, there is a large and growing industry of service providers with the appropriate expertise to take much of the tax headache out of the equation for the aspiring sailor. However, it pays to have a general awareness of the situation, and in this feature we explore the major tax planning and ownership issues confronting owners and users of yachts.
Normally, boats over a certain size and weight have to be registered in one jurisdiction or another, and with many onshore and offshore jurisdictions offering registry services, this will be one of the most important considerations in the yacht tax planning process. This decision will be guided by where, when, how often and for what purposes (e.g. private use or chartering) you intend to use your yacht and of course these factors will have an important bearing on tax.
While national boat registries have broadly similar registration rules, the registration process may differ quite substantially, for example in the amount of documentation, such as proof of ownership information that will be required to complete a registration. Almost invariably, initial and ongoing registration fees, usually on an annual basis, will be charged and these too can vary quite widely. Some registries may also restrict the type of activity that may be undertaken by a yacht, e.g. by prohibiting commercial uses.
In the case of yacht registration some of these requirements might typically include: a bill of sale; a builders certificate (if new); a declaration of ownership; and a deletion certificate if previously registered.
Additionally, it is wise to consider the international standing of the jurisdiction concerned, and whether there are issues over its reputation in terms of tax compliance with other countries, especially the country of your residence. While it is not the purpose of this feature to endorse one jurisdiction over another, it is often the case that professionals in this field will recommend using an offshore registry which is affiliated with or has strong links to one of the major onshore countries like the United Kingdom and the United States. These tend to have internationally-recognised laws, rules and regulations in the areas of shipping and aviation and therefore are considered a safer choice.
Last but not least are the tax rules in the jurisdiction of registration. This is where registering a vessel offshore has significant benefits as the owner may be able to take advantage of very low or no rates of tax. Company tax is set at 0% for most businesses in a number of countries with registries, including the Channel Islands, the Isle of Man, the Cayman Islands and Bermuda. Whether you are able to avail of these tax advantages may depend, however, on how the ownership of the boat or plane is structured, a subject we will tackle next.
Marina Gall, Director of Marine and Aviation at Vistra Jersey, who specialise in designing and supplying the support services required by boat buyers and owners comments, The range of options open to those owning and operating yachts and boats of all sizes is considerable. In our experience, even relatively modest purchases in the sub $250,000 price bracket can benefit from substantial savings in tax, if the most appropriate ownership structure is designed in at the outset. This is certainly not an issue for those operating only at the higher reaches of the market, in our view.
Individual versus Company Ownership
While it is perfectly possible in most cases to register a yacht in ones own name as an individual, there are many disadvantages to doing so; indeed, it is certainly the case that the vast majority of owners choose to transfer their ownership to some form of corporate entity or special purpose vehicle.
For example, by using an offshore company to own, run or charter a yacht, it may be possible to take advantage of the above-mentioned low rates of corporate tax on offer in certain jurisdictions, although such a company need not necessarily have to be formed in the same jurisdiction in which the vessel itself is to be registered. Additionally, using a company form has certain other benefits in terms of protecting the owner; confidentiality being one of them, and limiting the liabilities that may arise in connection with ownership of the vessel being another. If confidentiality is a high priority for the owner, an additional option is the use of a trust company, into which the owner (settlor) transfers an asset to the effective ownership of a trustee who manages for the benefit of a beneficiary. In civil law jurisdictions (and now some common law jurisdictions), a foundation company will perform a similar role. The use of a trust structure may also be an effective shield against adverse inheritance tax implications in the owners country of residence.
Some financing options can also be used to put distance between the owner and the asset. For instance, by using a leasing arrangement, the bank or finance company buys the yacht from the seller and then leases it to the buyer. With this type of financing deal, the buyer does not actually legally own the asset but is instead granted possessory interest. With a leasing arrangement however, the buyer must also front all the risks associated with owning and operating a yacht and may be liable for loss in the event of damage for example.
This section sounds a note of caution for those intending to purchase or sail their yacht within the territory of the European Union (EU), which could have unwelcome repercussions for owners in terms of EU value-added tax (VAT).
Under EU VAT law, all yachts owned or used by EU residents are liable to VAT and owners must be able to show that VAT has been paid before they may enter EU waters. There is, however, a concession open to non-EU persons, under which vessels purchased outside of the EU may be temporarily imported into the Union (or more strictly in the 'customs territory of the Community', which includes the EUs territorial waters) and used for private purposes, without customs duties or VAT needing to be paid. The boats concerned have to be placed under the EUs 'temporary importation procedure' with the customs department of a member state, and the period of use in the EU is typically limited to 18 months. Because the boat is temporarily imported into the EU and not a specific member state, it is permitted to sail from one member state to another with no further customs formalities. When the 18 months have elapsed, the boat is, in the official jargon, effectively re-exported, although subsequent periods of temporary importation may be applied for. It is also possible to apply for an extension of the temporary importation period if the yacht is to be laid up and not used for a period of time.
It must be emphasized that this concession is only available to non-EU residents, that is, people established outside the territory of the EU, although there are ways of lessening the VAT blow for EU residents. Important points to be considered for determining whether or not VAT is payable are the place of purchase of the yacht, where the yacht will be used, who is the beneficial owner of the yacht, whether the yacht will be chartered out to third parties, and whether the yacht will be used by EU residents.
In some circumstances it may be possible through careful planning for EU residents to mitigate the amount of VAT paid on a yacht purchase. Although VAT laws are to some extent harmonized across the EU, the rules (and rates) vary considerably from country to country and the overall picture is very complex. It therefore may be advantageous to consider paying VAT in a country which has relatively low rates of VAT, such as Cyprus (17%) or Malta (18%) or importing a vessel to certain territories which are outside the EU for VAT purposes, such as Gibraltar or the Channel Islands. However, with EU member states increasingly cracking down on all forms of tax avoidance, especially by high-net-worth individuals, the penalties for breaking VAT rules, whether by accident or design, can be severe, so it must be stressed that advice from an advisor with expertise in this area must be sought if a vessel is to be used within EU waters, for example in the Mediterranean or the English Channel.
Vistras Gall ends, Getting the structuring right at the outset is vital, if complex tax and customs issues are to be avoided later on during ownership. We always advise clients to take advice as early as possible and to have clear understanding how they might operate their vessel, both in terms of geography and whether commercially it will be chartered, for example, as all of this can impact upon the best way of structuring ownership.
In the following sections, we summarize some of the most popular offshore yacht and aviation registries.
Ships registered in Jersey are British ships and are therefore automatically entitled to fly the prestigious Red Ensign. This right is recognized in both UK and Jersey legislation. As such there are certain reputational benefits associated with flying a quality flag. However, legislative, inspection and compliance standards particularly regarding safety, protection against pollution, employment and security are also known to be high (although non-resident crew are exempt from the provisions of Jerseys Employment Law 2003 if operating overseas).
According to the government of Jersey, the jurisdiction currently has over 2,000 pleasure craft on its Shipping Register, many of which are based away from the island.
At present, a non-financial services company incorporated in Jersey pays no corporate income tax so there are significant tax advantages to be had by registering a vessel in Jersey through a corporate structure. Furthermore, non-EU residents can temporarily import their vessel into the EU VAT-free through Jersey, while non-resident crew are exempt from social security contributions. Direct ownership of a yacht by a trust company is currently prohibited in Jersey, but vessels can still be owned through a Foundation company, which shares similar characteristics to a traditional common law trust.
As a thriving and reputable international offshore financial centre which is white listed by the OECD, Jersey also offers local expertise in all aspects of yacht and crew management, as well as in asset management and tax-efficient ownership structures.
The Jersey ship registry allows for two types of registration: full registration with the British Register of Ships in Jersey; or registration with the Jersey Small Ships Registry, which offers qualifying boat owners a less expensive and simpler alternative to full registration.
Full registration proves the title, ownership and nationality of a vessel worldwide and allows for a mortgage to be entered on the register. Other benefits of full registration include membership of the Red Ensign Group, regulation by the British Maritime and Coastguard Agency, and 10-year renewal periods with no annual charges.
In order to qualify for full registration in Jersey, the vessel must be a pleasure craft and weigh less than 400 gross tons. Commercial vessels may also be registered if they weigh under 150 gross tons. The owner of the vessel (whether an individual or a company) must be a resident of the EU, the Commonwealth, or a British Crown Dependency or Overseas Territory.
In order to register on the British Register of Ships in Jersey, an applicant must submit the following documentation along with the initial application form:
- title (ownership) documentation in the form of a Builders Certificate and/or Bill(s) of Sale covering at least the previous 5 years (or fewer years if a new build)
- proof of closure from any prior registry
- a copy of the Certificate of Incorporation if it is to be company-owned
- a tonnage survey (obtainable from an authorised surveyor)
- commercial coding certificate if it is to be commercially registered
Initial and re-registry fees for full registration of pleasure and commercial craft owned by a Jersey resident or a Jersey company are as follows:
- Pleasure craft under 150GT GBP332
- Pleasure craft over 150GT or commercial craft under 150GT GBP400
The initial and re-registry fee for any pleasure craft or a commercial vessel under 150GT owned by a non-Jersey resident or a non-Jersey company is also GBP400. There are numerous other fees, for example for the transfer of ownership, registration of a mortgage, change of vessel name, transfer of port registry etc.
The Certificate of Registry is valid for 10 years provided that ownership does not change within this period. Upon a change of ownership, the period commences again for another 10 years. Vessels are allocated a unique registration number which cannot be transferred to another craft.
Owners of vessels of less than 24 metres in length may register with the SSR, which offers a simpler and more cost-effective registration procedure. Fees for registration and renewal are currently set at GBP57 (or GBP108 for a fast track registration) and the Certificate of Registry is valid for five years (although registration is terminated if any ownership details change).
However a registration on the SSR does not provide proof of ownership and a marine mortgage cannot be recorded. Also, the owner must be resident in Jersey and must own the vessel directly (not through a corporate structure).
Bermuda's capital, Hamilton, is a port of British registry. A Bermudian exempt company whose principal place of business is Bermuda or another Crown territory can register wholly-owned ships in Hamilton. At the time of writing, 161 commercial vessels and 255 yachts were registered in Bermuda.
The laws applying to ship registration are the Merchant Shipping Act 1988 (Bermuda) Order 1991 and the Merchant Shipping (Demise Charter) Act 1994; aircraft are registered under the Air Navigation (Overseas Territories) Order 1989.
The Companies Act 1981 (as amended) provides exemption from the 60% local ownership requirement to a company which is does not engage in any activity on the island except with other exempt entities. Managing other exempt entities is also permitted, and, for mutual companies, so is the local distribution of their shares. Other activities may be permitted to exempt companies if a licence is granted by the Minister of Finance.
An exempt company must have two individuals resident in Bermuda, either as directors, or one as secretary and one as director, or one as secretary and one as 'permanent representative'.
Exempt companies pay annual fees based on their 'assessable' capital (authorised capital plus share premium account; or for a mutual company its authorised capital - a share premium account is not required).
An exempt company may apply to the Minister of Finance for a certificate exempting it from future profits taxation, should there be any, for a period ending not later than the 26th March, 2035.
In Bermuda there is no income tax, capital gains tax, VAT, sales or use tax or wealth tax. Annual government fees are imposed on businesses and there is a payroll tax. Local businesses must be controlled by Bermudians but offshore operations take place through 'exempt' or 'permit' companies.
The Cayman Islands operates Registers of Shipping .. George Town is a Port of British Registry. Over the years, Cayman has been included in most English merchant shipping acts, with the result that it is a Category 1 registry, entitled to register all classes of vessel.
The Cayman Islands Shipping Registry administers Cayman registration, and has a full professional staff for this purpose. The Merchant Shipping Law (2008 Revision) governs Cayman registration and lays down fee levels according to tonnage.
By the end of 2010, the Cayman Islands Shipping Registry had a total of 1,870 vessels on its books.
The Gibraltar Ship Register is a member of the Category I Red Ensign Group of the United Kingdom and United Kingdom dependency registers, and nearly every type of commercial vessel is represented on the Gibraltar Registry.
Gibraltar recognises Lloyds Register of Shipping and the British Committees of American Bureau of Shipping, Bureau Veritas, Det Norske Veritas, Germanischer Lloyd and Registro Italiano Navale and it is to these Classification Societies that the issuing of certain Convention Certificates is delegated.
Changes in Gibraltar legislation now permit a wider range of individuals or corporate bodies to be qualified persons eligible to own a registerable ship.
Gibraltar has a very competitive fee structure for registration, and although it is part of the EU the absence of VAT means that ships or pleasure craft can be imported without a VAT charge. This has led to a substantial increase in the registration of yachts and other private vessels in recent years.
A busy yacht sales market has developed in Gibraltar. A number of brokers, selling new and second hand craft, are based in the territory while a stroll around the jetties will normally reveal several interesting vessels on the market. In total Gibraltar offers several hundred yacht berths, with depths of up to 4.5 metres available. For larger yachts the full range of wet and dry stores and chandlery can be supplied. Urgent spares can be flown in directly to Gibraltar.
Shipping legislation is modelled on the UK's Merchant Shipping Act; Gibraltar does not offer a flag of convenience, and the full panoply of British safety requirements and crewing regulation applies. However, the application procedure is relatively painless.
Isle of Man
The Isle of Man passed the Merchant Shipping (Registration) Act 1984 in order to encourage registration of ships on the island. There is a zero-tax regime for ship management companies based on the Isle of Man
The Isle of Man allows for the registration of both large commercial yachts and smaller pleasure yachts. In 2009 there were 72 commercial yachts and 364 pleasure yachts registered in the Isle of Man.
In August 2009, the Isle of Man Ship Registry announced three important changes to its operating practices to enhance its registration process and make it more attractive and simpler for its clients.
First, the Registry has removed some of the "barriers" some perceived and some "real" for clients wishing to register. It will now be simpler, easier to arrange, and more cost effective to register a vessel. The changes include:
Pre-registry survey requirements the Registry has retracted its policy whereby visits and inspections were mandatory prior to acceptance. The Registry will automatically accept vessels less than ten years of age which satisfy the Registrys vetting processes. This will include new builds, many of which are constructed in the Far East, in an effort to speed the registration process and reduce the initial costs for Isle of Man registration dramatically.
Accepted Ship Types The Registry is to welcome previously excluded ship types such as passenger vessels. According to the Registry, this is a natural progression as super yachts become larger and move towards full SOLAS compliance for greater "guest numbers."
Age limits the Registry has changed the limits to age on entry for ships. Previously set at 15 years, the limit will be extended to 20 years and even further for vessels which are technically managed from the Isle of Man.
Secondly, the Registry has also been able to extend the number of "Accepted Countries." In 2007, the Isle of Man introduced legislation to extend the number of countries accepted for ownership of Manx vessels. Previously, the Registry was constrained by legislation inherited from the UK to EU, EEA and British Dependent Territories. The list of accepted countries has now been extended to include Australia, the Bahamas, Canada, China, Hong Kong, India, Japan, Liberia, the Marshall Islands, New Zealand, Pakistan, Panama, Russia, Singapore, South Africa, United Arab Emirates, and the United States. This will allow ownership structures of vessels using companies registered in those countries to remain unchanged when vessels transfer registration to the Isle of Man and thus provide a smoother transition.
Thirdly, the Registry has bolstered its affiliation with law firm Stephenson Harwood. In lieu of British consular services in London, Stephenson Harwood has acted on behalf of the Isle of Man in receiving title documents (e.g. Bill of Sale, registration of mortgages) on behalf of the Registrar of Ships. This service has now been extended to include Stephenson Harwoods offices in Piraeus, Hong Kong, Singapore, and Shanghai, thus covering many of the worlds major shipping centres.
Malta is one of the top ten shipping registries worldwide. The original Merchant Shipping Act 1973 based on English law has been adapted and modernised in 1986, 1988 and 1990; and further improvements are planned. The Merchant Shipping Directorate of the Malta Maritime Authority supervises the sector and has developed a world-wide network of surveyors and inspectors. Malta adheres to all the major international maritime conventions. Malta has also introduced a Commercial Yacht Code.
The Maltese registry accepts all types of vessel, from pleasure yachts to oil rigs. Bareboat charter registration is allowed both of foreign ships under the Maltese flag and of Maltese ships under a foreign flag. There are no restrictions on the nationality of crew in Maltese law, and no age limit for ships. The shipping laws are flexible with regard to sale or mortgaging of ships.
By the end of 2010, a total of 5,249 ships, 2440 of which were pleasure yachts, were registered under the Maltese Merchant Shipping Act.
In January, 2006, Malta was one of four flag states that attained the highest quality ranking following the Paris Memorandum on Port State Control's latest inspections.
In order to register a ship in Malta, it must be owned by a company incorporated in Malta. In most circumstances, Maltese shipping companies are exempt from taxes.
All pleasure craft, including yachts, can be registered on Part I or Part III of the UK Ship Register. Any eligible pleasure craft owner can apply to register under Part I of the UK Ship Register, while Part III is a simpler registration procedure designed for individual owners of vessels of less than 24 metres in length.
The advantages of a Part I registration are that the boats title and nationality can be proved, the boat can be used to obtain a marine mortgage and a Transcript of Registry can be obtained showing the vessels previous owners and whether there are any outstanding mortgages.
In order to be eligible for a Part I registration, owners must be one of the following: a citizen of the UK; a citizen of an EU member state; a citizen of a British Dependent or Overseas Territory; a company incorporated in the European Economic Area (the 27 EU member states plus Iceland, Norway and Liechtenstein); a company incorporated in any British overseas possession which has its principal place of business in the UK or those possessions; or a European Economic Interest Grouping.
Non-eligible persons may still be permitted to part-own a boat within a partnership, but only if they are a minority shareholder. The bills of sale and Declaration of Eligibility form will have to reflect this.
There are a number of ownership and use criteria that must be fulfilled to qualify for a Part I registration. Firstly, the vessel must be classified as a pleasure craft and therefore used exclusively for sport or pleasure, and not with the intention of generating income or carrying passengers. According to the UK rules, a privately-owned or company-owned boat is considered a pleasure craft if, at the time of its journey, it is on a free voyage or excursion. However, a privately-owned vessel has to be used by the owner or the owners family or friends, while a company-owned boat must be used by employees of the company, officers of the company or immediate friends and family of the employees or officers. A pleasure craft can also be owned on behalf of a members club if the following conditions are satisfied: the boat is used only by members of the club and their immediate families; the boat is only used for sport or leisure purposes; any fees are paid into club funds for the general use of the club; and no other payments are made by the users of the boat.
A number of other documents need to be submitted along with the initial application form, such as a Declaration of Eligibility form, a title document and bill of sale, and a builders certificate.
Part I registration costs GBP124 and a UK Certificate of Registry is issued for five years.
Part III is a simpler and cheaper form of registration that proves a boats nationality and costs just GBP25. However, a Part III registration is not open to corporate owners.
In order to be eligible for a Part III registration, all owners must be resident in the UK for 185 days of the year and be one of the following: a UK citizen; a non-UK citizen exercising their EU right of freedom of movement or workers right for establishment; a citizen of a British Dependent or Overseas Territory; a British subject under the British Nationality Act 1981; a British National (overseas) under Hong Kong (British Nationality) Order 1986; or a Commonwealth citizen.
All facts and pricing were correct at the time of publishing but subject to change.
Guy Stephenson/Jennifer Duffy
020 8333 9125
About Vistra Group
Vistra is a leading independent provider of trust, fiduciary, corporate and fund services delivering personal and tailored solutions to international corporations, institutional investors and high net worth individuals from around the world.
Our clients can benefit from a multi-jurisdictional and personal approach, delivered by a team of professionals with an in-depth understanding of the often complex needs of every client. Our services include company formation and management, fund formation and administration, trustee services, family office, marine and aviation and accounting services.
Today Vistra employs around 350 employees in 23 offices covering 19 jurisdictions, with each of our offices providing the full range of fund, trust, corporate and estate planning solutions.
Vistra is a unique player in the trust and fiduciary industry, boasting the most balanced geographic reach globally while always guaranteeing the personal and tailored service that our clients deserve.
Together, we bring to life the Vistra ethos of Crossing Borders, Creating Solutions.
Vistra is part of the OV Group, which includes Offshore Incorporations (OIL), Asias leading company formation specialist and Vistra. The OV Group employs circa 500 professionals and is the 3rd biggest provider worldwide of trust and corporate services.
For further information please visit www.vistra.com.
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