Yacht registration: Choosing the right flag state
Last updated: 08/04/2020
Once a yacht has been chosen, the most important decisions that need to be made are its’ ownership structure, flag choice and registration. After the purchasing, approaching yacht ownership with a good understanding of what’s involved can be crucial. Breath-taking views, high speed cruising and luxurious parties are no good if you’re constantly interrupted by unnecessary regulation, surveys, inspections and administration.
With great leisure comes great complexity
When talking about yacht owners within the Asian market, Janet Xanthopoulos of Monoeci Management explained that the majority of potential buyers do not understand the complexities of yachting and when it comes to buying the yacht, they are reluctant to incur the cost of advice.
It’s important that owners, consultants and reps realise that a yacht is not just a luxury toy, but as Janet underlines, its’ purchase, ownership and operation can give rise to a number of legal, fiscal, financial, technical issues and contractual relationships which require careful consideration.
Choosing the most suitable jurisdictions
There are many different options available, and different flags mean different rules and obligations, which can have a direct influence on privacy, taxes, functionality and overall enjoyment of your yacht.
Monoeci Management, one of the world’s leading yacht management and registration companies, has suggested below some key factors to take into careful consideration when making the choice of where to register a yacht.
- The place of residence of the owner (EU / Non EU)
- Area of navigation (EU / Non EU, within EU whether in Spain and Greece for instance where specific rules apply, US, Asia…)
- Use (pleasure, commercial or dual)
- Characteristics of the yacht (date of build, length, tonnage, conformity with any commercial code and international conventions)
- VAT/tax status of the yacht
- Place of delivery
- Nationality of the crew
- Finance needs (marine mortgage loan or leasing)
Choose a registry with a respectable reputation
The chosen jurisdiction should be universally accepted, whilst providing political and economic stability without subjecting the owner and the yacht to unnecessary regulation and bureaucracy. Choosing a registry with a poor reputation or one that is targeted by Port States and Customs could have a detrimental effect on the smooth running of the vessel. Lenders and insurance companies will also review a Flag State’s enforcement of international environmental, safety, procedures, standards, compliance with international regulations and casualty record. A poor record will inevitably affect the decisions of the lenders and underwriters.
The popular choices for registering a yacht
Monoeci Management also recommended some of the most popular choices for registering a yacht from around the world, explaining what advantages each of these jurisdictions can offer.
British Red Ensign jurisdictions
The political stability and reputation associated with the British Red Ensign jurisdictions make these jurisdictions a popular choice. These offshore jurisdictions include: Bermuda, Gibraltar, Jersey, Guernsey, Turks and Caicos, Isle of Man, British Virgin Islands and Cayman Islands - the last three being the most popular offshore jurisdictions within the yachting Industry. As well as having a reputation for efficient management and administration, they also benefit from British Consular support which may be useful in connection with crewing matters.
The differences in the Red Ensign jurisdictions
However, there are differences between the Red Ensign jurisdictions for e.g. changes in the registration fees and with some imposing more onerous manning constrictions than others, or requiring vessels to be within a certain age range to be eligible for registration. The relative merits of each flag would therefore need to be compared in each case.
The Marshall Islands & St Vincent & the Grenadines
Beyond the Red Ensign group, the Marshall Islands is another popular offshore choice. This jurisdiction has adopted many of the IMO regulations, while working closely with the US Coast Guard to ensure that Marshall Islands’ registered yachts have automatic rights to a cruising permit for sailing in US territorial waters. In common with St Vincent & the Grenadines, the Marshall Islands allows qualifying private yachts to charter up to 84 days a year, but subjects them to detailed surveys on lifesaving, safety, firefighting and a minimum safe manning certificate when on charter. These two registries could be a good option for yacht owners who are not ready to play a real commercial game and who intend to use their yacht within and outside EU waters.
For navigating within the EU, besides the UK, the pragmatic approach of Malta with tax advantages for commercial yachts and a leasing scheme for pleasure yachts has become an inevitable registry.
For navigating in Asia, Hong Kong is a very popular registry even though, at present it does not distinguish between pleasure and commercial yachts. Langkawi is the only registry in the South East Asia to have adopted a real commercial yacht registry. Most of the main offshore registries have enhanced their presence in Asia including the Marshall Islands, Isle of Man and Cayman which also should be considered for navigating in Asia.
Commercial yachts vs. private yachts
To choose the best flag, the decision also needs to be made, whether to register the yacht privately or commercially. Monoeci Management pointed out some key differences between the two below.
Stricter rules for commercial yachts
It should be noted that pleasure vessels in commercial service (i.e. commercial yachts) need to comply with stricter rules than yachts that are only used privately. Private yachts are defined as being used solely for the recreational purposes of their owners and guests, while commercial yachts are intended to carry for reward a maximum of 12 to 36 passengers, the number depends upon the registry, and are subject to stricter safety requirements.
Among other matters, commercial yachts must be in Class (some exceptions are available depending upon the Registry for yachts below 24m or below 500 GT) and comply with the Commercial Yacht Code Regulations, in accordance with the chosen registry, and International Conventions and Regulations (ie: SOLAS, MARPOL, Load Line, STCW 1995, ISM, ISPS, MLC 2006…) and minimum safe manning requirements for yachts over 24m.
Owners of such commercial yachts navigating in European waters would also need to appoint Fiscal representatives or agents in the several countries where the yachts start their charters.
Advantages of commercial yachts
While introducing a stricter set of rules and regulations, commercial registration enables yacht owners to profit from the chartering activity of their boats and to take advantage of all the other fiscal benefits derived from commercial operations. Superyachts must usually meet the same requirements as a commercial vessel, if they host helicopters.
Time to enjoy the ride
Once the best flag is chosen and the yacht is correctly registered, it’s time to start enjoying the luxury cruising. Remember, yacht owners must do their homework before cruising and/or importing vessels as each country, each region have specific navigating rules whether in the EU, the US, the Caribbean or in Asia, which is why it is often advised to consult an expert.