A Yacht is not only a luxury asset. Its purchase, ownership and operation gives rise to a number of legal, fiscal, financial, technical issues and contractual relationships which require careful planning and consideration. One of the most important decisions to make once the yacht has been chosen is the ownership structure and registration.
This blog breaks down what exactly superyacht flag states are and how to choose the right flag for your intended use of the yacht.
What is Flagging?
Under international law, all vessels operating on the high seas must be governed by the law of a particular jurisdiction, thus affording them a nationality – or a flag state.
The term “flag state” refers to the country of governmental entity under whose law a vessel is registered or licensed. This can be the owner’s country of residence, however more commonly in the superyacht industry, an offshore ship registry in a jurisdiction with laws more attuned to the complexities of yacht ownership and charter requirements.
An owner who intends to operate their superyacht as a private vessel may simply choose to register / flag their yacht in his or her home country, although it is important to note that not all jurisdictions have flag registries appropriate for superyacht registration. Alternatively, yacht owners may opt to flag their vessel offshore, using a corporate structure to hold their asset.
There are many benefits of flagging offshore, from the confidentiality of ownership to the mitigation of some tax burdens. In addition, using a corporate structure can allow yacht owners to operate within the VAT system: a welcome benefit for those wishing to charter their superyacht within the EU and cruise the Mediterranean.
Selecting The Right Flag State
Popular international flag states such as Jersey, The Isle of Man, Malta, The Cayman Islands and The British Virgin Islands have appealing and relatively simple avenues for setting up offshore corporate structures to hold yacht assets.
In some cases, these avenues also offer favorable tax regimes and liability protections, all within a well – regulated environment that can serve to streamline the process of owning and operating a large yacht.
When selecting a flag state, factors to take into account include the place of residence of the owner, area of navigation, use (pleasure, commercial or dual), characteristics of the yacht (year of built, length, tonnage, conformity with commercial regulations and International Conventions), VAT/tax status of the yacht, and even the nationality of the crew.
Lenders and insurance companies will also consider the reputation of a Flag State and their enforcement of environmental, safety, procedures, standards, compliance with international regulations and casualty record.
The political stability and reputation associated with the British Red Ensign jurisdictions make these jurisdictions popular. They have repute for efficient management and administration and benefit from British Consular support which may be useful for crewing matters. The relative merits of these flags need to be compared for matters such as registration fees, manning restrictions, or vessels age restrictions.
Beyond the Red Ensign group, the Marshall Islands (RMI) is a popular choice. RMI has adopted many of the IMO regulations, while working closely with the US Coast Guard to ensure that RMI registered yachts have automatic rights to a cruising permit for US territorial waters.
Use SALT Superyachts For Your Guidance and Support
Beyond ensuring the selected flag state represents a reputable and highly regulated jurisdiction with rules that suit the yacht owner’s individual requirements, it’s also vital to ensure the flagging process is completed correctly. The actual cost of flagging a yacht offshore is not significant and the process relatively straight forward, providing that the vessel meets the flag state and class requirements of the jurisdiction. Failure to meet the specified requirements, however, can be very costly to rectify.
Flagging is undoubtedly one of the most important aspects of superyacht ownership. It is therefore best undertaken with the assistance of professional advisers and administrators who have significant experience in the maritime industry.
If you are ever in doubt as to how to flag your vessel and require any advice, please do not hesitate to reach out to the SALT Superyachts team. They are on hand 24/7 to provide advice and guidance on all things superyacht related.
SALT Superyachts – Your Trusted Partner For Your Superyacht Journey.
Offering you an unbiased and comprehensive yacht charter consultancy.
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