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Showing posts from tagged with: Superyacht Flag States

Superyacht Flag States

Article by Claire Griffiths

27.09.22

The how, what, where, why questions apply equally as well when deciding on a flag state as they do in any other walk of life, so what must we look at when deciding on the registrar?

In our annual feature on yacht registration we ask the shipping registrars where yacht owners should focus on to keep their boat safe and buoyant in conditions that specifically suit their needs and much more.

Toby Brooks, answers succinctly when asked what owners should look for when choosing a flag state “Quality, speed of service plus technical support,” says the Deputy Director, Isle of Man Ship Registry.

Pierre Chays, Assistant Registrar of Shipping and Harbour Pilot, Jersey, goes into the details: check for cabotage rules, i.e. any restrictions from the country where the yacht will be based with respect to which flag it is permitted to fly. Check the registry’s restrictions on size and tonnage of a yacht (Jersey is limited to a tonnage of 399), and check the eligibility to register - some registries only accept individuals of certain nationalities or companies incorporated in certain jurisdictions to own a vessel with a majority shareholding under their flag. This eligibility criteria applies to all Red Ensign Group (REG) registries (https://www. redensigngroup.org/) with some REG registries having a wider eligibility criteria than others. “Jersey,” says Chays, “has one of the widest eligibility criteria amongst REG, aligned with that of the UK.”. The Registry’s international connectivity and reputation are also as important as is its position on the Paris Memorandum of Understanding on Port State Control.

International reputation should always be high up on the list when choosing your flag state says Amanda Marshall at the UK Ship
Register. Also check if it holds the US Coastguard Qualship21 status. “These make travelling internationally much easier. Having a flag with a good international reputation is also going to help you to attract the best crew,” she says. Another point to consider is the registry’s knowledge of the Large Yacht Code.

“Some owners will look at cost options rather than value added from the services provided,” says Liam Ryan, International Registrar of Shipping & Seamen & CEO at St Kitts & Nevis registry. St Kitts and Nevis offer pricing options for both private and commercial yachts with 1,2 and 4 year options available.

Julien Ramos, Commercial Director at Madeira Yachts Shipping Register & Management, LDA (MYSRM II) adds, “Consider if the yacht will cruise outside European waters; will the owner charter his boat? Will he have a complete and permanent crew? At first sight a flag register with limited restrictions can seem attractive but owners often realise later that these yachts are subject to more frequent port state controls and repeat maritime customs visits. I think if a boat is based in Europe it is easier for the owner to have a European registry. Madeira is the perfect place for this!”

“Is there a robust level of international support?” mentions Mr. John Samuel, Director, Virgin Islands Shipping Registry. He continues, “As times change and global instability looms, owners should also consider flags that can offer additional support and is itself supported globally through strong diplomatic networks and foreign embassies when necessary.”

CAYMAN ISLANDS SHIPPING REGISTRY
CAYMAN ISLANDS SHIPPING REGISTRY
THE FRENCH INTERNATIONAL REGISTRY
THE FRENCH INTERNATIONAL REGISTRY

CHARTER OR PRIVATE?
Simply put, the difference between charter and private yachting is one of code compliance, survey and certification. If the owner wants to charter his boat, he’s got to prove it is safe. But in all honesty, even when private they should adhere to commercial safety regulations.

Some want to do both points out Nicola Moore-Gothar at the Cayman Island Registry: “Owners like to use their boat, but many also want to offset running costs by offering the vessel for charter for several weeks per year. The ability to operate in dual modes is an important factor for some owners. Code compliant yachts may charter for a number of weeks per year and still be used by the owner. It is important to remember that local regimes may dictate a certain status for yachts that engage charter activity. For instance, vessels that charter in Europe must be commercially registered and must be chartered for all uses, even when the use is by the owner. An exception to this rule is the Yacht Engaged in Trade (YET) scheme which currently operates from France and Monaco and allows the vessel to operate in a temporary commercial ‘bubble’. With a YET, an owner may use the vessel in a private capacity without the need to charter the vessel. Although the YET Scheme is currently only available in France and Monaco, there are ongoing efforts to expand the scheme to other regions to further increase flexibility for owners.”

The size of the vessel will also dictate which Code the vessel will have to comply with in order to be used commercially. For yachts over 24m LLL that wish to be used commercially will have to comply with the REG Yacht Code. The REG Yacht Code is an all- encompassing safety standard specifically for charter vessels, it is the safest way to build and operate a large yacht and it takes into account the unique design, build and operating profiles of vessels in this sector. “We still recommend implementing the REG yacht code on private yachts however, it is not mandatory. The Maritime and Coastguard Agency provide full guidance for private yachts. MGN 599 lists standards applicable to private yachts on the Flag,” explains Amanda Marshall at the UK MCA.

Under the Jersey flag, private vessels have no statutory requirements with regards to safety / construction standards / manning, although guidance as to best practice is provided which recommends that similar standards to commercially operated vessels are followed. There will be tax implications by using a vessel commercially however, the British Ships Registry is not an expert in this field and appropriate advice should be sought by qualified persons / firms.

Commercially registered yachts do benefit from some important advantages points out Ramos at the Madeira Registry, such as exemption on fuel and material goods. Privately registered yachts have less restrictions but must pay VAT. Madeira allows privately registered owners to charter with the right insurance and without the VAT exemption on a contract by contract basis.

Offering services for hire can also expose owners to additional liability, points out Samuel from the Virgin Islands Shipping Registry. “Owners should therefore ensure that their vessels are properly built, surveyed and certified to the requisite international commercial standards. The Virgin Islands Shipping Registry is a member of a Red Ensign Group of Flags (REG) and the REG is an industry leader on commercial yacht certification and standards.”

MY GANG!
Yacht owners who think they can sign up to whichever registry they want have another thing coming. Not everyone wants certain types of yacht owner muddying their waters.

The conditions for registration in France are quite broad says Fabien Raffray of the International French Register. But yacht owners must prove a substantial link between the State and the vessel. Therefore, if the owner is not domiciled in the flag State, he must establish a structure there or contract with a structure domiciled in France through a charter contract and/ or a management contract (shipman).

It’s the same in Jersey and the UK i.e. based on nationality for individuals and place of incorporation for businesses. So, if an owner is not Jersey-based but is still eligible, then they will have to appoint a representative person in Jersey. If the owner is not eligible, then it can still own a share in the vessel however, this will have to be a minority share (less than 50%, i.e. 31 of 64 shares on the vessel). An ineligible owner cannot be a joint owner as they cannot own more than 31 shares (less than 50%) on the vessel.

VIRGIN ISLANDS SHIPPING REGISTRY
VIRGIN ISLANDS SHIPPING REGISTRY
TRIDENT TRUST
TRIDENT TRUST

At St Kitts & Nevis there is no specific ownership restriction but the registry does checks to make sure yachts/owners are not subject to financial sanctions and are eligible to be owners of a yacht under St Kitts & Nevis. “If the owners are already known to the Flag, or company register, the KYC procedures are not as extensive,” explains Ryan. Madeira does not have any particular restrictions.

Like most registries, the Cayman Islands operates an open registry which, subject to certain fiscal and legal controls, do allow non-domiciled/non-nationals to register vessels.

Says Moore-Gothar, “The majority of reputable registries will only accept registration from foreign entities located in a jurisdiction that operates under equivalent robust fiscal regulations as the country in which the registry is located. This is essential to avoid the potential for money laundering and other possibly unwanted activities associated with the vessel.”

With the Virgin Island registry, “there are nationality requirements for ownership and registration of a Virgin Islands vessel,” says Samuel, although he points out, “there are no domicile requirements. Most common maritime nationalities can own BVI vessels, and those that cannot do so directly can utilise a BVI company structure for ownership.”

WOOPS!
So, how easy is it to get it wrong? How often do yacht owners sign up to a registry and realise it does not offer the services they were hoping for? Liam Ryan at St Kitts & Nevis wouldn’t say owners make ‘mistakes’ exactly but; “Yachts are significantly different to commercial ships so there can be a gap between a yacht owner’s knowledge and flag requirements. In situations like this, we would guide the owner where required and assist with compliance matters.”

Mistakes are definitely made when it comes to flag state choices suggests Chays. Which is why an owner should pick his lawyers/ shipping agents wisely, those who have his interests at heart over and above their own..

Schoolboy errors include: choosing a flag in order to obtain quick or low-cost registration to the detriment of safety and reputation; choosing a flag because someone else they know chose it without having taken into consideration what other registries can offer; not contacting a flag because they presume that they would not be eligible for; choosing a flag because they like the flag colours!

Raffray adds that owners need to check if the yacht is suitable for commercial use (if they want to charter) and often buy yachts without considering what the nationality and/or crew qualification requirements are. He says, “Unaware of the rules for registering the vessel and employing the crew, they unknowingly opt for open flags on the grounds of administrative ease and lower crew costs. This often results in prohibitive management costs, administrative procedures and often a lack of social security cover for crews. This can lead to costly transactions in the event of conflicts between the shipowner and the seafarer(s).”He adds, “A poor definition of the vessel’s activity before the project is launched can also have a significant financial impact on the construction of the vessel.”

John Samuel adds, “Registration or entry fees should also be examined as some fee structures are layered and not readily transparent. Hidden fees can become an issue later in the process.” Ramos frequently witnesses poorly advised yacht owners: “We often notice owners getting into legal or other types of problem because they’ve been poorly advised about registration with a ‘classic’ i.e. anglo-saxon or off-shore registry.”

It’s never wise to consider cost alone without considering quality of service and support warns Toby Brooks at the Isle of Man Ship Registry.

ON OR OFF?
According to Moore-Gothar at the Cayman Registry, there are no real fiscal benefits of choosing a Flag today, so onshore vs offshore is not a major factor to consider.

But Brooks suggests that the difference between on and offshore registries are favourable tax regimes. Raffray adds, “Offshore registries allow for some dual use of the vessel (private and/or commercial), which in some cases allows sailing in waters where commercial yachts are excluded. These registers also allow for a different application of taxation depending on the area of the change of use of the vessel.”

JERSEY SHIP REGISTRY
JERSEY SHIP REGISTRY
CREDENCE CORPORATE AND ADVISORY SERVICES LIMITED
CREDENCE CORPORATE AND ADVISORY SERVICES

“I would refrain from using the term ‘offshore registers’ but would prefer using the term ‘register located in an offshore jurisdiction’,” says Chays at Jersey Registry. He adds, “This is a bit picky but I feel offshore registry has the same negative connotation as in the finance industry. Jersey is called an offshore jurisdiction for financial purposes but for registration of ships, I would not consider it as ‘offshore’ as it is part of REG and is represented internationally by the MCA in the UK (a leading white list country on the Paris MoU) that is responsible for its representation at the IMO.” He says that owners who decide to register their vessel on a register located in an offshore jurisdiction (in particular if they want to make their vessel available to charter in the EU) can benefit in many ways. This includes mitigation of certain tax burdens (i.e. VAT temporary importation scheme), confidentiality of ownership, reassuring lenders and insurance companies (providing the register is on the white list).

liability protections under a stable fiscal and legal system, which is the case for Jersey. In addition they have construction, inspection and regulatory compliance regimes that can streamline the process of owning and operating a large yacht which is also the case in Jersey with the use of the MCA workboat code, the MGN280 and the REG Yacht Code.”

In short, mentions Samuel at the Virgin Islands Shipping Registry, “Owners should choose a nationality and flag that can properly and suitably support their vessel operations.”

SHOW TIME!
Here’s the spot where are our faithful contributors line up their wares to encourage new business and give us a chance to compare and contrast their registration offering. But one needs to consider that every owner is a very different beast, their wants and needs will change over time as is their want, and it’s not just about the money. Safety, compliance and good global support are key factors.

JERSEY
Jersey can offer individual and company ownership to citizens and incorporations from many jurisdictions (incl. all EEA, Commonwealth, UK Overseas Territories, and over 20 other jurisdictions). It offers an extremely personal service with over 200 years of experience ensuring high quality. Jersey is part of the well respected and coveted Red Ensign Group which offers international recognition, prestige and protection afforded by the British Red Ensign. Provisional registration certification is available to vessels in the process of registering which gives vessels the right of passage from one port to an other. “We also have a very attractive registration fee valid for 10 years with no annual fee for vessels up to 400 gross tons,” explains Pierre Chays. The island has a VAT-free Temporary Importation Scheme into the EU for yachts owned by non-EU residents, ‘unrivalled’ expertise in tax-efficient ownership and compliance in a white-listed, well-regulated, offshore finance centre. It has the onshore yachting infrastructure for all yacht focused support and social security, insurance and employment arrangements available to non-resident crews. There’s no corporation tax and no tonnage tax.

MADEIRA YACHTS SHIPPING REGISTER & MANAGEMENT
MADEIRA YACHTS SHIPPING REGISTER
ST. KITTS & NEVIS INTERNATIONAL SHIP REGISTRY
ST. KITTS & NEVIS INTERNATIONAL SHIP REGISTRY

ST KITTS & NEVIS
Says Liam Ryan, “St Kitts and Nevis is a forward-thinking registry that offers cooperation with its ship owners as a ‘partnership’ and not you/us. At times, we have to bury our feet in cement but that is a last resort and we want to work with our owners to find the most achievable and compliant resolution to any issue.” He adds, “The Nevis Business Ordinance means we can utilise organisations that have a presence in Nevis and keep things relatively simple. However, a word of warning, the Nevis company agents do not suffer fools gladly and will uphold the national pride and obligations. The ‘usual’ benefits include fast service, electronic certificates, global network of agents to assist in local time not centralised.”

UNITED KINGDOM
“We provide tailor -made support to our fleet worldwide, available 24 hours a day, 365 days a year. Our team of highly trained and qualified surveyors focus exclusively on large yachts and are specialists in delivering technical advice and support in line with the REG yacht code.” says Amanda Marshall.

The UK is internationally respected by Port States and has strong diplomatic ties in most nations. “An owner who has a UK flagged yacht is demonstrating that they act responsibly, transparently and are ‘doing it right’.” Amanda concludes, “We are internationally recognised as providing the best trained and certificated seafarers – regardless of the Flag of the yacht, it is likely to be crewed by MCA certificated seafarers.”

MADEIRA
The Register can offer the following benefits: private yachts can charter with a permit to register as ‘commercial use’ for up to 30 years. Permission to carry up to 36 passengers. For private registration there is no requirement for a manning certificate except for the driver before obtaining his Captain’s ticket. All crew registered with the International Maritime Registry of Madeira (MAR) are exempt from income tax and social charges. Yachts have access to European and International waters. Commercial yachts are exempt from VAT at purchase, registration, for provisioning, materials and charter management. There are no nationality or citizenship requirements for yacht crew on commercial or private yachts. Crew have a flexible social security system and crew working for a Portuguese company have three options:

  1. No social contributions but employees must be covered by a private or state insurance
  2. Social charges at 2.7% of salary
  3. Social charges at 34.75% of salary

MAR was created within the MIBC as a credible alternative to other registers, whilst providing technical discipline and safety which characterises conventional shipping registers. It is not and never has been considered as a ‘flag of convenience’.

CAYMAN ISLANDS
The Cayman Registry operates globally with offices in all time-zones and provides services to its clients on a 24/7 basis. The registry is also ranked highly as a quality register on all of the major Port State Control MOUs which provides peace of mind to its owners and allows the vessels to operate freely without interference. The registry is able to accept registrations from individuals and entities located in a wide range of countries and provides for flexibility as there are no specific requirements to incorporate in the Cayman Islands. The registry facilitates dual use schemes such as the YET and is continually striving to improve products and services to stay ahead of the competition in the highly competitive market.

UK SHIP REGISTRY
UK SHIP REGISTRY
GENERAL CONSULATE OF PANAMA IN MARSEILLE
GENERAL CONSULATE OF PANAMA IN MARSEILLE

ISLE OF MAN
The Isle of Man offers a high quality and efficient service, the right to fly the Red Ensign which comes under the British Royal Navy protection, progressive and accessible registry for queries and
issues that arise such as requesting dispensations to keep the yachts in operations, yacht speciality personnel and surveyors, established/recognised safety codes for both over and under 24m which add value to the vessels on the resale market (members of the Red Ensign Group (REG) flag command a premium as being of higher quality and safer), a well established pathway to REG Code compliance, fixed cost fees structures include all flag surveys and favourable tax regimes both in terms of VAT planning and exemptions plus zero corporate tax.

VIRGIN ISLANDS SHIPPING REGISTRY
In addition to quality and timely 24 hour services, a quality white flag administration, and global surveyor network; VISR brings the benefits of the REG group of flags and technologies to its fleets. This translates to benefits from the leaders in maritime certification and standards. This means BVI vessels will always benefit from cutting edge technologies and advancement in verification standards; affording them hassle free transits and clearances into and out of foreign ports. VISR’s fee structures are competitive and transparent. The registry is also developing incentives for vessels that are owned by BVI companies and registered in the BVI thereby offering BVI yachts an operational and economic advantage while on charter in the coveted BVI waters.

FRANCE
In France you get a quality flag, an administration at the service of owners and crews, transparent and free administrative procedures for all flag-related procedures (no registration fees, no fees for statutory documents issued by the flag as well as for crew certificates or titles, no fees for possible maritime mortgages.

COMMONWEALTH OF DOMINICA CONSULATE GREECE
COMMONWEALTH OF DOMINICA CONSULATE GREECE
ISLE OF MAN SHIP REGISTRY
ISLE OF MAN SHIP REGISTRY

SHIFTING SANDS
Living in uncertain times as we do, what events, if any have impacted on the running and developments of the Registers?

At St Kitts Liam Ryan is hoping that the development of Christophe Harbour, a luxurious yacht port, will broaden the island’s reach into the large yacht sector, enhance the economy and further develop the country as a prime tourism destination in the Caribbean.

Amanda Marshall at the UK Register notes that the UK’s exit from the European Union has freed the Register up from the restrictions of EU Law whilst providing its vessels with the benefits of temporary admission into EU waters that its REG colleagues have previously benefitted from.

She adds, “The recent covid-19 pandemic has also shown how important it is to be with a supportive flag administration. The UK were first movers in a time of crisis to support its owners, providing pragmatic advice and sensible extensions to certification so vessels could still move around where needed’.

Ramos on Madeira sees things slightly differently; “Brexit has made European flag states ‘flavour of the month’ because yachts flying a UK or Commonwealth flag must leave European waters every 18 months which makes owners re-consider European flags as the better option.”

“It is fair to say that socio-economic and political events will impact all registries due to the global nature of shipping,” points out Nicola Moore Gothar. “These effects can be both positive and negative. Some flags are less desirable to fly in certain regions as a result of geopolitical issues and this can result in owners changing flags.”

She adds, “Cayman Registry, like many flags, has been impacted by recent events. However, fortunately, these impacts have been relativity minor. The registry was able to continue to service its clients during the pandemic, thanks to a considerable investment in infrastructure during the preceding years, and has witnessed a considerable growth, particularly in the newbuild yacht market.”

“Following extensive consultation with the maritime sector last year, the French government decided to strengthen the Guichet Unique du Registre International Français (RIF: French international register) with the arrival of a tax advisor and a social law and RIF promotion advisor,” Raffray adds.

UK and EU sanctions are an obvious development that has impacted on yachting and particularly Russian yacht ownership witnessed by Toby Brooks on the Isle of Man. The sanctions had an impact to some extent on Jersey Registry: Says Pierre Chays, “Russian citizens / incorporated businesses are not eligible to register a vessel in Jersey. However, the Russian Sanction legislation covers vessels owned, controlled or operated/chartered by persons connected to Russia. During COVID, we saw an increase in registration (2020 and 2021), but we cannot link this directly to the pandemic.” Jersey has not felt any particular difference in registrations since Brexit but there’s been increased activity in the offshore supply vessels market thanks to the rise of the renewable energy sector where Jersey shows strong expertise.

STEAMING AHEAD
In the competitive world of yacht registration, flag states cannot afford to tread water. They need to innovate and improve their services to remain attractive to the elite sector of superyacht owners. And they are innovating and improving in several and different ways.

Jersey now has transcripts issued digitally and available on demand. The owner can now get verification for name availability and vessel’s name reservation online. A culture of innovation is embedded within the large yacht sector (LYS) at the UK Shipping Register says Marshall, driving the industry to constantly challenge existing norms, create new technology and drive progress. She says, “LYS is expanding its consultancy service for new build vessels and welcomes the opportunity to work with naval architects, designers and shipyards to ensure that innovation can progress whilst guaranteeing the highest standards of safety and environmental protection.” The VISR continue to develop and improve online offerings as do the Cayman Registry. In fact all the registries are more proactive and are constantly looking at more ways to streamline their services whilst maintaining the highest levels of service.

Whether private or charter, yachting will never be plain sailing and so it’s important to get the flag state right for guidance through the choppier waters with the right combination of price, service and technical support.