Dateline: Kuala Lumpur
Let’s talk about the next level of flag theory, when your acquisitions go beyond diversification and extend into lifestyle purchases like boating.
For many who reach this stage, the next step is to combine travel and leisure in the form of an investment in a yacht.
Unlike buying a new car, or even a house, buying a yacht is an investment of an international nature, and one in which you need professional advice so as not to expose your assets to taxes and liabilities.
If not, your exciting new purchase might just become a hole in the water into which you pour unnecessary amounts of money.
As with other international strategies, the country in which you register your yacht can have an enormous effect on the amount of money you’ll be able to save, as well as your freedom of travel.
When buying a yacht, the choice of its flag is one of the most important decisions that you have to make because it can have a direct effect on your privacy, taxes and, most importantly, your exposure to liability.
Just as you’d create a corporate structure to protect your other assets, you should do the same when it comes to yacht registration.
For this reason, many yacht owners opt to register their boats in places like the Cayman Islands to avoid the onerous taxes and regulation of the United States. Panama in fact, is the largest ship registry in the world, with almost 9,000 ships flying its flag.
However, it’s also very important to do your due diligence in selecting a country for yacht registration by working with a professional because, once registered in a country, all of that country’s laws will apply to your boat.
Many countries that have attractive tax structures have other issues that you’ll want to avoid, such as laws that require you to hire a crew completely composed of nationals from that country.
Plus, registering a boat in a country that is not well respected by the US and EU can limit where you’re allowed to travel or, at the very least, make you subject to more detentions and inspections.
The flag state has the responsibility to enforce regulations over vessels registered under its flag, so yachts registered under countries on the Paris Memorandum of Understanding (Paris MoU) on Port State Control’s black or gray list will come under more scrutiny in inspections.
Because of this, a large majority of yachts are flagged in British overseas territories, known as the ‘Red Ensign Group’ — including Bermuda, Gibraltar and the Isle of Man. These countries have acceptable safety regulations for travel in EU countries, while also having more attractive tax structures than the UK.
In fact, company tax is set at 0% in the Channel Islands, the Isle of Man, the Cayman Islands and Bermuda.
This is particularly useful for those who wish to spend time in European Union waters, as yachts owned or used by EU residents are subject to the EU’s Value Added Tax (VAT).
Privately registering a yacht with a non-EU flag allows an owner to operate under a “temporary importation structure” which allows for 18 months without paying these taxes or customs duties. After the 18 months are over, the boat owner can re-apply for this status.
Bearing this in mind, let’s take a look at some of my favorite countries for yacht ownership:
1. Cayman Islands
Vessels registered in the Cayman Islands benefit from all the privileges of the British flag, while simultaneously having the tax-free and confidentiality perks of the Cayman Islands. Along with the Cayman Islands, other offshore options flying under the red ensign are Jersey, the Isle of Man, Bermuda, Gibraltar, Anguilla and the British Virgin Islands.
2. Marshall Islands
Yacht registration in the Marshall Islands is the third highest in the world. The country is a presidential republic in free association with the United States and enjoys similar benefits to its British Overseas Territory counterparts.
The registry is low tax and respected worldwide.
Liberia is the oldest democracy in Africa and one of the first offshore, zero tax jurisdictions.
The Liberian registry is a favorite for large vessels, is the second largest registry in the world (making up 11% of registered ships worldwide), and is “White-Listed” by the Paris MoU.
There are no restrictions on the nationality of your crew or country of construction in Liberia and the registration process is fast and streamlined.
The Maltese registry is the largest in Europe and one of the largest in the world. It has EU compliant legislation, clear laws relating to yacht mortgages, low registration costs and is well respected across the globe.
Companies operating commercial yachts out of Malta are exempt from income tax on any income generated by the operation of their yachts and are exempt from any VAT tax on the high seas.
There’s no one best registry in the world, but there are many you can choose from to keep your investment safe. Finding the right one for you will depend on your values when it comes to naval protection, taxes, privacy and ease of travel.
Where do you have your yacht registered and would you recommend it to others? Feel free to comment below.
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