It’s not just about the vibrant colours flying off the transom, the flag you choose needs to satisfy a host of pre-requisites for the owner, crew and specific usage of the yacht, so how do you select the right one?
While people are born to a country and under a specific flag, boats have nation states thrust upon them. For a lot of very different reasons, our national flags might kindle feelings of pride, patriotism, fidelity and a good scoop of sentimentality. But with the yachts it should be a stony heart that chooses; based on legal, financial and practical considerations. So what are the considerations yacht owners need to make before they nail a colour to their masts?
HEAD OVER HEART
Toby Brooks is Deputy Director at the Isle of Man Ship Registry, says, “There is much to consider with yacht registration over and above simply where the yacht owner intends to be cruising. Amongst many variances, the choice of flag and range of registry options may affect the taxes the owner will pay during purchase and operation of the yacht, impose limitations in whose waters it may sail, determine how the yacht is crewed and ultimately influence how often authorities may board and inspect the yacht.” British ‘Red Ensign’ nations are among the most popular flags for yacht registration. Bermuda, Gibraltar, Isle of Man and Cayman Islands are all category 1 International Red Ensign registries. These jurisdictions are favoured for their tax rates, ease of administration, favourable local corporate tax laws, and full adherence to Port State Control (PSC) requirements. They also allow the yacht to operate under the Temporary Admission scheme, which allows a non-European owned vessel to operate for 18 months without the vessel being subject to custom duties or the EU VAT.
“Choosing a flag registry means also choosing a country and all it has to offer,” so says Dylan Vloëbergh-Lair, from the French International Registry (RIF).
Stephen Keenan reminds us that at the Bahamas Maritime Agency (BMA) it is important to check the registry’s Port State Control record, check how agile the registry is and whether it is able and willing to adapt as new designs come on-stream. “Also check whether the registry offers commercial registry or restricted chartering,” he adds.
The Commonwealth of Dominica International Maritime Registry offers yacht owners, both commercial and private, yacht registration with no tonnage tax or size restrictions. The Commonwealth of Dominica boasts one of the largest private yacht registries in the world and claims a high ranking in the top ten registries.
PRIVATE OR COMMERCIAL?
There are many reasons why yachts operate commercially, privately, charter occasionally or choose voluntary compliance with selected regulatory conventions. Isle of Man Registry, for example, offers registration options for all modes of operations.
Commercial registrations mean compliance with stringent safety codes/regulations and more inspections. As soon as a passenger pays a fee, the safety regulations increase as a result. Authorities seem to be more relaxed with private yachts as liability will be restricted to the yacht owner and their family, rather than a fee-paying passenger. Liam Ryan at St Kitts and Nevis Registry (SKAN) suggests that its commercial registrations will benefit from a well-known code in the format of the UK/MCA Large Yacht Code 3. Pleasure yachts under 24m will comply with the St Kitts & Nevis Pleasure vessel regulations.
The International Register of the French flag (RIF) is only for commercial yachts. The private yachts use the First register of the French flag explains Vloëbergh-Lair. Commercial vessels registered with RIF benefit from;- exemption from VAT for all the operations linked to the commercial activity (refit, bunkering, chartering, etc.); exemption from income tax for seafarers residing in France and exemption from tax on the fuel used for transporting passengers. It also, like other registries, offers significant social and medical benefits too crew.
Moeroa Matheson is Co-CEO & Registrar of Ships at the Cook Islands Registry, Maritime Cook Islands. He explains, “Commercial and private yachts hosting helicopters need to comply with stricter rules than yachts used for private or recreational purposes by the owner.”
There is also the issue of insurance Matheson reminds us: The yacht, crew and any passengers must be insured in the event of any incidents, accidents or liability issues. Commercial yachts must be insured when carrying out chartering activities and need to have third party liability in place of P&I cover and this should also include MLC 2.5 (Seafarers Repatriation & Liabilities) and 4.2 (Ship Owner’s liability).
Safe Manning is a requirement for commercial yachts and all officers are required to have their Certificates of Competency endorsed by the flag administration. These requirements are not applicable to private yachts.
YET OR NOT YET?
Some owners, especially Med based, opt for a scheme that allows for private yachts to do a bit of chartering on the side in France and Monaco for a limited time. Explains Brooks at the Isle of Man Register, “It is aimed at owners that want to charter occasionally to offset expenses. Only yachts that are privately registered under certain flags that allow for ‘dual use’, i.e. commercial use under private registration, can use it.” The yacht must meet the criteria for Temporary Admission, must be built to class or classed if over 500GT and must operate in full commercial compliance at all times, whether engaged in trade or not. Since the yacht remains privately registered, the owner is free to use the yacht without a charter contract and no VAT is due on the use.
The downside is that a yacht cannot benefit from VAT exempt supplies and cannot purchase VAT exempt fuel in France or Italy, since it is privately registered. And there are some limitations as to cruising grounds. So it is not necessarily a plain sailing option.
LET ME IN?
It is not always a question of selecting a flag and saying, “I’ll take that one”. Some registries are picky and not everyone will be able to join. Each flag has its own acceptance criteria.
The Isle of Man Registry, for example, assesses yacht suitability on a case by case basis based on such things as the vessel’s operational history, its Port State Control (PSC) data, age, type, build and management profile. The RIF is less picky. It is an open register and if the yacht meets the legal criteria to register under the French flag, that’s fine. It requires that: the yacht is more than 15m LOA, is only for commercial use, and that 70% of its sailing is done in international waters.
The BMA would need to inspect a yacht for charter if it is over 20 years old before it could be registered. It also carries out a background check on owners to ensure that the owner is not subject to sanctions and it would not accept a yacht that didn’t meet international standards. Any yacht registering with the BMA must be longer than 12 metres.
OPEN OR CLOSED
So what’s the difference between open or closed registers? Closed registries can only register vessels owned by companies that are residents of the country and have to have their principal place of business there too. An open registry permits any owner and has no restrictions.
Says Brooks, “Isle of Man Registry falls in between these as our ownership criteria etc. is still bound by legislation. IOM is an international registry, not an open registry or flag of convenience.
So the differences are as follows: a traditional closed registry is only open to ships of its own nation, in other words people or companies that are residents of that country. Usually they have two criteria: incorporation in country of registration and secondly, principal place of business in country of registration. In a closed registry, the tax is charged on the earnings as compared to open, wherein the taxes are on the basis of tonnage.
An international or open registry has few restrictions: explains Brooks, “International registry incorporates second registry, hybrid system and bareboat charter registration. Open registers denote flags of convenience for ships. More than half of the world’s shipping countries follow open registry. A ship registered in a country is required to fly the flag of that country and is entitled to the privileges and protection of the country. Registration provides title to a ship to enter into trade relations.”
Secondary Registry is also known as Offshore Registry. It permits as an economic incentive, the hiring of foreign crews at wages lower than those payable to domestic crews. It was viewed as an alternative to open registry, to counter its effects on shipping. Prior to the advent of secondary registry, traditional maritime countries were offering various forms of financial incentives to ship owners, thus the main objective of secondary Registry was the phasing out of subsidy and incentive schemes.
Hybrid registers offer attractive combinations of national and open registry features designed to lure shipowners. Just as open registers developed in response to national registries, so hybrid registers have developed in response to open registries. They are easier to access and have fewer entry requirements than most national registries. They tend to maintain a nationality link between beneficial owner or management of the vessel and the flag State. “In general,” says Brooks, “hybrid registries tend to offer financial incentives and advantages similar to open registers.
Many hybrid registers are maintained for use only by national shipowners as an alternative to flagging out and as a way to compete with the open registry system. However, some hybrids allow foreign shipowners access to the registry once certain technical standards are met. The Norwegian and Danish International Ship Registers, the Isle of Man, and Madeira permit foreign owned or controlled vessels in certain circumstances while the German and the French International Ship Registers do not have nationality requirements.”
Says Ryan at St Kitts and Nevis, “A registry is a registry and compliance with conventions and regulations are the same, but the only difference is the criteria which the ‘Shipowners’ must meet to be entitled to fly that flag. St Kitts has no restrictions on the nationality, subject to international sanctions, however shipowners incorporating within Nevis can redeem reduced fees on the initial registration quote.”
Some countries, such as France, have two shipping registries; a national registry and an international register to compete with flags of convenience.
NEW SEA LEGS
Yacht owners need to also keep a firm eye fixed on legislation relating to shipping as rules and restrictions tend to get updated. There are planned Maritime Labour Convention (MLC) amendments coming into force in December 2024 that will apply to commercial yachts and include additions such as the requirement for social connectivity. The HK recycling Convention will apply to yachts in June 2025. The Hong Kong Convention is aimed at ensuring that ships, when being recycled after reaching the end of their operational lives, do not pose any unnecessary risks to human health, safety and to the environment.
Liam Ryan at St Kitts & Nevis says that legislation is standard for each registry but yacht regulations will differ. St Kitts has three main types of legislation/regulations relating to safety which yachts should comply with: Pleasure Vessel Regulations, 2007 – which caters for yachts below 24m which are being used for private/pleasure purposes: Small Commercial Vessels (SCV) code – which caters for yachts below 24m which are being used for commercial purposes operating within the Caribbean and thirdly, the Large Yacht Code (LY3) – which caters for commercial yachts above 24m which are being used internationally with a limitation of 12 passengers.
WAVING THEIR FLAG
So who to choose, (or see if they’ll let you in)? Brooks is ready with his answer: “One of the world’s leading flag states, the Isle of Man Ship Registry is pioneering innovation and high quality standards in the industry. IOMSR provides first class responsive service, ease of administration, low costs and industry leading support and expertise. IOMSR plays a central role in a well-established eco-system. It has strong working relationships with industry specialists, including Corporate Service Providers (CSPs).
The Isle of Man’s stable political and economic environment provides tangible benefits to owners who use it to structure ownership of their yacht, including favourable taxation treatment, both in terms of VAT planning and corporate tax. Supported by a large number of CSPs, it is the ideal place for vessel owners seeking a tailored solution that manages risk, tax and privacy. IOMSR has set the ‘gold standard’ for superyacht build and upkeep. It leads innovation in decarbonisation and digitisation, becoming the first flag state to offer reduced registration fees to yachts deploying green technology. An Isle of Man registration also grants the right to fly the ‘Red Ensign’ with all the support that brings.”
Liam Ryan is also ready, explaining that St Kitts and Nevis is a British Commonwealth country, “It has a network of over 40 Maritime Registrars, for local contact with clients and who can carry out ship and mortgage registrations, so an owner/ manager can deal with such matters in his/her own time zone, own language and with minimum hassle. With fixed-fees for registration, ‘no hidden extras’, clients can be assured their budget will not be subject to unforeseen charges. In addition to offering excellent services with regards to floating assets, there are additional exposures to citizenship by investment where there are opportunities to own real estate within the glorious Caribbean.”
Succinctly Dylan Vloëbergh-Lair says: “Why us? Because the RIF meets yachting players’ needs: taxation and social efficiency, respectability, topped off with a custom-made administrative support. The RIF is a registry for commercial vessels and yachts above 24m that was introduced in 2006. It does not charge for yacht registration, maritime mortgages or the annual safety survey. “It also,” says Vloëbergh-Lair, “has the French Navy to help with security at sea, international airports in its overseas territories and the third largest diplomatic network in the world with 168 embassies.” He adds, “If you have any problem, anywhere, you will get help from France. For example we managed very successfully the COVID-19 pandemic consequences. We didn’t abandon seafarers and passengers at sea. We organised their repatriation through our ports, airports and oversea territories.”
Keenan makes a water tight case for selecting the BMA register; “The BMA provides a straightforward, cost effective and efficient registration procedure for private and charter yachts of 12 metres in length and above, this includes yachts under construction which have the opportunity to operate as soon as provisionally registered. Furthermore, The BMA understands that yachts may have an innovative design or unconventional configuration and so is happy to meet individual needs of yacht owners while ensuring that adequate levels of safety are adhered to.”
He explains that it also has a diverse, qualified and experienced global team of professional surveyors, auditors and registration personnel and operates a bespoke, tailored yacht code, which has been developed to meet the growing expectations of owners, managers and Masters of Bahamian yachts. As The Bahamas is an open registry, there are no ownership requirements, limitations or conditions of nationality, residence, or company incorporation for yacht registration.
Matheson’s pitch for the Cook Islands flag is just as strong, He says, “We provide our clients with a stress free and user- friendly yacht registration experience whether it be via our online platforms or dealing directly with one of our agents around the world.” The Agency has its head office in Rarotonga, closer in time zone for its Asia Pacific clients, and another in Italy to cater for its European clientele.
He adds, “We require all our ships and yachts to comply with all the relevant national and international maritime conventions but do not impose any additional requirements beyond IMO obligations. A provisional registration can be processed and issued within a matter of days provided all relevant forms, registration requirements, due diligence and fees are received. This can all be done via email, And finally; we have been told that we have a pretty flag!”