The Smart Choice

At its 51st meeting last month, the Paris MoU Committee approved the 2017 inspection results and adopted new performance lists for flags and Recognised Organisations (ROs). These came into effect on 1 July 2018. Claire Griffiths asks how will this affect your flag of choice.

So? You might ask. Well so, the “White, Grey and Black (WGB) List” presents flags with a high performance to flags with a poor performance that are considered high or very high risk. Itis based on the total number of inspections and detentions over a 3-year rolling period for flags with at least 30 inspections in the period.

Let’s say billionaire Mr Borisov of Bulgaria goes to buy a boat. A patriot at heart, he wants to sail the Mediterranean and Caribbean seas with his home flag state aflutter. Not a good idea Mr Borisov: Bulgaria is on the black list of the Paris MOU so the regulations under which the yacht sails don’t meet international standards and it’ll be subject to Port State Control inspections and even detention every step of the way. There are 12 states black listed on the Paris MOU, 19 on the grey list (including Switzerland and St Vincent & the Grenadines).

Even if buying a yacht is a flight of fancy that has become unbelievably true, when choosing a state flag registry, owners should leave their hearts at home and leave decisions to the head. Says Jamie Crellin of Integrated Capabilities, Isle of Man, “Owners often choose their own flag state eg; Holland which is a landlocked country that doesn’t necessarily have the right infrastructure or legislative structure for superyachts. Or owners choose by colour or by harbour name. You need to look at VAT implications and where you choose to cruise. You can change your flag without too much difficulty but it can prove costly”.

Considerations you need to make are many and varied says Dick Welsh, Director at the Isle of Man Ship Registry. “You can use the analogy of buying a house; you want the state registry to be safe, politically and economically secure. You are registering an asset so stability is fundamental”. Then explains Welsh, you need to look at what the state registry will do for you; how will they regulate you and look after the vessel? Will they be available 24/7? “That is something that is often overlooked; It can become a logistical nightmare if the flag state doesn’t respond to you when you need it. Owners should also check the state has sufficient superyacht services to support the requirements to keep the owner’s vessel operating when, where and how he wants it to”. Crellin adds that your choice of registry also depends on where you are domiciled. He says, “To register with a British registry you have to have a business registered in the UK or reside in the UK. If you don’t you can apply via an Agency. The Isle of Man will take a view on a new application, yachts can register through an agency and it’s not so onerous as the UK”. Consider first the legislation on taxes and fiscal benefits adds Mag. Virna J. Ayala F, the Consul General of Panama in Marseille.

And if everything else adds up in its favour, “It doesn’t hurt to have the most beautifully colourful flag on the stern,” laughs Maxime M.V. James, Registrar for (one of) the most beautifully colourful flag states – Antigua and Barbuda.

The decision to register as a private or commercial yacht is a fundamental choice says Welsh, “If you go private there are virtually no regulations, you have no fare-paying passengers so it’s a light touch in terms of regulations. For commercial, you are carrying fee paying guests and for that you need the same level of protection as a passenger vessel- then codes apply and different regimes. It’s a major consideration.” Welsh sees a current trend towards registering private vessels: For some owners they don’t want a commercial level of regulation, while others want to cruise with commercial safety codes but stay private. He adds, “Going commercial is an emotive and financial decision. Commercial yachts can offset some costs but I don’t imagine many make a profit”.

Oscar Brown FCCA is Principal at Baker Tilly on the Isle of Man. He points out that not all registries can move a yacht from pleasure to commercial and some flag states only work with commercial yachts over 24M. He says, “With the increased regulation for commercial vessels the need for a registry that is in the yachts main time zone and has good communication has become a major factor. The ongoing and survey costs increase considerably for commercial yachts so this is considered more and more when choosing a commercial flag. The primary consideration should be safety and good regulation for commercial vessels”.

There are important differences between charter and pleasure registration points out Ms Ayala at the Panama Consulate. In the case of Panama, taxes for charter yachts are paid annually pleasure are paid bi-annually, every two years. The amount of taxes varies too; for charters it depends on tonnage while for pleasure yachts the amount is fixed; $1,000 dollars for the Panamanians and Panamanian companies and $1,500 dollars for foreigners. For yachts designated on private or commercial the Panama Ship Registry offers economic advantages. For the pleasure yachts there is one fixed bi-annual economic tax comparable to other Registries. The commercial yachts have several discounts, such as ‘Eco-Ship’ up to 50% during the first three years.“Yachts can get YET (Yacht Engaged in Trade) certificates from some Registers” says Crellin. The Cayman Islands Shipping Registry implemented its own YET dual use programme in December last year and the Marshall Islands back in 2015. A YET is a yacht of 24 metres or more LOA, holding a valid Certificate of Class, which is voluntary compliant with all applicable commercial standards and regulations; which has obtained and maintains a Yacht Engaged in Trade Certificate of Compliance, allowing the yacht to obtain temporary Certificate(s) for a Yacht Engaged in Trade, and therefore to engaging in up to 84 days of charter per calendar year with no more than 12 passengers. To be eligible to register as YETs, a yacht must either be in possession of a Value Added Tax [VAT] paid certificate or other document proving that the yacht has a VAT paid status; or operate in EU waters under the Temporary Admission [TA] regime in accordance with EU regulations meaning the yacht can enter and stay in EU waters for a period of up to 18 months without being liable to pay VAT on the hull.

So it’s all very well choosing the right Registry for the yacht, but do the Registries have there own list of criteria before deciding to take a yacht onto its register? “Yes”, says, Welsh, “most registers have a list of acceptable states and each state has a different list”. As we move up in terms of size of yachts more and more vessels are registered by company not owner – privacy is a lot to do with that and a yacht listing is a public record”. Adds Brown at Baker Tilly, “The regulations on qualified owner vary from flag state to flag state. Some flag states also require a representative person in the country of registry, this is especially prevalent with commercial registry”. Ms Ayala is delighted to say there is no criteria to register the vessel or yacht under the Panamanian Flag, no matter the nationality, residency of owner, the age nor the tonnage of vessel. But generally, and in the case of Antigua & Barbuda, “a genuine link should exist between the Flag State and the owners”, explains Registrar James. Antigua and Barbuda establishes such a link through a company.  Owners have the option of an International Business Corporation (IBC) or an external company through a fast and easy procedure.

Traditional versus Open Registries is another question the owner will have to confront before he chooses the flag state for his boat. Traditional registries usually have restrictions on the composition of the crew, crew agreement, and wages. Generally open registries do not have restrictions on any part of the vessel operation. Antigua and Barbuda as an open registry, works with owners/operations to meet their needs.

Explains Welsh, “There are open registers eg; Marshall Islands that set up to to benefit from yachting. Then you the National registers eg; Germany, UK, Denmark and International registers such as the Isle of Man. National registers tend to be more pragmatic and client focused. The smaller, client focused registers tend to be best. Malta (open register) is now competing very well with IOM but not quite at the same level. Registers with a yacht focus is what I’d look at to get the bespoke care you need. Here on IOM Managers/crew agencies etc are all available here to provide a one stop shop”.
Many Registries will make a strong case for why a yacht owner should choose them, but the Red Ensign is by far the most popular Flag register for yachts with over 90% of yacht tonnage registered in the Group. The Red Ensign Group offers an equivalent standard for others to follow. “The Red Ensign code is drawn up on the Isle of Man” says Welsh, as he makes the case for IOM, “And we’ve been in superyacht industry from the beginning. The superyacht industry should be proud of itself, it has evolved into a very mature and professional sector and is a big employer”. Ah, but it doesn’t have that pretty flag like Antigua & Barbuda (which also claims modern, comprehensive maritime legislation with a team of qualified, experienced, diverse and multilingual personnel providing quality service…)

In Panama, Ms Ayala would like us to remember, the Registry of vessels and yachts is public and transparent allowing the financing and mortgages for the better administration of the vessel. “Our Registry has 100 year tradition of proved experience which makes it the largest in the world. And, under the Panamanian flag commercial yachts do not pay the taxes, if the commercial activity is done outside the Panamanian’s shore. The tax fees are paid once a year for the vessel and commercial yacht and the owners do not pay the taxes of their commercial activities in Panama”.

So yes, there are lots of factors to take into consideration many of which are unique to each owner. Says Brown, “I feel that an owner has to have involvement in the choice of flag and understand why that particular registry is being recommended. A good example of this is the name of the yacht. At the first registry of choice the name the owner wants may already be taken. With the name being such a personal matter getting the one a client wants becomes an important factor over the flag state”. If owners they want to change flag states say for personal or regulatory reasons, yachts can and do, especially after a sale.

Despite the cautions to the contrary, a yacht owner cares like crazy what is written on the back of his boat and is often his ‘go-to register’ because the name he wants is available. The craziest names on the back of a boat? Try M/Y ‘Shoot low they’re riding chickens’, says Oscar Brown at Baker Tilly. His own particular favourite is ‘Absolute Freedom’. “It’s an average name”, says Brown, “but it got its name when the client finalised his divorce and bought the yacht”.

Dick Welsh points out that the IOM Registry does not allow anything with vulgar connotations, no matter how cleverly they are presented so these are filtered out at the name reservation/approval stage. Asking around the team at IOM Welsh came up with the following notable names that have registered in the Isle of Man: Daddy Cool, Pretty Woman, Shake n Bake, No Bada Bees, Naughty by Nature, Dripping Wet and Tigger.

Adds Welsh, “My favourite, not registered here , but on a small racing dinghy was ‘Usain Boat’ . I have also seen ‘The Mutt’s Nuts’ in a marina with obvious reference to what they wanted to call it!”

What’s yours?