It’s not just about the vibrant colours and patterns flying off the transom, the flag you choose needs to satisfy a host of pre- requisites for the owner, crew and the specific commercial or private usage of the yacht, so how do you select the right one? Words: Claire Griffiths
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.
LEAGUE TABLES
Regional Port State Control began in 1982 when fourteen European countries agreed to co-ordinate their port State inspection effort under a voluntary agreement known as the Paris Memorandum of Understanding on Port State Control (Paris MOU). Now 28 countries are members. Port State Control (PSC) checks visiting foreign ships to verify their compliance with international rules on safety, pollution prevention and seafarers living and working conditions. It is a means of enforcing compliance if the owner and flag State have failed in their responsibility to implement or ensure compliance. The port State can require deficiencies to be corrected, and detain the ship for this purpose, if necessary. It is therefore also a port State’s defence against visiting substandard shipping.
The Paris MOU was put in place to create a harmonised system of ship inspection and eliminate sub-standard foreign flag merchant ships visiting the European and North Atlantic basin ports. Annually, over 18000 inspections are conducted on board foreign ships in the Paris MOU ports to make sure ships meet international safety, security and environmental standards, and that crew members have adequate living and working conditions.
One imagines that superyachts would rarely be classified as sub-standard but since 1st January 2011 yachts operating commercially on a permanent basis are subject to port state control at all times. Private yachts are not. Commercial yachts which have been inspected in the Paris MoU region will have a ship risk profile and subsequently a Priority 2 and/or Priority 1 date. When the yacht is due for an inspection the port State may or shall inspect the yacht.
As of July 2024 the Paris MOU Committee adopted new performance lists for flag States and Recognized Organizations. In its “White, Grey and Black (WGB) List” for 2023 (current list) a total number of 71 flags are listed: 42 on the “White List”, 17 on the “Grey List” and 12 on the “Black List”. In 2022, the total number of flag States on the list was 66, of which 39 on the “White List”, 18 on the “Grey List” and 9 on the “Black List”. The reason for this is that during 2023 more flag States had at least the minimum number of 30 inspections, which means they are automatically included in the performance lists.
So the WGB List is like a league table of performance. In this year’s White List the top five rankings (in order) go to; Denmark, Netherlands, Norway, Singapore, Italy. The UK ranks 5th, France 11th and the USA 25th.
The “White, Grey and Black (WGB) List” is based on the total number of inspections and detentions during a 3-year rolling period for flags with at least 30 inspections in that period.
Paris MOU explains that the “White List” represents quality flags with a consistently low detention percentage. Flags with average performance are shown on the “Grey List”. Their inclusion in this list may serve as an incentive to improve and move to the “White List”. At the same time, flags at the lower end of the “Grey List” should be careful not to neglect control over their ships and risk ending up on the “Black List” the following year.
There were 181 PSC inspections of commercial yachts in 2023, ten detentions and 62 inspections with deficiencies. The percentage of detentions to inspections for the past three years reads; 2023 5.5%,2022 3.2%, 2021 5.1%: It’s all interesting information to have rattling at the back of the mind when considering yacht registration.
ONBOARD Magazine roped in a tribe of shipping registry experts for more information on the pros and cons of private versus commercial registration and other thorny issues.
GO COMMERCIAL?
The question of whether to register commercially or privately is one that furrows the brow of many owners. Commercial registration offers the opportunity to claw back some revenue to offset costs but brings with it a host of loops, loot and legalities to be skipped and ticked.
Succinctly Liam Ryan, International Registrar of Shipping & Seamen and CEO of St. Kitts & Nevis International Ship Registry suggests that the “benefits” will differ depending on the owner of the yacht. Private yachts can have less stringent regulations/ rules to follow but be cheap to register. Commercial Yachts have the ability to earn income from its operation but will have more stringent regulations to follow and will cost more to register due to the commercial nature.
Kayla Martin is Senior Manager of Business Development at the Cayman Island Shipping Registry. She says that it is difficult to describe the benefits of commercial/private without explaining why operators elect to operate in each mode. The Cayman Islands offers two registration types to large yachts, ‘pleasure yacht’ and ‘commercial vessel’. She explains, “Under the Cayman Islands Merchant Shipping Act, a Pleasure Yacht can either be operating in private use or it can be operating as engaged in trade, provided that the vessel is compliant with the relevant Code of Practice.” She continues, “The selection of commercial vs pleasure yacht registration is predominantly governed by local requirements.
For instance, vessels operating commercially in the majority of the EU must be commercially registered and must remain so while operating in the EU to comply with EU Fiscal requirements. The owner must charter his own vessel and pay the going rate and any VAT due. There are also other locations outside the EU that have the local requirement for Commercial Registration and operators must seek appropriate local guidance in this regard.’
Katrina Matheson from Maritime Cook Islands stresses ‘Commercial registration involves increased regulatory complexity and higher compliance costs due to strict safety and operational standards. Private registration restricts the yacht from participating in commercial activities, such as chartering or carrying passengers for hire. Both types of registration require ongoing compliance with industry regulations, leading to additional administrative responsibilities and associated costs – one must plan in advance as to the actual usage of the yacht in various waters.’
Martin adds that an exception to the general rule in Europe is the “Yacht Engaged in Trade” which currently only operates out of France and Monaco. This allows the vessel to operate commercially and then revert to pleasure use when not engaged in trade. The YET program recognises the dual mode use of yachts, and when not operating commercially the owner may use the vessel without the need to charter.
Says Martin, “In summary, the decision to register as a commercial vessel or as a pleasure yacht is is dependent on a number of factors and there is no clear advantage of one type over another. There are clearly benefits for both and operators are advised to seek appropriate fiscal advice when contemplating a switch between Registration types.”
“Obviously,” says Toby Brooks, Deputy Director, Isle of Man Ship Registry, “It is entirely the owner’s choice if they want to operate commercially and charter their yachts, but as soon as fare paying charter guests are involved the regulatory framework for safety, environmental and crewing considerations along with audit and survey regimes from flag and port state control are enforced to ensure compliance with national and international standards. Charters can provide significant financial benefits, but are offset by the increased costs of operation, manning, maintenance and regular inspection.”
The majority of the vessels registered in the Cayman Islands are yachts of all sizes with approximately 85% in terms of number of units. In terms of tonnage, the Merchant Fleet represents the larger proportion for obvious reasons. Says Martin, “The Cayman Registry is established as the largest register of superyachts and works hard to maintain this position.”
She adds, “Whilst the absolute number of units has been maintained in the past five years, the proportion of yachts to merchant vessels has changed substantially due to geopolitical issues and other factors such as COVID 19. Since the pandemic, there has been a significant increase in the newbuild market and the Registry now oversees more than 50% of the newbuild yacht market. Cayman Registry surveyors are supervising over 250 new build projects and will work with the yard irrespective of the final choice of Flag. That said on average, 80% of newbuild projects are registered with the Cayman Islands on delivery.” Superyachts on the Isle of Man Registry stand at 23.8%, a figure that has remained steady in recent years with the exception of geopolitical implications outwith its control. Between three and five percent of the St. Kitts & Nevis fleet are superyachts. Explains Ryan, “We are developing our own safety codes for yachts which will aid us in our marketing efforts for yachts and ensure compliance with safety / environmental policies.”
The Maritime Cook Islands has seen considerable growth over the past five years in superyacht registrations over 24m. Matheson states ‘We currently have 187 yachts over 24 meters in length, representing 22% of our fleet. There has been a significant rise in Superyacht registrations over the past five years, with notable growth in the Asia Pacific region and Europe. This trend was particularly evident during the COVID period.’
St Kitts and Nevis adopted its yachting policy towards the end of 2022 so growth can only be measured over the last 19 months. In that time, Ryan says it has doubled the numbers of yachts, privately and commercially, on its register and is confident the figure will rise.
RESTRAINING ORDERS?
Cayman Islands Yachts may be used commercially provided they comply with the relevant Code of Practice. These include the Small Commercial Vessels Code for vessels under 24m carrying up to 12 passengers; the REG Yacht Code Part A for vessels 24m and above carrying up to 12 passengers; and the REG Yacht Code Part B for vessels carrying up to 36 passengers. Vessels can operate within the limits of their Certification and may either be Short Range (up to 60 nautical miles from a safe haven) or unrestricted. “Provided vessels operate within the limits of passenger numbers and any range restrictions there are no real limitations on commercial use. Vessels operating under the YET program are limited to 84 days commercial use per annum,” says Martin.
“If it is going to be used for commercial gain, the compliance requirements will be more and we will look at aspects such as the trading area, the number of fee-paying passengers onboard, the amount of hours in commercial use and so on,” says Ryan. He adds, “The number of fee-paying passengers is important as there would need to be a review whether 13 PAX onboard would class the vessel as a Passenger Ship under SOLAS.”
The Isle of Man applies the REG Yacht Code, the latest revision being generally considered as the international standard for commercial yachting. It was developed initially as the Large Yacht Code with regular updates and amendments added over the years in line with industry improvements, design changes and innovations.
OOPS! OVERSIGHT
What, we ask, are the most common considerations that owners (or owner reps) overlook when they register a superyacht?
Martin says that one of the main misconceptions that persists when registering a superyacht is that there is a fiscal advantage of selecting a particular flag. But she explains there has been a significant change in the fiscal landscape since the early days of yachting and it is very much a level playing field with vessels subject to the same requirements irrespective of Flag.
An area that tends to be overlooked is the level of service suggests Martin: “Not all Flags are the same when it comes to the quality of the service offered and how this relates to the Port State Control record. The Cayman Registry provides a dynamic environment supporting its clients with premium quality service while promoting compliance with international maritime conventions concerning maritime safety and security, environmental protection, and the welfare of seafarers. We place extreme importance on technical excellence which is reflected in our Port State Control record across the various Port State Control MOUs. These high rankings allow Cayman flagged vessels to operate with minimal disruption and the level of quality service provide owners with assistance as needed. Not all Flags offer this capability, and it is important to look at all factors when choosing a Flag.” Ryan at St. Kitts & Nevis warns of the misleading perception of ‘The Big flag/Small flag’. Although a ‘small flag’ clients comment on St. Kitts’ & Nevis service levels, problem solving and willingness to work together says Ryan. “It comes as a big surprise for them and they say that they were glad that they chose St Kitts over other countries. Some owners will mention they didn’t know we had a yacht registry or know where St Kitts was.”
An important consideration that owners can overlook, says Matheson is that ‘Owners often overlook is that if they build their vessels to private standards and later decide to switch to commercial operation. This can lead to significant challenges, as commercial yachts are subject to international regulations and safety requirements compared to private yachts e.g Maritime Labour Convention, Load Line etc. ‘
‘Refitting a yacht to meet commercial standards can be costly and time-consuming, requiring modifications to comply with international maritime regulations, safety protocols, and crew requirements. Therefore, it’s crucial for owners to carefully consider their long-term plans during the design and construction phase to avoid these complications.’
THE EXTRA NAUTICAL MILE
If, as Martin points out, one Flag State will not have any fiscal advantages over another, what or how to lure new boats to their shores?
At the Isle of Man, four different modes of yacht registration are possible including PYCR (Private Yacht Charter Ready) which offers private owners the option to switch between private and commercial modes for limited periods subject to a survey and certification process that designates the yacht’s compliance with requirement of either mode clearly at any point of time or location.
Martin points to the Cayman Registry’s quality of fleet and service; “These are the main reasons that operators choose to register with us and we often see vessels coming back to us after spells with other Flags.”
“Our fees are already very competitive with options to pay 1-, 2- or 4-year fees at the time of registration,” explains Liam Ryan at St. Kitts. He adds, “Owners who are corporations can receive additional benefits from the Nevis Business Ordinance and a reduced administration fee is placed for Nevis companies. Additionally, being in the Caribbean, we welcome yacht owners to experience our tourism sector. Our Ministry of Tourism’s Venture Deeper programme (St Kitts and Nevis Tourism | Official Site (visitstkitts.com)) can explain more.”
Matheson from the Maritime Cook Islands adds ‘Yacht registration is a core component of our business. We maintain a global network of offices and agents dedicated to registering Superyachts. To accommodate the growing demand, we opened an office in Monaco. Our extensive network includes agents and staff in Turkey, Croatia, Denmark, Italy, Greece, Cyprus, Spain, Dubai, India, Singapore, Hong Kong, Japan, China, Philippines, South Korea, Australia, New Zealand, and the Cook Islands. Our registration options are flexible, with terms of 1, 3, or 5 years available. Our expert team is accessible in your language and timezone, ensuring prompt service and expert advice to boost operational efficiency and ensure compliance with international maritime regulations. Additionally, we are listed on the IMO White List and impose no restrictions on the nationality of crew.’
The Isle of Man and Cayman Registries feature on the White Paris MOU List and strive to ensure a gold standard flag service in support of port calls wherever their vessels operate. St. Kitts currently sits on the Grey List.
But they all seek to simplify and improve the Registration process, range of products and services on offer to attract and retain a client base of superyacht owners and merchant vessels.
Treated with the kind of reverence it deserves, the correct choice of flag is quite simply one of the best decisions any yacht owner, captain or shore-based manager can make. 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. Which one will you choose?
