Vistra's expert Marina Gall looks at options for superyacht registration.
Despite the weak economic climate, demand from wealthy individuals and company executives for yachts and the services associated with running and maintaining these assets remains strong.
After a difficult couple of years in 2009 and 2010, there is firm evidence emerging of a recovery in the luxury yacht markets, buttressed by a newly emerging class of wealthy individuals in emerging economies like Brazil and China. According to Boat International, 264 superyachts were sold in 2011, 29% more than in 2010, with total asking prices reaching USD2.6bn last year. Statistics routinely announced by the main offshore marine registries showing yearly growth in the registration of yachts and other pleasure craft also suggest that this is a business on the up.
Nevertheless, the path to yacht ownership is not an easy one! Unlike, say, buying a car, where you can simply hand over your cash to the salesman and roll off the forecourt with your new pride and joy, the international nature of sailing means that many financial pitfalls may await the owner of a shiny new yacht, especially in the area of taxation, and it is therefore vitally important that an appropriate ownership structure is put in place to minimize the impact of these potential traps.
Thankfully, there is a large and growing industry of service providers with the appropriate expertise to take much of the tax headache out of the equation for the aspiring sailor. However, it pays to have a general awareness of the situation, and in this feature we explore the major tax planning and ownership issues confronting owners and users of yachts.
Normally, boats over a certain size and weight have to be registered in one jurisdiction and with many onshore and offshore jurisdictions offering registry services, this will be one of the most important considerations in the yacht tax planning process. This decision will be guided by where, when, how often and for what purposes (e.g. private use or chartering) you intend to use your yacht and of course these factors will have an important bearing on tax.
While national boat registries have broadly similar registration rules, the registration process may differ quite substantially, for example in the amount of documentation, such as proof of ownership information that will be required to complete a registration. Almost invariably, initial and on-going registration fees, usually on an annual basis, will be charged and these too can vary quite widely. Some registries may also restrict the type of activity that may be undertaken by a yacht, e.g. by prohibiting commercial uses.
In the case of yacht registration some of these requirements might typically include: a bill of sale; a builder's certificate (if new); a declaration of ownership; and a deletion certificate if previously registered.
Additionally, it is wise to consider the international standing of the jurisdiction concerned, and whether there are issues over its reputation in terms of tax compliance with other countries, especially the country of your residence.
While it is not the purpose of this f eature to endorse one jurisdiction over another, it is often the case that professionals in this field will recommend using an offshore registry which is affiliated with or has strong links to one of the major onshore countries like the United Kingdom and the United States. These tend to have internationally-recognised laws, rules and regulations in the areas of shipping and aviation and therefore are considered a 'safer' choice.
Last but not least are the tax rules in the jurisdiction of registration. This is where registering a vessel offshore has significant benefits as the owner may be able to take advantage of very low – or no – rates of tax. Company tax is set at 0% for most businesses in a number of countries with registries, including the Channel Islands, the Isle of Man, the Cayman Islands and Bermuda. Whether you are able to avail of these tax advantages may depend, however, on how the ownership of the boat or plane is structured, a subject we will tackle next.
Individual versus Company Ownership
While it is perfectly possible in most cases to register a yacht in one's own name as an individual, there are many disadvantages to doing so; indeed, it is certainly the case that the vast majority of owners choose to transfer their ownership to some form of corporate entity or special purpose vehicle.
For example, by using an offshore company to own, run or charter a yacht, it may be possible to take advantage of the above-mentioned low rates of corporate tax on offer in certain jurisdictions, although such a company need not necessarily have to be formed in the same jurisdiction in which the vessel itself is to be registered.
Additionally, using a company form has certain other benefits in terms of protecting the owner; confidentiality being one of them, and limiting the liabilities that may arise in connection with ownership of the vessel being another. If confidentiality is a high priority for the owner, an additional option is the use of a trust company, into which the owner (settlor) transfers an asset to the effective ownership of a trustee who manages for the benefit of a beneficiary. In civil law jurisdictions (and now some common law jurisdictions), a foundation company will perform a similar role. The use of a trust structure may also be an effective shield against adverse inheritance tax implications in the owner's country of residence.
Some financing options can also be used to put distance between the owner and the asset. For instance, by using a leasing arrangement, the bank or finance company buys the yacht from the seller and then leases it to the buyer. With this type of financing deal, the buyer does not actually legally own the asset but is instead granted possessory interest. With a leasing arrangement however, the buyer must also front all the risks associated with owning and operating a yacht and may be liable for loss in the event of damage for example.
A note of caution for those intending to purchase or sail their yacht within the territory of the European Union (EU), which could have unwelcome repercussions for owners in terms of EU value-added tax (VAT). Under EU VAT law, all yachts owned or used by EU residents are liable to VAT and owners must be able to show that VAT has been paid before they may enter EU waters.
VAT is a complex issue in the EU, so owners are strongly advised to taker local professional advice on this matter at the outset.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.