Registering a newly acquired yacht is often one of the last steps that yacht owners will need to complete before they can actually sail and enjoy the vessel. Registering a yacht is like obtaining a passport. You are effectively choosing the yacht’s nationality, with all the advantages and responsibilities that this entails – good functionality, constructive legislation, fiscal efficiency, well-recognised legal system, political stability and diplomatic clout. A yacht owner will want a flag that is competitive, accessible and enjoys a good reputation.
From a private law perspective, too, your choice of Flag State can be critical. Protecting the legal title of the registered owner or the interests of mortgagees is of great importance. In fact, many financial institutions may make it a condition that a yacht is registered in a particular Flag State when providing marine finance to yacht owners. Similarly, a yacht’s Flag State may affect the ability of the owner to secure competitive insurance cover.
So while yacht registration is simply a licensing procedure, involving broadly similar requirements in most jurisdictions, it is one that yacht owners should give very careful consideration to in order to ensure the best fit for their particular circumstances.
Many countries, including some that are landlocked, maintain their own yacht registries, but only a very few attract the majority of superyacht registrations worldwide. Their popularity is based upon careful analysis of the advantages that they offer to owners and their vessels.
There are three principal factors that will undoubtedly influence an owner’s choice of flag:
Getting the right legal and administrative framework – By conferring nationality on a yacht, a Flag State acquires certain rights as well as certain responsibilities over it. The public law functions of registration give rights to diplomatic (and naval) protection and consular assistance by the Flag State. It might also offer other privileges, such as neutrality or access to particular waters, ports, activities or services. The private law functions of registration are to protect the title of the registered owner and persons holding security interests over the vessel.
It is essential that a Flag State Registration is a key element to a yacht’s operation because there may also be specific yacht-related legislative, fiscal and other advantages (or disadvantages) attached to a particular kind of registration regime. For instance EU-flagged yachts will encounter fewer obstacles when obtaining permits and licenses to operate commercially within EU waters in comparison to non-EU flagged yachts.
VAT and other taxes – The question of VAT liability is open to wide interpretation and should always be considered on a case-by-case basis. Yet this is generally a matter of great concern to yacht owners and is often the main criterion in deciding where to register a yacht. The EU’s Temporary Admission (often referred to as Temporary Importation) rules are a mechanism that enables non-EU resident yacht owners to bring their yachts into Europe for a limited time, such as a holiday, and under certain conditions without having to pay VAT on the value of their yachts.
International rules and conventions – Given the freedom that Flag States have to formulate their registration requirements, they are obliged to exercise administrative, technical and social controls – applying the international rules and conventions that govern navigation, usage, safety and crewing. Through registration and technical control procedures, the Flag State monitors the legality of the vessel’s condition and activities throughout its life, and intervenes through inspections and financial concessions.
As a back up to Flag State implementation, many of the International Maritime Organisation’s (IMO) most important technical conventions contain provisions for ships to be inspected when they visit foreign ports to ensure that they meet IMO requirements, a procedure known as Port State Control. The IMO has encouraged the establishment of regional agreements on Port State Control – Memoranda of Understanding or MOUs – covering all of the world’s oceans, of which the best known are the Paris MOU (Europe and the North Atlantic) and Tokyo MOU (Asia and the Pacific). It is therefore of great importance that a Flag State can demonstrate a good track record on its performance under such MOUs. There is scope for a flexible approach and the expertise of a Flag State’s surveyors will be crucial for prudent assessment, good support on technical issues and to guarantee safety and seaworthiness.
In addition to these three main aspects, there may be many other reasons for choosing a Flag State. These could relate to: a yacht’s age, size or type; any ownership nationality restrictions; the size of registration fees and ongoing costs; the speed and ease of registration; the accessibility and availability of technical or administrative support. In some cases, it may simply be a matter of prestige.
With professional expertise gained from many years of experience in the field of yacht registration and offshore company management, SMS can provide a highly professional and personal service to yacht owners worldwide.