When an individual is considering the ownership of a high value asset, as complex and valuable as a superyacht, for whatever reason, they would not typically do so in their own personal name and would generally look to establish an owning entity/structure. In the first instance, establishing an appropriate ownership structure would provide the benefits and protection of asset segregation and limitation of liability; in addition, a carefully established ownership structure could also unlock fiscal and other advantages.
Although ownership structuring may be dauntingly complex, it is one of the most important matters to take into consideration not only when purchasing a new vessel, but also on an ongoing basis when purchasing any high value asset. Legal, tax and other variables are constantly changing hence one would be naïve to assume that they have established a perfect structure that does not need to be revisited to ensure it is still fit for purpose from time to time.
Flag, Ownership and Use?
Upon deciding to purchase a new yacht, one must seek the most suitable jurisdiction(s) from where to operate, own and register the yacht. Many people assume they need to pick one jurisdiction in which to do all of this, but this is not the case, picking one can severely limit your options as an owner or a manager. In some cases, the ideal structure may, for many reasons, use several different jurisdictions. Let’s start by clarifying what we mean by flagging, ownership and use.
Choosing Your Jurisdiction
Three key questions which should always be considered at an early stage of the decision-making process for yacht ownership are: why am I buying this yacht? Where do I want to cruise? How can I ensure I operate this luxury asset in the safest and most efficient manner?
These three questions, expanded in more detail below, are an excellent starting point when considering how to streamline and structure the complex matter of ownership of yachts.
Purpose: Why am I buying the yacht?
When evaluating yacht ownership, the top priority should be to determine the actual intended use of the vessel rather than to focus on its registration or fiscal status as a motive. This ultimately means that the owner should establish whether the yacht is to be used privately or on a commercial basis.
Provided that an individual has purchased the yacht for his own personal use, the owner would need to consider their residence and where they are intending to use the yacht when putting in place an appropriate ownership structure.
On the other hand, should the owner of a vessel wish to utilise the yacht commercially, so make her available for charter, the next question would naturally be – where is the owner intending to make the yacht available for charter? Who will the potential users of the vessel be? And what are their nationalities? The answer to these questions would inevitably give rise to various implications which an owner would need to examine when looking to establish and create a new and efficient ownership structure.
Location: Where is the yacht based?
An important factor to consider is whether the yacht will be based in EU waters or not (dependent upon the ultimate utilisation of the vessel). Both the residence of the UBO and whether the UBO will be making the yacht available for charter would generally weigh heavily on this decision.
Should it be established that the yacht is to enter and operate within European waters, VAT will always become one of the most important factors to be considered when establish and running a yacht ownership structure. Most people are under the impression that the application of EU VAT legislation is practically identical in all member states, yet this is not necessarily correct. While VAT legislation is theoretically meant to be harmonised across the EU, in fact member states can and do interpret and apply EU VAT legislation as they see fit, giving rise to sometimes extremely diverse interpretations and applications across countries and in some cases even ports within the same country.
Flag: Which flag is the best?
After evaluating the above factors, it would also be opportune to consider the registration of the vessel. Although all the above considerations would weigh on the choice of a vessel’s flag, this does not necessarily mean that the flag state should be the same as the country of operation or indeed jurisdiction of ownership or even fiscal registration for that matter.
The flag state is the country or governmental entity whose laws a vessel is registered or licensed and has the authority and responsibility to enforce regulations over vessels registered under its flag, including those relating to inspection, certification and issuance of safety and pollution prevention documents.
When coming to a decision regarding the flag of a vessel, take into consideration the following factors:
- The yacht – physical characteristics of the yacht (age, length, tonnage, specification, coding).
- The maturity, stability, and reputation of the country and its flag.
- Compliance with international standards and regulations.
- The requirements, process, and fees relating to the registration of the vessel, as well as the level of service provided by the registry.
Tying them together
Although it may be argued that the above three sections overlap in many of their considerations, each of the above aspects must be treated firstly as independent considerations and secondly as a global and holistic decision. It would be prudent to consider all three questions at an early stage when considering a yacht purchase as often late and rushed decisions can lead to issues which may complicate the use and enjoyment of the yacht at a later stage.
The involvement of well informed and experienced advisors in these discussions is vital to ensure a compliant and efficient operating structure is established. A properly constituted operating structure with all component parts working together will give you peace of mind to enjoy your yacht stress free.
How can Boston Family Office Help?
At Boston, our luxury asset management services make the ownership and administration of assets, including superyachts, simple and secure. We work collaboratively with you and your advisors to design and implement a structure that is built around the needs and goals of the owner, being for simple leisure use, commercialisation of the assets (leasing or chartering), preservation and succession planning and which will be VAT efficient, where applicable.
We are a multi-jurisdictional fiduciary service provider with offices in the Isle of Man, Jersey, Malta and the UK that implement tailored governance solutions to clients.
Should you wish you to discuss the topic in more detail or interested to hear how Boston Multi Family Office can assist you, please contact us enquiries@bostonmfo.com