I have heard of yachts sometimes being referred to as a floating liability. In an ever more litigious world, yacht owners should not ignore the increased risk of being sued by a third party. Claims can potentially come from anyone who has access to your vessel or with whom you have been in a collision.

Therefore it is important that yacht owners and potential purchasers consider the legalities of yachting and measures they can take to protect themselves and their highly valuable luxury assets, should an accident happen.

Superyacht Liability Management

In the event of an accident where your yacht causes damage to someone else’s property or your boat injures a person in a marina or out at sea, the boat itself may be liable “in rem” (Latin for “against a thing”) for any damages caused. In terms of legal implications, this means that the boat is its own entity that can be sued for any damages caused to property or third parties. Traditionally, a claimant’s remedy is to request a court order to arrest the vessel and have it sold at auction to satisfy the claim or debt. It goes without saying that a yacht owner should have sufficient insurance cover to protect themselves and their yacht in case of an accident, but should the amount of liability exceed the owner’s insurance policy and the value of the vessel, it is possible that the owner could be sued personally for the excess liability, thus exposing the yacht owner and his or her other personal assets to liability for claims against the yacht.

However, a way to protect your other personal assets from liability claims against the yacht is to form a limited company to own the yacht, therefore segregating the liability of the yacht from other personal assets. This would mean that should the yacht be involved in an accident and a claim is made against it, the liability would be limited to the value of the company. In the event of a very large claim the vessel may need to be sold to cover the claim. Despite this, in the event the claim is greater than the value of the vessel the claimant could not sue the owner of the company and claim their other personal assets, as the liability would be limited to the value and assets of the company.

Confidentiality and VAT Planning

While limiting personal liability is likely to be a primary reason for forming a yacht ownership structure, possible VAT savings could also be availed through owning the vessel via an appropriate corporate structure. These VAT savings mean that most large European vessels are already properly held in corporate structures, yet personal ownership remains much more common in areas that don’t use VAT, such as the Gulf region. GCC yacht owners, with their large personal fortunes and a tendency to own assets in their own name, should pay particular attention to the benefits of holding these assets within a company in the right jurisdiction.

Enhanced confidentiality is another benefit of a corporate structure which also appeals to many owners wishing to maintain a level of privacy or anonymity when docked or cruising. If using a company for this reason, however, it is important to understand that in some jurisdictions public information regarding who owns a company can be easily found. For this reason, many yacht lawyers and family offices advise their clients of the benefits of registering their companies in jurisdictions where this information is not publicly available, such as Malta.

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Alternatively, you can download our Guide to Tri-jurisdictional Yacht Planning here. It provides a detailed explanation of ownership, flagging, and charter best practices.