If you’re considering purchasing a yacht, there’s a lot more to contemplate than simply where you’ll be cruising. Your choice of flag state, the nation where your yacht is registered one of the most important decisions you will make as a yacht owner. Your choice of flag may affect the taxes you pay regarding the purchase and operation of your yacht, how your yacht is crewed, where it may sail and how often authorities may board and inspect your yacht.
Many European nations, and the United States, have onerous and labyrinthine maritime laws and codes. If you choose to charter out your yacht, this may complicate matters further as chartering means the yacht is under commercial vessel regulations; the rules of many ports demand different standards between private and commercial.
For the American yacht owner, there may be a sense of pride to fly Old Glory off the aft of the yacht, but US vessel documentation can cause some issues. Registering your yacht in a non-US jurisdiction can be part of the solution. That being said, there are some benefits to the US flag. If your yacht clocks in at less than 300 Gross Tons (a measurement based on interior volume, not weight), obtaining a US flag is fast and easy, particularly for yachts staying in US waters or cruising The Bahamas or Caribbean; it also is patriotic and cheaper for US-built yachts. But if you’re planning to cruise outside of the aforementioned areas, the benefits to a foreign flag may outweigh your patriotic leanings.
The Foreign Flag — What it means for your yacht registration
Most US and EU yacht owners choose to register their vessels under foreign flags. The flag of the vessel determines who is responsible for regulating and inspecting the vessel. The flag nation also determines under whose laws and jurisdiction the vessel operates (local port state laws may also apply). Due to this, most US and EU yacht owners prefer to register their yachts under jurisdictions that have streamlined taxation and registration procedures and lower tax rates, and also allow for multiple registrations of vessel names and owner anonymity.
British Commonwealth or “Red Ensign” nations are among the most popular flags for yacht registration. These nations are Bermuda, Gibraltar, Jersey, Guernsey, Turks and Caicos, Isle of Man, British Virgin Islands and the Cayman Islands. These jurisdictions are favored for their tax rates, ease of administration, favorable local corporate tax laws, and adherence to the Paris Memorandum of Understanding on Port State Control (Paris MoU). They also allow the yacht to operate under the Temporary Important Regime (which allows a non-European owned vessel to operate for 18 months without the vessel being subject to custom duties or the EU’s Value Added Tax [VAT]).
Some of the other most popular yacht flag designations are listed below.
The Marshall Islands & St Vincent & the Grenadines
Yachts with these flags have advantages similar to the Dutch registry, but these flags are better for pleasure yachting and charters based in the South Pacific. The flags are part of the Paris MOU White List, there are no taxes on operating profits, and they offer strong maritime support from maritime offices around the world.
Malta yacht registration is ideal for those who must remain registered under an EU flag but need relief from onerous VAT calculations. The Maltese flag is one of the most popular flags of registry for superyacht owners in the EU, as it is listed on both the Tokyo and Paris MOUs, the Maltese flag receives preferential treatment regarding port charges and taxes, there are no restrictions as to the nationality of the master, crew and officers of the vessel and the flag offers expedited service for registration and extensive yacht owner support.
Panama is an inexpensive alternative if you plan to sail primarily in and around the Caribbean. Panama has low tax and registration rates and offers corporate structures ideal for running a charter or other commercial related venture.
The Final Choice – Which Flag to Choose?
Each yacht owner’s situation is unique and, as such, you should consult with the appropriate maritime counsel and your yacht broker to ensure that your yacht flies a flag that makes the best sense for how you intend to use your yacht.
Owning a yacht should be fun. Let Northrop & Johnson’s yacht brokers take the complications out of yacht ownership by answering your questions on flag registration and more. Contact our expert team today.