Key considerations when purchasing a superyacht
Tuesday 22 November 2016
By Edward Leigh, Director – Yachting & Aviation
Yacht ownership for vessels operating in European waters has become increasingly complicated. The introduction of new maritime and employment laws, changes to the VAT exemptions that apply to charters, and the requirement to obtain charter licences and appoint fiscal agents represent some of the many challenges. One area which is often overlooked relates to setting up the most appropriate ownership structure for the vessel as well as the ongoing administration.
There is a vast array of company, trust and foundation jurisdictions to select from and, accordingly, it is difficult to identify the optimum structure without obtaining specialist advice. Making the wrong decision can be costly.
Some of the key areas owners should consider are:
- Ownership structures - ownership can be by means of companies, trusts or limited partnerships. For corporate structures, consideration needs to be given to the type of company and how it is structured in terms of directors, shareholding and capitalisation to ensure any potential liabilities are ring fenced.
- Tax - what is the corporate tax position for the structure? Are there any tax treaties or double taxation agreements relevant to the structure? Are there benefit in kind charges as a result of the structure? What are the rules governing inheritance tax in the chosen jurisdiction? Full consideration of these tax issues ensures the structure can be tax compliant from the outset.
- VAT – is VAT registration required? If so, in which jurisdiction should the company register? VAT fiscal agents may also need to be appointed for commercial yachts. Owners should consider the VAT implications both on acquisition and disposal of the yacht. Suitable VAT planning is necessary for all yachts operating in EU waters regardless of the owner being non-EU resident and operating within
European waters under temporary admission rules. VAT planning is essential when VAT rates vary from 18 to 27%.
- Legislation - this is particularly important where finance is required to purchase the vessel. Sophisticated corporate laws are a key consideration as disputes can arise where there is joint or shared ownership of the yacht. High regulatory standards and reporting requirements are therefore seen as an advantage when selecting a jurisdiction.
- Yacht registration - consider if the yacht will be chartered, as this will impact on the choice of flag, the manning requirements, the registration type and the survey costs. Many flag states, including the popular Red Ensign, have qualified ownership requirements. The flag choice may have an impact for VAT purposes. There can be significant variance in costs between yacht registries as some registries charge an annual tonnage tax and require the appointment of a local Representative Person. Lastly, flags of convenience should be avoided as they are generally subject to more frequent port state authority checks.
- Insurance - insurance premium tax rates are another consideration when choosing a registry. For example, an Isle of Man vessel is exempt whereas the insurance premium tax applied to a UK-flagged yacht is 9.5%. Owners should also ensure the appropriate level of hull and machinery insurance and crew medical cover.
- Finance - political and economic stability of the owning vehicle is key where finance is required to facilitate the new build or purchase. Banks must be comfortable with all aspects of the ownership structure and are more willing to lend to quality jurisdictions knowing that they can easily enforce their charge if required.
- Corporate administration - some owners choose to delegate the administration to their captains. Invariably they often do not have the time, particularly for active charter yachts. The captain's time should be freed up to manage his crew and concentrate on the safe operation of the vessel. Delegating these functions to a trusted corporate service provider or a yacht management company with specialist yachting knowledge and expertise is a wise decision. The maintenance of company records, VAT and financial reporting may appear to be straightforward but the financial penalties can be significant for non-compliant companies. The penalties in getting it wrong, particularly with regard to VAT, can often far outweigh any perceived savings.
In conclusion, professional advice should be sought at an early stage of the acquisition process. The legislation and regulations governing the ownership and operation of superyachts are continually changing and what may be appropriate today may change in the future. It therefore pays to appoint a professional corporate service provider which specialises in yachting in order to ensure ongoing tax compliance of the structure. This gives absolute peace of mind for owners, leaving them free to enjoy their yacht.
As experts in our field, Equiom can advise you on the most efficient path when it comes to yacht ownership and the most effective structure plan for you. Looking after a fleet of yachts worth €2.3 billion, we manage a portfolio of ownership structures for some of the world’s most prestigious and valuable superyachts, with all the hallmarks of outstanding service and dynamic, innovative solutions.
For more information about considerations when purchasing a superyacht, please contact Edward Leigh