The 95 percent rule

Date 05/11/2020
3 minutes to read
Ian Petts, Client Services Director, Equiom Monaco

Billionaire shipping magnate Aristotle Onassis, owner of the iconic 100m superyacht ‘Christina O’ famously said: ‘Successful ship owning is 95% careful accounting.’ 

Honest diligent control of the holistic yacht ownership costs is as true today as it was then.

Yacht owners often comment that costs appear opaque or elevated for a yacht. The reasons for this are:

  • Low volume of comparable yachts make benchmarking difficult
  • Highly customised product
  • Different power, volume and accommodation layouts and operations
  • Confidential operating data  
  • Consumption asset valued for its availability in a short peak season
  • Seasonality of the business - peak demand on suppliers in July/August
  • Ownership costs are not necessarily on an annual basis

Often inexperienced family offices unfortunately focus only on the costs they understand, to the detriment of a successful operation and without any understanding of the seasonality and the timeliness necessary for the operation.  

Tax

Standard VAT in Europe is 17%-27%, depending on the country. Further customs duties levied as part of trade tariffs exist. Ensuring the correct European import of the vessel, under the correct regime and for the correct use (private or commercial), is therefore essential and more pertinent with a hard Brexit on the agenda. Penalties for incorrect yacht operation can be significant.

A yacht should have a robust documented tax strategy for purchase, operations, provisioning, refit, spare parts, payment of crew, charter activity and a plan for final sale. The captain and family office must be fluent in this strategy to ensure the owner does not unnecessarily pay tax. Reclaiming tax for a perceived luxury item is difficult in most jurisdictions, unless full commercial use can be demonstrated. 

Crew

With some superyachts having a ratio of two (or more) crew to guests, the costs can be substantial which include salaries, training, employment, medical, travel, recruitment/redundancy fees, taxes and insurance. 

Charter

Many owners try to offset costs of ownership by chartering their vessel. A company, such as Equiom, can advise and manage structures to facilitate this and successfully administer the VAT and taxes due on the charters.

Depreciation

Much can be done at the purchase stage to minimise depreciation through selection of a good brand, quality shipyard, excellent designer and style that will be timeless. Second hand purchasers need to insist on a rigorous survey and gain thorough feedback from brokers and even former captains/engineers to ensure they do not overpay.

Fuel

There are a host of excellent fuel traders and fuel companies. It is worth taking time to plan the route to take advantage of tax efficient quality locations to refuel and negotiate the best price from the source. 

Maintenance

Many owners don’t undertake planned maintenance resulting in reactive maintenance expenses which can impact negatively on their depreciation charge. Breakdowns typically happen at peak season when prices are higher and availability of skilled technicians lower. 

Insurance

Many insurers are no longer in the market, leaving insufficient competition to keep the prices down and insurance premiums have escalated recently due to a spate of in-build yacht fires and accidents. 

Reporting, budgeting and reviewing

Conscientious owners take time to review the operating costs against budget, investigate variances and keep their captain informed with a calendar of operations so the captain and engineer can forecast costs and undertake planned maintenance. 

Time is precious

At the end of the day we must not lose sight that unlike other assets in the family office portfolio the yacht represents a consumption asset for pleasure purposes. The yacht experience is the most luxurious lifestyle experience on the planet, and for time-poor billionaires, exclusive time with your close family and friends on a yacht is priceless!

If you have any questions about any of the above topics, please contact Ian Petts.

This article has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The article cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact Equiom to discuss these matters in the context of your particular circumstance. Equiom Group, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this article or for any decision based on it.
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