Submitted by Matthew Miller on
One of the main decisions a yacht owner must make when purchasing a yacht is how to register or document the vessel. Foreign flag registration versus United States documentation has long been a topic of debate in the yachting community. There are many factors that must be considered before making the choice. Several factors that may affect the choice between foreign flagged registration and U.S. documentation are discussed below.
Factors to Consider:
- Sales and Use Tax Liability: Foreign registration of yachts has long been popular as a mechanism to minimize Sales and Use Tax liability on yacht purchases and usage. In recent years, Florida and several other U.S. States have capped Sales and Use Tax amount imposed on yachts, reducing the advantage of foreign registration versus U.S. Documentation to minimize Sales and Use Tax liability.
- Citizenship of Beneficial Owner(s)/Ownership Entities: In some circumstances, the citizenship of the yacht's beneficial owner or the owning entity may preclude U.S. Documentation of a yacht. 46 U.S.C 12103(b) enumerates the individuals and entities that may be eligible owners of a U.S. documented vessel. Many noncitizen beneficial owners and ownership entities would be unable to meet the requirements of an eligible owner under 46 U.S.C 12103(b).
- Size of Vessel: U.S. documented seagoing motor vessels greater than 300 gross tons in size, must comply with very stringent inspection requirements. Most yachts are not built to the standards required of U.S. documented inspected seagoing motor vessels, and therefore most yachts larger than 300 gross tons must choose foreign registration. Foreign flagged yachts cruising in United States waters are also subject to inspection. Fortunately, U.S.C. 46 3303 provides that foreign-flagged yachts that carry a valid certificate of inspection from a country that is a signatory to the International Convention of Safety of Life at Sea, will generally be presumed to have a valid certificate of inspection that meets U.S. requirements.
- Citizenship of Crew: Many yacht owners prefer the ability to hire non-U.S. citizen crew members for various reasons. Operating a U.S. documented vessel in U.S. waters with foreign crew is extremely difficult. While technically crew members on U.S. documented recreationally endorsed vessels may be non-citizens, U.S. immigration and work permit requirements may effectively prohibit non-citizens without proper work permits from crewing on U.S. documented yachts while located in U.S. waters. Yachts seeking to employ foreign may be best served with a foreign registration.
- Chartering: In certain instances foreign registration offers advantages over U.S. documentation in regard to chartering. Several foreign registries now offer yacht registration that will allow a private yacht to engage in limited chartering (usually no more than 84 days in a calendar year), which is advantageous if a yacht desires to do some chartering without complying with rigorous commercial yacht codes. Foreign registries are also preferred for commercial chartering in Europe, as it is extremely difficult for a U.S. documented vessel to comply with the requirements for conducting commercial European charters. Additionally, certain U.S. regulations may be avoided when chartering a foreign registered yacht outside of U.S. waters.
- Discrete Ownership: Many yacht owners are high profile individuals who also value their privacy. Several foreign registries allow for a yacht's ownership entity to have nominee directors or shareholders, therefore allowing the beneficial owner to remain relatively concealed from prying eyes. In the U.S., nominee directors and shareholders are not permitted and the identity of the yacht owner is more easily obtained.
- Registration of yachts under construction: The U.S. does not allow for documenting vessels under construction, but several other countries do allow for registration of yachts under construction. The ability to register a vessel under construction may allow for better financing options and may provide some protection to the owner if the shipyard goes bankrupt during vessel construction. Furthermore, registering a vessel under construction may provide for a smoother transition to permanent registration once the yacht is completed.
- U.S. Cruising Permits: Certain foreign flagged yachts may cruise U.S. waters fairly easily with a cruising permit, but they must leave U.S. waters at least once per year in order to renew their cruising permit. If possible, U.S. documentation of a yacht may be desirable for a U.S. based yacht in order to avoid the inconvenience associated with a cruising permit.
The above factors are just some of the considerations to take into account when choosing the proper registration or documentation for a yacht. This post is only intended as a brief discussion involving issues surrounding yacht documentation and registration and is not intended as legal advice. Every situation is different, and different factors must be examined for every individual yacht, owner, and transaction before making a decision.
