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The right flag for your yacht / VAT consideration
Due to the limited port space, only Monegasque or Monaco residents can register a vessel in the Principality. There is a saying that Monaco is for supercars and not for superyachts.
One of the most important things for superyacht registering, is that Monaco has no Monegasque commercial flag. For this reason, registering a superyacht in Monaco is not VAT free, and yachts will have to have the VAT paid, which is 20% of the purchasing price.
The 20% of VAT paid on every new yacht could be for example, a hefty 20 million Euro on the 100 Million Euro purchase price. To put this in a simple form, the Principality of Monaco is not the most cost-efficient choice, but the most prestigious one.
Other countries such as Malta and Cyprus offer much better advantages for the fraction of the VAT that would be payable in the Principality. However, it is also important to understand that the European Union has started to crack down against yacht registration in Malta and Cyprus. The European Commission has put Malta, Greece and Cyprus on notice of infringement proceedings for not levying the correct amount of Value Added Tax on the provision of yachts. The infamous Paradise Papers revealed widespread VAT evasion in the yacht sector, facilitated by national rules which do not comply with EU law.
For this reason, Cyprus does not really except anymore superyacht leases, while Malta is still in a fight with the European Union. One of the predicted outcomes of this fight is that superyacht owners may need to pay the VAT difference, and this sum can be relatively huge on large vessels. However, on the human side, most owners do not want to be involved in a tax evasion investigation which brings back their attention back to safe jurisdictions such as the Principality of Monaco.
In reality, registering a small yacht with maximum 2 crew members can be very well executed in the Principality of Monaco, while for bigger vessels the owners might consider alternative international registry options in order to avoid the numerous restrictions in the Principality.
Also worthy of note is that the crew of a Monaco based yacht must be hired through the Monaco Employment Office, and full social security is due. Furthermore, the Captain must have Monegasque or French certificates. Generally speaking, the bigger is the vessel, the more certificates and compliance it needs. This is very challenging for very large yachts, because it is difficult to have all necessary certificates, often up to 45-60 in total.
Truth to be told there are very few large vessels registered under the Monaco flag.
For example, a Cayman Island flag (which registers your vessel as a British Ship) allows the owners to hire captains in a much more flexible way, and they do not need to do it through special authorities such as the Monaco Employment Office in the Principality. This can also save owners up to 45% of Social Security Funds payable in Monaco.
You might also want to consider registering your vessel under a flag which is highly respected in the European Union. Obviously, there are huge differences between the different flags and in their prestige as well. For example, the Cayman Islands have a Red Ensigned flag, which means a high standard for the maintenance of the yacht.
By having the Red Ensigned flag, authorities know that all papers, equipment and crew related documentations are in order. It shows a high standard compared to other countries such as Madeira which is more flexible on its regulations. Choosing the right flag can also save time, energy and more importantly the hassle in the ports where your superyacht will take a visit.
Yacht owners should never forget that by owning a vessel they will need to comply with multiple jurisdictions. One is the jurisdiction where they register the yacht, and the second is the jurisdiction where the yacht will visit in the future. A poorly chosen flag can bring lot of unnecessarily port checks, technical inspections and so on.
Many port authorities do a “random” port safe control check based on the flags of the vessel. To give you an example from the car industry, say there are two BMW cars, both cars have the exact same specification, however one is registered in Germany and the other in Romania. Knowing the Germany car registration and TÜV standards, when they enter a police checkpoint, it is highly likely that the authorities will check the car from Romania as opposed to the one from Germany. Prejudice or not, your flag will immediately show a picture of your yacht profile to the port authorities.
Another good important point to consider is that your chosen flag brings with it specific consular help. Therefore, if you have any port issues it can be very handy if the country of your chosen flag has an embassy of consular office in the same country. Consular help can be very helpful when a non-EU registered ship enters an EU custom zone, or an EU registered ships leaves the European Union.
If one decided to choose the Monaco flag for yacht registration, pays the VAT and decided to accept the employment though the Monaco Employment Office, you will still be faced with certain restrictions. One of those restrictions is the distance that the superyacht can travel. Due to the agreement between Monaco and France, from 1963, no Monaco flagged vessel can go further than the France flag authorises it. It is another point where the Monegasque legislations merge together with the French one.
Summarising, for small vessels with limited crew members Monaco can be an ideal destination for yacht registration, however for large superyachts the main consideration is the status symbol of having a Monaco registered superyacht. We can conclude that registering a superyacht in Monaco is a question of prestige.
In the case you decide to register your vessel in the Principality of Monaco, it is highly recommended to seek professional advice.
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