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by Zsolt Szemerszky

Zsolt Szemerszky

Registering a vessel for chartering

Registering a vessel for chartering

Most of the superyachts that are used for commercial purpose (chartering) are owned by companies, which makes complete sense due to the VAT obligations of the owners.

The Principality of Monaco has no commercial flag, therefore all the vessels registered under a Monaco flag and intended for charter are due VAT, but at a much-reduced level, making it competitive compared to superyachts being classified as private use.

Many of the banks in the Principality of Monaco are equipped to offer lease options for superyachts, which helps to reduce and possibly offset the owner’s expenses. For this reason, most of the chartered superyachts are under corporate ownership.

Comparing the VAT on chartering versus buying, one can immediately see the benefits of chartering. While the superyacht owner is obliged to pay 20% VAT which is 20 million Euro on a 100 Million Euro yacht, he is only due to pay 2 Million Euro in the case the yacht is used for chartering. In this example, VAT payable was calculated based by Monaco rental on an annual 4% depreciation of the yacht over 5 years of period.

This is still considerably higher than flying the Malta or Cyprus flag, however it comes with the benefit of a Monaco flag. And as it was previously described, one can avoid the legal challenges and possible future VAT payments with flying the Malta and Cyprus flags.

It is also important to know from business perspective, that any chartered trip within Monaco and/or French waters, is due VAT, which is 20%. So, if a charter week starts in Monaco and finishes in St. Tropez for example, then 20% VAT is payable on the charter cost.

However, sailing out into international waters, meaning being more than 12 nautical miles away from Monaco and/or the French borders, and you decide to anchor in Italy for example, the VAT is immediately reduced to 10%.

On the insurance side of owning a superyacht, the crew and all passengers must be properly insured in the event of an accident, incident or liability issue. Often the Employer will have to take on private medical and accident cover for each crew member. Commercial yachts shall be insured for chartering activities and hold a greater third-party liability or P&I coverage. Insurance wise it is important to consider that the deductibles are high and not all risks are covered.

Among other matters, commercial yachts also must be in Class, and comply with the Commercial Yacht Code Regulations in accordance with the chosen registry.

Chartering under a Monaco flag raises the same problem with the crew. All crew members employed on a commercial yacht will be required to hold STCW 95 Basic Training certificates and provide evidence they hold the necessary Monaco approved qualifications specific to their position on board. Minimum standard clauses will becompulsory within employment agreements for crew on commercial yachts, in accordance with the Maritime Labour Convention 2006.

Finally, again the crew must be hired through the Monaco Employment Office and full social security is due. Furthermore, the Captain must have the required Monegasque or French certificates. This is very challenging for very large yachts, because it is difficult to have all necessary certificates, about 45-60 in total.

In Monaco there are multiple companies maintaining charter vessels, however very few of them have their yachts registered under the Monaco flag. Most of these yachts are leased through 3rd party companies and they typically have offshore flags such as the Cayman Islands or Isle of Man.

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