What are the factors that contribute to the choice of flag registration?

The yachting industry is focused on the pursuit of pleasure. Many aspects affect an owner’s choice in a yacht. Aside from the purely cosmetic and recreational issues, a large portion of a yacht’s existence depends upon its legal structure. Included in that framework is the yacht’s intended use and domicile, namely its registration.

The factors that contribute to the choice of flag registration for a yacht can be many. Certainly, the legal aspects and tax implications are high on the list. Will the yacht operate predominantly in United States, European, or worldwide waters? Let us not forget perception, politics, nationalism, and personal contacts. Although sometimes it may appear that way, an owner’s decision for registering a yacht is not simply picking the flag with the prettiest colors.

There is a choice that is always discussed with captains, brokers, documentation agents, attorneys, and all others associated with our industry: should the yacht be registered as private or commercial?

In this lethargic economy, even the most affluent of yacht owners are searching for a return on investment from everything, including their hobbies and entertainment.
Let’s take a look at some of the more popular responses on commercial certification and clarify the points.

Too expensive
Certainly, expenses and fees are on the top of everyone’s list. Let us remember that most yacht owners did not achieve their success by being foolish. This is especially true when it comes to finances. Running a yacht, either private or commercial, is not cheap. For a commercial yacht, there are additional costs involved in safety equipment, required third-party inspections, registration, and legal fees. Solely considering the amount of tax that is levied on the value of a private yacht, plus the future taxes on her fuel, doesn’t consider that those costs are almost immediately recouped. In some cases, the first day of a charter and/or the savings at her first fueling will recoup those costs. The inherent increased resale value for a commercially certified yacht is also a positive factor.

Owner has no intention of chartering
Having a yacht certified for commercial operations does not obligate an owner to charter the yacht. When, where, and if, an owner so decides is completely at the owner’s discretion. Having a yacht meet the standards of commercial certification is a statement to the level of safety implemented on board. It is also a tremendous benefit when the time comes for her resale. Compare it to used car sales. Does one have a higher level of confidence when purchasing a certified, pre-owned vehicle, compared to the same car you saw down the road at someone’s house? Unlike a private yacht, commercial yachts are inspected annually. This promotes continual improvement and assures a consistent standard. Commercial certification provides a third-party, objective view of the condition of the yacht.

Too much paperwork
Too much paperwork is the most popular response. Running a yacht is a business. No company today can be operated without some type of management system or operating procedures. If a yacht is not run with such a system, then it is not functioning correctly. However, too much administration can be an indication of micromanagement or inexperience. If a captain and crew are being inundated with paperwork, then something is wrong. A simple and professional administrative system, when implemented properly, will save any yacht, either private or commercial, a considerable amount of money. Operating a commercially certified yacht does not create paperwork disproportionate to its advantages.

Depending upon the flag of registry, manning can be an issue. If the yacht operates under a national flag, such as the United States, cabotage laws require that the yacht is manned with U.S. citizens and no more than 25-percent legal residents. Open registries, such as the Cayman Islands and Marshall Islands, allow for certain countries on the IMO-approved STCW Code “white list.” This permits a more international crew. Remember that certification discussed here is different from qualification. Licenses, certificates, and the standards enforced by the STCW Code are just that, an internationally recognized minimum standard. Officer licenses and crew training certificates are not a guarantee of quality. Quality comes with experience. Personnel certification on a commercial yacht is a must, but why would an owner utilize someone that has not met a minimum standard?

The yacht is not classed
Not being classed has always been a huge hurdle for yachts wanting to achieve commercial certification. There are many well-built and maintained yachts that, because of their hull construction or age, are not able to meet the standards of a classification society’s rules. The costs for putting a yacht “in class” can also be substantial, not to mention the time involved. The prerequisite for a yacht to be classed is a requirement of the UK Maritime and Coastguard Agency’s (MCA) Large Yacht Code. This safety code is a national standard for British yachts only. It is enforced by the red ensign flags (United Kingdom, Cayman Islands, Isle of Man, Bermuda, etc). While highly popular and internationally recognized, a MCA classification is not the only option for a yacht. Several other flags have their own commercial yacht codes. Currently, the most popular option involves the Marshall Islands, while others include the St. Vincent & the Grenadines, Belize, and Malta. These non-red ensign yachts are also commercially certified and receive the same rights and privileges. They are not certified as MCA solely because they are not British flagged.

Most notably absent from the above list is the United States. With such a large fleet of yachts, one would think that they have a yacht code. This is not case. The United States does not have a large yacht code or similar standard. Regulations for U.S.-flagged yachts are intertwined with those for merchant ships in the Code of Federal Regulations (CFRs). This creates a very difficult situation for yachts that want to trade internationally.

It is equally important to note that other flags’ yacht codes have recognized the many unclassed, but excellent yachts that previously could not operate commercially. Their codes allow for certain unclassed yachts to be certified as a commercial yacht. This is particularly true for yachts below 500 gross tons. While not as well-known or marketed, these non-UK national standards for commercial yachts are equivalent and equally recognized internationally. The options are there, they only need to be researched.

Many people can attest that achieving commercial certification for a yacht is a difficult process. Some have the opinion that maintaining the certification is an even higher task. Commercially certifying a yacht has traditionally been a taboo subject for all but the largest of yachts seeking to charter. Breaking the chain of incorrectly passed-down verbal history of “impossibility” is imperative to elevate the quality standard within our industry to the next level.


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