Many articles have been written about the various aspects of charter yacht operation, however it is important that two areas are considered, not just one element in isolation.

So what does a charter vessel/owner need to do? Quite simply two criteria should be met;

1. The owning company should have a place of business in the EU and this is achieved with a VAT registration in the EU – an EU company is not necessary, many non EU companies can register for VAT in the EU.
2. The vessel should be formally imported in to the EU and VAT accounted for on the vessel. This is usually undertaken in France under the French Commercial Exemption (FCE), in Malta under a commercial import or in the country of VAT registration.

Where charter vessels encounter problems from fiscal and customs authorities we see that problems have inevitably arisen as a result of the failure to comply to the criteria mentioned above. With a large number of articles written from differing perspectives, it is easy to understand how the message has been mis-interpreted by owners, resulting in innocent exposure to a VAT liability and possible penalties. Historic operation without challenge is also no basis for comfort of  correct structuring, especially with boardings, inspections and scrutiny from the authorities at an all time high.  Whilst part of the problem is the varying rules and interpretations between member states, the other problem lies where the most favourable are adopted and considered the norm.

Clearly we are looking at the  (FCE) rules, which were introduced in 2004 in an effort to simplify what was a confused industry. The FCE worked very well and France benefited greatly from the charter activity. Italy largely followed the same rules up until around 2008 when question marks began to be raised on the application of the rules and partly arising from abuse of the rules.

Taking Spain out of the equation for chartering as their rules are quite specific and well known, the fundamental problem is that the FCE was considered the benchmark rules for chartering as opposed to exception, which is exactly what they are, exceptions. This left some vessels moving to charter in other jurisdictions deficient from a structure perspective.

Although an extensive builder’s risk or yard policy may be in place for the yacht whilst in build, these are primarily to cover the yard’s own risks rather than the owner’s. Such policies often have high deductibles which might leave an owner exposed to losses in the event of a claim. 

Sarnia Yachts can arrange pre-delivery insurance for an owner to compliment the builder’s risk policy. As crew will often be sent to the yard prior to the delivery, it is important that the correct liability cover is in place.  Below is a general description of  this cover.

Owner’s Liabilities
Owner’s are responsible for project managers and pre-delivery crew that they employ, so cover to protect the owner’s liability is an important area to consider. In the event that an employee of the owner either causes damage to the yacht, yard or third party assets, it is also recommended that cover be extended to include these risks.

Welfare and Benefits
As with the yacht’s crew, pre-delivery employees at the yard may also require a comprehensive welfare and benefits package, which can include:

-          Personal Accident cover
-          Medical expenses
-          Sickness benefit

These can be arranged with the benefits of 24 hour cover, helpline and automatic hospital payments.

Property Cover – Goods in store
Property such as electronic or audio equipment, security equipment, furnishings, fixtures and fittings, or even tenders and toys, may be stored at the yard prior to fitting on-board or delivery. With many builder’s risk policies these items may fall below the level of deductibles, or may not be covered at all. 

Property cover is subject to a schedule listing the items and details of where they will be stored. Cover can be extended to automatically include additional equipment delivered to the yard.

Please contact us for more information or to obtain a quotation.

Monday 7th May - May Bank Holiday, office closed
Wednesday 9th May – Liberation Day, office closed

Monday 4th June – Spring Bank Holiday, office closed
Tuesday 5th June -  Public Holiday Queen’s Jubilee, office open with limited staff cover

Please note that all UK and Guernsey banks will be closed on both Monday 4th and Tuesday 5th June, so even though our offices will be open on Tuesday 5th June, no bank payments can be made on that day. Any bank payments not made by Friday 1st June will be processed on the next business day being Wednesday 6th June.

Please get in touch with us ahead of these holidays if there is likely to be a transaction that requires our involvement, so we can try our best to avoid any delays.

In recent charter seasons the subject of VAT on short term Italian yacht charters has drawn differing conclusions on VAT obligations. The most common approach to addressing this lack of clarity has been to include an addendum to the charter agreement setting out who will be responsible for VAT should a liability arise. Some charter companies obtained an Italian fiscal number and collected VAT and other charter companies simply ignored the whole issue.

It is now expected that Italy will pass legislation by the middle of March 2012 in relation to VAT on charter fees.

We believe that this will confirm VAT at the reduced rate of 6.3% will be payable on Italian charters. An Italian charter being one that starts in Italy, which is in accordance with the EU VAT directive i.e. where the charter was placed at the disposal of the customer. The yacht owner will also need to have obtained an Italian fiscal registration.

The reduced rate of VAT will apply to yachts of all flags, not just Italian flagged yachts.

It can be expected that most charters will therefore start outside of Italy, most likely in France and then cruise Italian waters, the misconception being that VAT does not apply to French charters.

The place of supply of a charter starting in French waters is France – again where the charter is placed at the disposal of the customer. So French VAT is payable, but this is a zero tariff based on the French Commercial Exemption (FCE).

It is worth noting that should the FCE be amended or subject to a VAT rate other than zero, the option of starting a charter and bearing the cost of the reduced Italian VAT rate may not be so unfavourable.

Charters starting outside the EU and cruising Italian waters will be subject to Italian VAT on the number of days spent in Italian waters. So the VAT liability cannot be avoided that easily.

Sarnia Yachts has already assisted several owners with Italian fiscal registration so please contact us should you need assistance or simply require further clarification.

It is a common misconception that the first port of call to check on safe manning requirements is with your insurers, this is not the case.

When looking to establish safe manning requirements for your yacht, your first port of call at all times must be with flag state.  Insurers will only provide cover if the yacht operates legally – this means that you must at all times be compliant with the requirements of the flag state of the yacht.  Not complying with these requirements can mean that the yacht is illegally operating and therefore, no cover will be in place.

Safe manning requirements can apply to both private and commercial yachts dependent on the choice of flag, yacht size, tonnage, engine kilowatts and also area of use. Safe manning does not stop at number of crew onboard – it also involves making sure all certificates for crew qualifications are up to date, any Certificates of Equivalent Competency for the relevant flag state are obtained before crew members commence employment onboard and STCW / current medical certificates are held.

I will be attending the Dubai Boat show between 13th & 15th March 2012 and will be delighted to meet any current or prospective clients, captains, brokers and intermediaries.

To arrange a convenient time to meet, please e-mail me at chris.hole@sarniayachts.com or call +44 1481 754852.

During the week of my trip I can be contacted on +44 7781 119175.

I look forward to hearing from you.

We are not sure that too many people are able to definitively answer this question. It is an untested area to date, so any advice taken must rely solely on opinions rather than any precedents.

There has been quite a rush in the last few years amongst EU service providers and yacht managers to develop their own crew employment companies located outside of the EU in places like Guernsey, Jersey, the BVI or the Cayman Islands.

Sarnia Yachts is no different as a number of years ago we formed a dedicated Guernsey Protected Cell Company (“PCC”) under the brand name “Sarnia Crew”. This is so that the crew for each yacht can be employed by a separate protected cell of the PCC which aims to ring fence the assets and liabilities associated with each yacht’s crew employment activites.

We would like to think however that Sarnia Yachts’ crew employment service is about as genuinely non- EU as conceivably or practically possible for the following reasons: 

1. Sarnia Yachts has, like many other groups, recently established a specific employment vehicle in the form of a Guernsey PCC, but we have in fact been undertaking crew employment for nearly 40 years from our base in Guernsey. So while our employment vehicle itself may be relatively new, providing non EU crew employment services is something we are very familiar with;
2. Our PCC used for crew employment services is 100% owned by us and ultimately by Guernsey resident individual shareholders. It is not a company managed on behalf of and therefore potentially a subsidiary of a business operating within the EU;
3. All the decision making in respect of the management of our crew employment company is undertaken by us as directors in Guernsey so we are comfortable that the real mind & management of our crew employment business takes place outside of the EU;
4. All of our payroll transactions are authorised and released by us in Guernsey from our Guernsey based bank accounts. They are not controlled by a party located in the EU who logs onto a Non EU on-line banking system.

Going back to the original question, we are not saying that the above criteria are absolutely essential in establishing an effective non EU employment arrangement. However the changes that have driven the rapid increase in the number of non-EU employment companies are quite recent and as yet they have not appeared on too many radar screens. If or when they do, we are comfortable that our service offering is as genuinely non EU as possible, as a result of all of our operations being undertaken from outside of the EU at our Guernsey offices.

For the basis of this text, the term EU also includes the European Economic Area (EEA) and Switzerland

I will be travelling to the Cote D’Azur during the week of the 20th to 24th February 2012 and visiting Monaco, Antibes, Cannes, La Napoule and Golf Juan. I would welcome the opportunity to visit any captains, brokers, managers and clients who feel a meeting might be helpful.

With many fiscal changes affecting the industry and the increasing range of Sarnia Yachts’ services, there are a number of topics on which I can provide an update. 

To arrange a convenient time to meet, please either e-mail me at bruce.maltwood@sarniayachts.com or give me a ring on +44 1481 754851.

During the week of my trip I can be contacted on +44 7781 100463.

I look forward to hearing from you.

For all commercial yachts of 24 metres load line length and over, operating under LY2 and that are under 500GRT, mini ISM is mandatory. For private yachts or commercial yachts operating under other commercial codes, Mini ISM is voluntary.

Please click on Mini-ISM in order to download the free template in word format which is also available from the MCA directly.

Sarnia Yachts will once again be attending boot Dusseldorf  this year which runs from 21-29 January. Darryl Sharman will be visiting the show on 26 January 2012  and looks forward to seeing you there.

To arrange a meeting please contact the office on +44 1481 754850 or alternatively you can phone Darryl during the show on +44 7781 101562.