News & Insight Open Menu

Thinking of Chartering your Yacht? Here are Seven Areas to Consider

posted by Dan Armsden

Chartering your yacht can offset a portion of running costs which is a tempting prospect for many owners, but it’s not as simple as registering the yacht with a charter broker and seeing the income roll in. The days of simply complying with a commercial yacht code and changing the yacht registration over to commercial are over. VAT, the MLC, tax and so on all need to be taken into consideration.

From a captain’s perspective, changing to commercial status may create more paperwork with more stringent regulations to adhere to, for example crew hours of work and rest. For larger yachts, particularly those over 500gt (approx. 45m+), it is likely the yacht will voluntarily be operating according to, or close to, a commercial yacht code, so the change to commercial may not have a significant impact from a paperwork and operational perspective. Smaller yachts, especially those under 200 gross tonnes (approx. 30m+), will feel the extra administration load, although back-office support from Sarnia’s administration team can provide much of the backup required.

Flag Registration

To offer a yacht for charter, the yacht will need to be registered as a commercial yacht and comply with the flag’s appropriate commercial yacht code plus any applicable international codes (for example ISM, ISPS, MARPOL or SOLAS). In most instances the yacht-owning company will also need to assign a Classification Society (for example Lloyds Register, RINA, ABS or Bureau Veritas) to manage the yacht’s surveys and certification.

Being registered as a Commercial Yacht is the most robust registration option for charter operation within the EU. Foreign maritime and customs officials are usually well aware of this type of registration status and the appropriate commercial yacht code. 

A few flags now offer flexible types of commercial registration such as the Marshall Islands, St Vincent & the Grenadines and, in the near future, the Cayman Islands. These flags offer a ‘Private Yacht Limited Charter’ (PYLC) or ‘Yacht Engaged in Trade’ (YET) registration status. These types of registration allow the yacht to operate as a pleasure yacht for the majority of the year, but also permit up to 84 days of commercial charter outside the EU and in some EU countries. Yachts registered under these systems still need to comply with a commercial yacht code, but it might be slightly less stringent than the full commercial yacht code of the flag. Careful consideration needs to be made before operating under these flexible types of registration in the EU. Chartering in the wrong EU jurisdiction could create a VAT liability for the yacht, plus some foreign maritime and customs officials may not be familiar with this type of yacht registration, resulting in a longer inspection and possible operational issues.

The team at Sarnia are happy to discuss your individual requirements and to ascertain whether such a registration type will be appropriate for your needs. More information can be found on our Yacht Registration page, including a helpful Flag Selector Tool to help choose the most appropriate flag for your yacht.

Charter Locations

Commercial yachts can charter in most locations worldwide, however national restrictions (such as those in the USA and Galapagos Islands) may prohibit yachts from carrying out charters in their waters if the yacht does not fly the national flag.

VAT & Chartering in the EU

Once registered as a Commercial Yacht, offering your yacht for charter outside the EU is a reasonably straightforward process with few complications. However, if you wish to offer your yacht for charter inside the EU, particularly in Croatia, France, Italy and/or Spain, the following must be considered:

  1. If the yacht is not in free circulation in the EU (possible indicators being VAT not paid or accounted for), the yacht must be imported into the EU through a formal process and VAT accounted for;
  2. The yacht-owning company may need to be registered for VAT and submit quarterly VAT returns;
  3. The yacht-owning company will need to appoint a fiscal representative in each EU country where a charter commences. The fiscal agent will be responsible for paying the charter VAT to the appropriate government;
  4. VAT on the charter fee will most likely apply to all charters in the EU and cannot be reclaimed;
  5. The owner must charter the yacht at market rates every time they wish to use the yacht and pay VAT on the appropriate charter fee. The only exceptions to this are for i) VAT paid yachts that can temporarily switch back to Pleasure Yacht status without leaving the EU and ii) yachts operating under a PYLC or YET registration status and operating in a jurisdiction which has approved this type of flexible registration status.

More information can be found within our VAT and Charter Operations and VAT Registration articles.

Withholding Tax

Consideration needs to be made with regards to withholding tax, the jurisdiction of the yacht-owning company and the waters in which the yacht will be available for charter.

If the jurisdiction of the yacht-owning company does not have a double taxation agreement with the country where the yacht undertakes charters, then withholding tax issues need to be considered.

More information can be found within our Withholding Tax article.

Maritime Labour Convention (MLC)

Commercial yachts must operate in accordance with the MLC. Numerous requirements must be met, one in particular is the use of approved seafarer employment agreements (SEAs) for all crew; with access to health insurance and cover for up to 16 weeks’ wages and medical care if injured or ill during their employment.

More information can be found on our MLC page on our website.

Insurance

The yacht’s insurance may need to be increased to include sufficient P&I cover. The yacht owner must provide medical insurance for all crew, including temporary crew. The medical insurance must include cover for personal accident and illness.

If a crew member becomes incapacitated through a work-related injury or illness, the yacht owner (or employer) must pay full wages to the incapacitated crew member until recovery or for at least 16 weeks if it is a long-term injury or illness. The majority of this liability can be covered through Temporary Total Disablement (TTD) cover, often referred to as “loss of income protection” or “sick pay” cover. In some cases TTD cover may already be covered under the yacht’s P&I policy or crew medical insurance, but in the majority of cases it will need to be considered in addition to the existing insurance cover.

Insurers will need to be advised that the yacht’s status is changing to commercial. Usually this will result in an increase in premium to cover the additional MLC liabilities.

Crew Qualifications

The crew may need to obtain further maritime qualifications to work on board a Commercial Yacht. STCW Basic Safety Training and medical fitness certificates will have to be obtained as a minimum. Crew holding a certificate of competency issued in accordance with the STCW may need to obtain an endorsement from the flag state to work on board the Commercial Yacht.

What next?

With all the complex areas that need to be considered, chartering your yacht is not a quick process. Sarnia would suggest you allow between one and two months to get everything set up. 

Our team is here to help make the step into commercial waters an easy one. Please get in touch with a member of our team…..