Exploring the Non-EU Flag Issue

For many years it has been common to see a high percentage of charter yachts in the EU flying non-EU flags, particularly those of the British Overseas Territories.

The acceptance and legality of non-EU flagged yachts operating in the EU is a subject that has ebbed and flowed over the years, so what are the ongoing implications?

Why Fly a Non-EU flag?

The continued popularity of non-EU flags can be attributed to several factors  

Including:

• The efficiency of the flag registration process
• Amenability of flag state surveyors and the desire to fly the chosen flag
• Availability of yacht names through a choice of ports
• A wide spectrum of qualifying jurisdictions for flag registration
• Advice from industry professionals

Protecting the ‘EU Club’

We have seen a notable shift over the last few years towards ‘protecting the EU club’. From a yachting perspective, this means the need to be in the EU to do business in the EU.

This shift also includes flag state with additional processes introduced for non-EU flags including Returned Goods Relief (RGR) in 2017, more onerous processes for charter licences in certain jurisdictions and limitations on the options for paying social security contributions for crew.

EU flags can be used to protect the EU VAT paid status of a yacht, facilitate the Tonnage Tax Regime (Malta) and to add substance to the EU business arrangements for commercial yachts.

Looking at the communications currently coming out of Brussels, there is a shift towards closer unity and protecting those ‘in the EU club’ and this looks like it will only get stronger in the future.

The Maltese Factor

Historically, the EU flags favoured for many yachts have been UK, Isle of Man and Malta with other EU flags used predominantly for domestic craft operating within local waters.

With Brexit looming, there is the assumption that both the UK and Isle of Man flags will become non-EU at some point leaving the options for EU flag looking rather limited.  Malta appears to be the biggest winner from this process with the number of Maltese flags flying from the sterns of yachts increasing almost daily.

Many of the arrangements for yacht owning companies, customs, VAT, and flag registration are done face-to-face, so having a local office in Malta means Praxis can maintain control of every step of the process.

Consider Your Options

More and more roads surrounding flag choice are leading to Malta and the flag registration department at Transport Malta is already busy. We believe that Malta will need to gear up to cope with what looks like an ever-increasing flow of business.

Relationships with the various authorities are essential to keep the process flowing smoothly, and our recently expanded team in Malta is well-placed to help.

Owners either currently operating commercial yachts or looking to acquire such a yacht should carefully consider their options when it comes to flag choice and seek appropriate advice.

Please note that this article is intended to provide a general overview of the matters to which it relates. It is not intended as professional advice and should not be relied upon as such. Any engagement in respect of our professional services is subject to our standard terms and conditions of business and the provision of all necessary due diligence. © Praxis 2023