Last month, Patrick Spiteri, Director of Sarnia Yachts’ Malta office, attended the sixth Annual Opportunities in Superyachts Conference; hosted by Andrew Charlier, Partner, Global Head of Yachts & Superyachts, Ince & Co.
With a full schedule, Patrick reports back on the day:
Session One: What are the Opportunities for Marinas?
The Global Superyacht Fleet – What are they doing and where are they doing it?
Simon Goodhead’s presentation gave an insight into how companies such as Marina Projects track superyachts. The information they obtain helps them understand the popular destinations and the interests of yacht owners, which can be used for any eventual development of marinas.
Some sized superyachts are easier to track than others, with those 30 + meters in size being the simplest as they have been custom-built rather than bought off the shelf.
However, vessels of 300 + tonnage are fitted with an AIS, which, despite the fact that it can be turned on and off, provides marinas, emergency services and owners the opportunity to track the yacht.
Vessels are split into two categories for tracking and statistics purposes:
- Class A – Large commercial yachts; reliable and easy to track
- Class B – Leisure yachts; unreliable and harder to track
Once a significant amount of yacht movements have been captured, a picture begins to build showing the seasonal movement and berthing patterns.
On average, 159 vessels per annum are delivered, however, there has been a decline in numbers since 2010.
It is predicted that the total fleet numbers will reach 6,500 by 2025, which raises the question, will marinas keep pace? And are they in the right place?
A percentage breakdown of the tracking results from the fleet shows the following:
Regions – Peak/low season, the percentage of fleet numbers present:
- N America & Canada –32% – 23%
- Caribbean – 25% – 1.4%
- N European – 6% – 3% – turning off AIS more common
- Middle East – 2.5% – 1%
- Asia Fleet – 0.9%/0.7%
- Australasia –6% – 3%
- Mediterranean 60%/30%. – 75% are 60 m above and 80% 100m above in a peak week.
These findings show that the most popular area of travel is predominantly the West Mediterranean followed by the Balkans.
Malta sees more yachts berthing in port throughout the winter months, with small berthing being the most robust industry, although a healthy supply for larger boats exists.
Opportunities and Challenges for Marinas
The panel went on to give their thoughts following the presentation, stating that development is particularly difficult in Asia due to the culture and regulations. However, significant investments have been made with new marinas and facilities being constructed.
There is consistency in the heat map developed over the years, showing the most popular areas of travel among yachts.
The Balkans are seeing development but they are faced with difficulties such as changing marinas from military to commercial superyachts. In the South of France, such as Monaco, we are seeing various expansions to existent marinas.
Yacht berthing prices are currently on the increase, being driven up by a mismatch between supply and demand. The owners are contributing to this upward trend as they are happy to pay more for their spots, causing a raise that is adversely affecting the smaller boats.
Structural changes in Malta are still under general discussion following potential plans idea to expand the marinas, for example, the development/build of Sliema promenade.
Session Two: Registries Update
New Guidelines for the Registration of Pleasure Yachts
Currently, pleasure yachts can only carry 12 or fewer passengers, any more than this and the vessel will be classed and treated as a ship. This is in accordance with The International Convention for the Safety of Life at Sea (SOLAS) and international maritime treaty, which sets minimum safety standards in the construction, equipment and operation of vessels.
SOLAS requires signatory flag states to ensure that ships flagged by them comply with these standards.
When it comes to registering their yacht’s flag, owners must take the following into consideration:
- Tax regulations
- The yacht’s intended use
- Its area of operation characteristics
- The residence of ownership
- The reputation of the flag
- The look of the flag
Registry of Malta will shortly issue new guidelines for pleasure yachts, allowing them to carry more than 12 people on board only if the vessel is more than 24 meters.
The general conditions for this would be that navigation shall not exceed 150 nautical miles from a safe-haven with further requirements split between 24 meters and 500+ gross tonnage and 24 meters and less than 500 Gross tonnage.
Guidelines are currently in discussion and will be published shortly.
The ‘Papers’ – Where are we now?
International and other initiatives?
Transparency and Impacts
There is a current tax shortfall across jurisdictions and current populist political scenario, for example in the UK the top 1% of earners pay 25% of the total income tax.
The Organisation for Economic Co-operation and Development (OECD), an intergovernmental economic organisation with 35 member countries, is shining a light on tax avoidance. Singling it out, without an overview of all matters involved.
The EU is pushing for the harmonisation of tax and definitions; for tax matter votes to change to a majority (as opposed to agreement from all committee members) and committees to be set up for VAT. There are lots of possible changes in the pipeline.
To some, it would appear that there is a trend emerging where easy targets such as the ultra-rich, yacht owners and small jurisdictions like Malta are under attack.
It seems that an unofficial decision has been made to ignore the large centres such as London and Frankfurt, known to be high money laundering risks, and instead focus on the smaller, easy targets.
There is no consideration of industry instability, the rejection of business or stolen data being given to the public; this is causing business to slow down as companies are receiving numerous data requests, which increases the risk of a data breach. Bringing AML regulations into question, whether brokers can carry it out and if so cope with it.
Session Three: Superyacht Finance, Valuation and Sales
How are yachts balancing potential risk versus reward?
What can data tell us about superyacht trends and values?
Pure lenders versus private banks:
Pure lenders have an appetite for higher risk and increase their portfolios to diversify smaller transactions, i.e. higher margin for higher risk
Private banks require higher commitments, deeper credit processes and KYC.
Sam Tucker, Analyst at Vessels value, shared a collection of data, focusing mainly on Malta, showing the value of the vessels and their locations.
There are 396 yachts less than 30 meters registered with Malta flags situated predominantly in the Mediterranean with a few in Asia, the Caribbean and North America. This amounts to €3.3 billion worth of yachts with 5% of the fleet flagged Malta.
The value of vessels is calculated automatically, based on the type, size, age and features of the yacht. The price is adjusted accordingly with every sale being recorded so that the value is kept up to date.
The most expensive Malta mega-yacht was registered at €145M and sold for €155M, and the most expensive superyacht, The Maltese Falcon, is currently valued at €52M as per the system.
The tracking results painted a similar picture to the previous presentation, with the primary traffic happening between Spain France and Italy; with the Balkans following.
Session Four: VAT Workshop – What is happening in different jurisdictions such as France, Italy, Spain, Greece and Montenegro?
The leasing schemes in Malta are set to proceed as normal, with new applications being accepted and on-going applications being fulfilled.
The European Commission has issued infringement procedures against Cyprus, Malta and Greece for not levying the correct amount of VAT on the provision of yachts.
The infringement procedures launched relate to:
- A reduced VAT base for the lease of yachts – the general VAT scheme provided by Cyprus, Greece and Malta. The current EU VAT rules allow the Member States not to tax the supply of a service where the use and enjoyment of the product are outside the EU; they don’t allow a general flat-rate reduction without proof of the place of use. Malta, Cyprus and Greece have established guidelines, whereby, the larger the vessel, the less the lease is expected to take place in EU waters, a rule which significantly reduces the applicable VAT rate.
- Incorrect taxation in Cyprus and Malta on the purchase of yachts by means of a ‘lease-purchase’. The Cypriot and Maltese laws currently class leasing of a yacht as a supply of a service rather than a good. This results in VAT only being levied at the standard rate on a minor amount of the real cost price of the vessel once the yacht has been bought, the rest is then taxed as a supply of service at a greatly reduced rate.
Malta has two months to give its thoughts in response to the notice with the Commission responding after that. Malta is challenging the notice as the scheme is based on sound understanding and other member states applying similar guidelines, for example, France and Italy. The infringement notice gives the impression of discrimination against Malta, Greece and Cyprus.
Temporary admission into France depends on the customs office processes; the most important factor they take into consideration is the use of the yacht. If it is not for personal use, then it will fall under a different form of admissions for goods, as marketing or selling yachts does not fall under temporary admission.
A reverse charge on import has recently been brought in, with different rules for EU and non-EU yachts. This is valid for three years and is renewable; companies will have normal VAT processes when it comes to paying and refunding VAT.
Reference has been made to case law regarding the supply of goods and services, calling the concept of leasing into question. France uses bank leasing out to a third party, where the banks want to make money from it.
French Social Security is still a hot topic under discussion; it is important that the crew have proof of their employment contracts and insurance/payment documents for social security.
Similar to the temporary importation of 18 months, the user has to be a non-EU resident.
Commercial importation requires a charter License, for all charters starting and ending in Greece.
Greece is not leasing yachts, so VAT is based on chartering. They pay 12% VAT as opposed to 24% and 9% if the vessel has a license to charter internationally.
Social Security – for a charter license you need to pay Greece Seafarers in Greece, or you have to pay in another country.
Croatia does not have a temporary importation policy. However, it does have a heavy machinery law which is applicable, although this is currently a bit of a grey area and it seems likely that commercial exemption will be introduced next year.
Yacht leasing in Italy has put limits on payments in place for the instalment and purchase of yachts; this is to make it a strong source for supply of service.
Importation in Italy is similar to France when it comes to temporary admission, apart from checks which will be carried out to see if any works have been done on the vessel that may breach the importation exemption.
Italy has no customs code that applies to commercial yachts, as customs consider the yacht as a passenger ship, although applications still need to be made.
There is a focus on income tax for crew. If their contract exceeds 186 days they cannot pay tax, although this depends on the use of the yacht, e.g. international voyages. This has been abused in the past which has caused the focus now, so make sure you are aware and abide by the rule.
ICE, the Italian Trade Commission, states that it is the supplier who is liable if the yacht does not meet the tax conditions.
Session Five: The impact of Brexit on the superyacht industry
What will Brexit and any changes to the UK`s participation in the customs union mean for the industry?
Currently, there isn’t much information, although Malta appears to be in a position of gain from a flag registration perspective.
Questions are arising as to the tax status, the answers of which will depend on the deal struck but it could potentially be good news to have your yacht set-up as a non-EU vessel to make use of temporary admission.
Session Six: Making the superyacht the centre of fun and entertainment
This session was similar to the one shown at the Superyacht Conference in London earlier this year, more of which you can read Superyacht Investor London.