The market for offshore yacht and aircraft registration is heating up and stimulating a competitive spirit, says Reg Crowder, bringing nothing but good news for both owners and buyers of luxury yachts and aircraft
Never before have owners and buyers of luxury yachts and aircraft had more choice of places to register their sumptuous transports. Finding the right jurisdiction is ultimately more possible, if not a little more challenging.
When it comes to innovation, the Isle of Man (IoM) leads the pack – at least for the moment. The self-ruling UK Crown dependency has created a new user-friendly aircraft registry that is growing at a rate four times what the Manx government originally projected. Combined with its popular, existing yacht registry, the IoM now offers owners the convenience of registering their yachts and aircraft at the same time and in the same place.
By this summer, if not sooner, the British Virgin Islands (BVI) should have its ship registry upgraded by the British government to Category 1, which will allow the Caribbean island nation to register even the biggest superyachts. The British overseas territory has been working toward its dream of welcoming pleasure craft of unlimited size since 2003.
Not to be left behind, Crown dependency Guernsey has started working on local legislation to permit registration of much larger yachts than it can now accommodate. Presently, the Guernsey registry is limited to commercial yachts under 24 meters and less than 150 gross tons. If all of the details can be worked out, Guernsey will soon be able to register vessels up to 400 gross tons.
This is part of a global trend among offshore jurisdictions to open their arms to enormous superyachts and megayachts. For registry purposes, superyachts are generally defined as anything over 24 meters. Pleasure boats longer than 60 meters are commonly described as megayachts.
For owners of fixed-wing aircraft or helicopters the IoM and the Cayman Islands are currently the only offshore jurisdictions that have both internationally recognised yacht and aircraft registries. Today, the only internationally recognised offshore jurisdictions with Category 1 ship registers and the legal authority to take on vessels of unlimited type and size are Bermuda, the Cayman Islands, Gibraltar and the IoM.
But flexibility within Europe and the Mediterranean is also increasing. Gibraltar, the British overseas territory, has negotiated a treaty that allows foreign yachts registered there the right to cruise in European Union (EU) waters for up to six months a year, exempt from the taxes that customarily accompany their presence in the EU. And the Cayman Islands Shipping Registry has this year opened a new office in Cannes, France, to provide better service to superyacht and megayacht owners who cruise the Mediterranean but want to be registered outside the region.
Ever-discrete Switzerland quietly attracts a steady stream of Russian and Middle Eastern aircraft to the Swiss Aircraft Registry. Specialists who handle the Swiss transactions say they see no significant tax or financing advantages for their clients who chose Switzerland. When people ask for Switzerland, it's not about saving money.
Aircraft owners from volatile parts of the world seem to be attracted almost entirely by Switzerland's long-standing reputation for political stability, financial responsibility and military neutrality, aircraft registration advisors say.
This unease about being identified by their registrations with nations at war or involved in major disputes is growing among both yacht and aircraft owners. They particularly worry about flying the flag and showing identification marks of the US on their yachts or displaying US registration numbers on their aircraft.
On the other side of the coin, yacht and aircraft owners from Asia, the Middle East, Russia and Africa don't much like the idea of flags, hull identifying marks and aircraft registration numbers announcing their nationalities during visits to North America, Europe and major offshore financial centers.
Eager to be of service, the IoM changed its laws to allow direct ownership of Manx registered yachts and ships by citizens, nationals, companies and other legal entities of the US, Australia, Canada, China, Hong Kong, India, Japan, Singapore, South Africa and the United Arab Emirates.
Others added to the "accepted countries" list were the Bahamas, Liberia, Marshall Islands, New Zealand, Pakistan, Panama and Russia. The change allows registration of vessels from these countries in the Isle of Man without making any changes in their existing ownership structures.
Dick Welsh, director of the IoM Ship Registry explains it this way: If a family from a country on the "accepted" list has invested hundreds of thousands of dollars setting up a trust or other ownership structure, they don't have to start over to re-register their yacht in the IoM. "They keep the existing ownership structure and register with us," Welsh says. "That's all there is to it."
The IoM aircraft registry can't offer quite that much flexibility for owners, unless they are associated in some way with the UK, the EU or the European Economic Area (EEA). However, owners with no existing ties to the IoM, the UK, the EU or the EEA can make use of the register by establishing some sort of "ownership structure" domiciled in the IoM.
And the IoM aircraft registry is, indeed, doing a booming business. When it launched the aircraft registry, the Manx government hoped to register 12 aircraft in its first 12 months of operation. Instead, it registered 40 aircraft in the first 10 months, says Brian E Johnson, director of Civil Aviation.
Prior to the IoM registry and the quiet surge in interest in Switzerland, the most popular offshore aircraft registries were the Cayman Islands, the Bahamas, Bermuda and Aruba. The Aruba registry in the Dutch West Indies maintains a sales and marketing office in Miami to bring in business from the US.
International aviation attorney James E Cooling of Kansas City, Missouri, himself a big fan of the Cayman Islands and IoM registries, says tax savings and other economic issues used to be the big considerations attracting people to offshore registration. "A VAT tax of 20.5% in Europe on a Boeing business jet is a lot of money in any currency," says Cooling, managing partner of the law firm Cooling & Herbers, PC. "The tax climate for countries such as the Cayman Islands is favorable in that there is no income or profit tax and no sales or use tax imposed by the Cayman Islands." The tax savings remain but he said that's not what weighs heavily upon people's minds today.
Cooling says the force driving demand for offshore registration now is the fear that being identified as American, or as a national of another country involved in serious international disputes, turns an aircraft into a target for attack. "Security is the number one issue today," Cooling says. "I am getting more and more calls from companies who feel having their aircraft registered in the US is a risk. At the same time, they worry about the PR consequences at home of turning to foreign registration."
And Americans aren't the only ones squeamish about having their nationalities displayed on their aircraft. Cooling says several of his Russian clients have specifically requested registration in Switzerland.
Despite the current focus on security, Cooling says the tax consequences that flow from the jurisdiction selected for aircraft or vessel registration can be enormous. He urged buyers to get specific tax advice from their own tax advisors before making any irrevocable decisions.
David Kilshaw, a partner in the tax practice of the accounting firm KPMG's UK Private Client Advisory Group, warns that prospective buyers would be wise to have a talk with their tax advisors even before they go shopping for a yacht or aircraft. "In considering how to acquire a yacht or airplane, tax issues will be very important and should be considered right at the outset," Kilshaw says. "Tax implications may actually determine the form of ownership structure and if left to the end of the cycle could have a very negative impact. Tax reliefs for holding airplanes or other types of aircraft are becoming increasingly difficult to acquire. But, again, early consideration of the (tax) position can assist."
For many yacht and aircraft buyers, the family office would usually handle these issues but it is worth keeping yourself informed. Peter Pexton, director of the Liechtenstein office of Fleming Family & Partners, one of Europe's most prominent multi-family offices, confirmed that yacht and aircraft registration are among the core services that a family office traditionally provides to its clients. But he said even the most sophisticated family office would be unlikely to handle the entire process in-house.
"Yacht and aircraft registration is the realm of the specialist," Pexton says. "What the manager in a family office would do would be to turn to his network of contacts, and to seek out recommendations, to identify the specialists who would best serve the interests of the family."
Equiom Trust Company Limited, based in the IoM, is typical of a new breed of yacht and aircraft specialists. A substantial portion of the company's business today comes from family offices. "Today's superyachts are really floating businesses," says Katherine Ellis, head of Yachting and Aviation for Equiom. "As these superyachts keep getting bigger and ownership more widespread, we think the owners are increasingly going to see them as a floating business. And they will expect them to be managed as a business."