International waters play a pivotal role in yacht transactions, offering benefits such as tax efficiency, regulatory compliance, and streamlined ownership transfers. By understanding the implications and practicalities of conducting deals in these waters, buyers and sellers can optimize their transactions.
International waters begin where a country's territorial sea ends, typically 12nm from the coastline. Beyond this limit, the yacht enters an Exclusive Economic Zone (EEZ), waters that are not subject to the jurisdiction of any single nation. Instead, they fall under the governance of international agreements such as the United Nations Convention on the Law of the Sea (UNCLOS).
Duty and Tax Considerations
Transferring yacht ownership in an EEZ may avoid immediate tax implications. This can be advantageous for buyers and sellers managing tax liabilities or seeking tax-efficient ownership structures.
Avoid/Delay Import Duties
One of the primary reasons yacht transactions involve international waters is to avoid import duties and taxes. When a yacht is delivered or transferred in international waters, it can help the buyer defer or avoid taxes that would otherwise apply if the transaction took place within a country's territorial waters.
VAT Implications
Value Added Tax (VAT) can be a significant cost in yacht transactions. By completing the sale in international waters, buyers can choose when and how to import the yacht into the EU, potentially using VAT-efficient structures.
Sales Tax
If the yacht is then to be brought into the USA, it might be subject to state sales tax, with rates and applicability varying by state. Some states offer exemptions or reductions under specific conditions. Seeking professional tax advice is essential.
Regulatory Compliance
Conducting the transfer in an EEZ provides a legal framework that is neutral and internationally recognized.
Flag State Regulations
The flag state (the country where the yacht is registered) plays a crucial role in regulatory compliance. By conducting transactions in international waters, parties can ensure they adhere to the flag state's regulations, which might differ significantly from those of the coastal state.
Seaworthiness and Certifications
International waters transactions often require the yacht to meet specific seaworthiness and certification standards set by the flag state. This ensures that the vessel complies with international safety and operational standards.
Ownership Transfer Flexibility
Simplifying Paperwork
Transferring ownership in international waters can simplify paperwork and legal requirements. Since the flag state's laws govern the transaction, it can avoid the complexities of navigating multiple jurisdictions.
Privacy and Confidentiality
Transactions away from coastal jurisdictions offer reduced public scrutiny and enhanced confidentiality. Providing a measure of privacy as expected, especially when buying and selling the world's biggest yachts.
Clear Title Transfer
Ensuring clear ownership transfer minimizes the risk of legal disputes over yacht ownership.
Flexibility in Ownership Structures
EEZs offer flexibility in choosing ownership structures for yachts. Buyers can establish ownership through entities registered in jurisdictions that offer favorable legal and tax environments, optimizing asset protection and financial planning strategies.
The Importance of Professional Advice
Engaging experienced maritime professionals ensures compliance with maritime laws, tax implications, and registration requirements, safeguarding against future legal challenges.
Maritime laws, tax implications, and registration requirements can be complex. Professionals navigate these intricacies to ensure compliance, preventing future legal challenges. Through due diligence, every element of the transaction can be thoroughly verified, ensuring all necessary documentation is in order.
Expert advice helps structure transactions to minimize tax liabilities, including import duties, VAT, and other applicable taxes.
Seeking professional advice ensures a yacht transaction is conducted efficiently, legally, and with minimized risk, providing peace of mind and protecting the investment.
