From an owner’s perspective, chartering their yacht can offset some of the running costs, so it’s an attractive prospect, but from a captain’s perspective, changing to commercial status may create more paperwork and more rules to adhere to.
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.
It is likely that larger yachts will voluntarily operate according to, or close to, a commercial yacht code, so the changes may not be too much of a burden.
Step 1 - 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.
Remember, 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. 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.
Step 2 - Charter Locations
Consider where you want to make the yacht available for charter. 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.
Step 3 - VAT & Chartering in the EU
If you wish to offer your yacht for charter inside the EU, particularly in Croatia, France, Italy and/or Spain, you must consider the following points:
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;
The yacht-owning company may need to be registered for VAT and submit quarterly VAT returns;
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;
VAT on the charter fee will most likely apply to all charters in the EU and cannot be reclaimed;
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.
Step 4 - Withholding Tax
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.
Step 5 - Maritime Labour Convention (MLC)
Numerous MLC requirements must be met by commercially chartered yachts. 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 Sarnia’s website.
Step 6 - 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 and this 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 called “loss of income protection” or “sick pay” cover. Don’t forget to advise your insurer of changes to the yacht’s status.
Step 7 - 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.
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.