Key factors in the choice of appropriate jurisdiction for registering a superyacht

Recent uncertain economic times, together with an increasingly safety and security-sensitive environment, have had one undeniable effect on owners choosing a jurisdiction for registering their superyacht: the instilment of a greater awareness of and sensitivity to the advantages that may be offered by a particular flag.

This update looks at the key factors that are playing a determinative role in leading owners to opt for the Maltese flag when registering their superyachts.

Reliability and reputation of chosen flag

In today’s environment, owners first and foremost consider the reliability of a flag that might be flown by their yacht. The EU fleet is associated with a high level of safety through the implementation of and compliance with international and EU standards relating to safety and anti-pollution measures at sea by flag states. In fact, cruise liners that were predominantly flagged in the Caribbean and that traditionally have always been associated with a Caribbean flag have now shifted en masse to Europe.The Maltese maritime flag is now the second largest in Europe after Greece and the seventh largest worldwide after Liberia, Panama and Greece. Furthermore, as a result of the substantive benefits provided by Maltese law, the Maltese maritime flag has grown to a flag with over 40 million tonnes registered under it.

Ease of procedural registration

It is a well-known fact that while an owner may wish to ensure that it makes the best choice with regard to its flag, it does not want to be bogged down with unnecessary red tape and time-consuming registration procedures. Therefore, the efficiency and flexibility that a particular flag may offer are likely to win points in any such consideration.

Tax benefits

Since 2006 the advantages that were previously made available under Maltese law to merchant vessels over 1,000 gross tonnes have been extended to superyachts. This is a result of efforts by the Maltese government to emulate in the yachting sector the success experienced by the flag’s merchant fleet. This has led to Malta becoming the home port of some of the most breathtaking yachts in the world, including the Maltese Falcon.

The main benefit extended by the Maltese flag as far as commercial registration is concerned is essentially that owners (together with charterers and managers) of commercial yachts registered in Malta do not pay tax on income, but rather pay a standard annual tax that is calculated on the basis of the vessel’s net registered tonnage.

Considerations relating to the obtainment of financing

Making a flag attractive to the owner is not enough, since a maritime flag is successful only if the financier is confident that the law of the flag will protect its financial interest. Should things take a turn for the worse, the financier needs to be comfortable that the necessary action can be taken to safeguard its interest, and that the procedures for taking such action are accessible, reliable and swift.

When a yacht is registered in Malta, the financier registers a mortgage in Malta against the vessel’s entry in the register. Under Maltese law, the mortgage is equivalent to an executive title. This means that the mortgage is the equivalent of a judgment and, in the event that the owner defaults on its mortgage payments, the banks can proceed directly with enforcement of that mortgage.

In real terms, if an owner defaults, the mortgagee notifies the owner that it is in default and that it is going to exercise one of its rights granted by law.

The mortgagee’s first option is to take possession of the yacht and trade it itself.

Its second option is to enforce the mortgage as though it were a judgment and proceed immediately with a judicial sale by auction. This can be done in five weeks in Malta. The advantage of a judicial sale is that the vessel is sold free and unencumbered.

The mortgagee also has the right to sell the vessel privately and thus have full control over the sale price. However, it is unlikely that any buyer would be interested in purchasing the vessel in such a private sale, because it would be concerned about the privileged debts with which the vessel may be burdened.

In January 2009 the possibility of a court-approved private sale was introduced under Maltese law. In this case, the mortgagee or the owner finds a buyer. Full negotiations over the price take place and therefore, unlike in a judicial sale, the parties know exactly what the vessel will be sold for. Once a private buyer is identified for the agreed price, the mortgagee obtains two independent valuations and, provided that the sale price is in the region indicated in the valuations, the court will approve the sale. The court’s approval turns the sale into a court-approved sale and the vessel is sold free and unencumbered as though it were a judicial sale. The additional advantage here is that the owner can participate in finding a buyer and can benefit from the price obtained if the price is in excess of the mortgage; whereas in a judicial sale by auction, where the vessel is sold to the highest buyer, that highest price may well be a fraction of the yacht’s value.

For further information on this topic please contact Alison Vassallo at Fenech & Fenech Advocates by telephone (), fax (+356 2599 0645) or email (alison.vassallo@fenlex.com).

Category: Management News