3 Superyachts in port at dusk

Renaissance for Isle of Man Yachting Sector?

On 24 December 2020 the UK and the European Union (“EU”) formally announced that they had successfully agreed the terms of a Brexit deal, thus putting several years of negotiations and speculation around the potential repercussions of Brexit to an end.

Since the announcement Affinity has been working with our tax advisors to navigate our way through the terms of the Trade and Co-operation Agreement (“TCA”) agreed between the UK and the EU. The current position is that the TCA has been in provisional application since 1 January 2021,with this arrangement having been agreed by the EU27 Member States and passed through the UK House of Commons. Expectations are that permanent application of the TCA will take place in March 2021, although this subject to it being scrutinised by the EU Parliament.

The turn of events initially created a whirlwind of uncertainty and unprecedented questions arose. Whilst the majority of comments surrounding Brexit drew negative interpretations regarding the provision of goods and services to and from the UK into the EU, importations and potential Customs Duties, the value of the new advantages of carrying a non-EU flag and the future opportunities that Brexit presented had been overlooked in some parts.

Over the past several months Affinity have had several clients ‘waiting in the wings’ to determine the outcome of Brexit before deciding where best to structure. Following Brexit it is now clear that the UK is treated as a third country for EU/VAT customs purposes and therefore UK resident clients are able to utilise Temporary Admission regime.

Temporary Admission regime is a VAT relief providing clients resident outside the EU to enter EU waters on a temporary basis. A yacht that meets the criteria can be temporarily imported into the EU and is granted permission to sail for a maximum of 18 months in EU waters. The regime is only available for non-EU owned yachts that are privately operated and registered outside the EU.

The regime is demonstrating an attractive and flexible route; once the yacht is temporarily admitted into one of the EU Member States it can freely move to any other Member State, allowing the yacht to enjoy the accessibility of sailing across the entire Mediterranean.

The choice of flag the yacht sails under will determine a number of factors, such as the relevant regulation, compliance, liability, ownership structure and registration. The Isle of Man has long been regarded as an international maritime centre of excellence and holds the prestigious Red Ensign Flag, which carries a leading reputation in the global maritime sector.

It would be fair to say that in recent years the attractiveness of the Isle of Man flag has diminished and other leading jurisdictions such as Malta have become the preferred jurisdictions for the VAT structuring of luxury assets. Whilst the Isle of Man has undoubtedly faced its challenges in recent years, the quality of flag, excellent service providers and maritime knowledge has remained. The flag is regarded as a key flag of choice in the Superyacht Industry and is an attractive option for many yacht owners. The Isle of Man is recognised as a leading offshore jurisdiction in the yachting sector and the Isle of Man Ship Registry has been voted as the Best Shipping Registry in the World in 2019 and 2020 by World Commerce Review. The Island has also been rewarded for its reputation in the maritime sector for providing excellent ship management, yacht management, crew management and expert fiduciary and legal services. Non-EU yacht owners that register yachts under the Isle of Man jurisdiction not only have the opportunity to utilise the Temporary Admission regime, but will benefit from the Island’s competitive fiscal regime, robust regulation and stable economic and political environment.

Another benefit of corporate structuring ownership through the Isle of Man is the Yacht Engaged in Trade (“YET”) programme that is available to utilise under the Marshall Islands and the Cayman Island flag. The YET is an excellent solution for clients wishing to charter in France or Monaco. The programme is available for private yachts that measure over 24 meters, which meet the relevant requirements that fall under the commercial yacht code. The yacht must comply with all national and international requirements and attain the Temporary YET Certificate, which is issued for the period of the charter up to a maximum of 84 days per year. YET allows the use of the yacht for both private and commercial purposes, re-registration is not required each time the yacht switches between the two modes.

The Cayman Islands has correlative benefits with the Isle of Man and holds the same prestigious Red Ensign Flag, which has an excellent worldwide reputation and a comprehensive list of over 70 countries that qualify to own Cayman-flagged vessels. The Cayman Islands flag is recognised as one of the most prestigious flags in the Superyacht Industry and a first-rate jurisdiction for vessel registration. Regimes such as Temporary Admission and the YET are providing offshore locations outside of the EU with unique advantages and these jurisdictions offer non-EU yacht owners multiple routes for VAT relief and possess attractive opportunities with enhanced flexibility.

Having a footprint in the Isle of Man and the Cayman Islands (where many of our Temporary Admission structures currently operate from), in addition to our Maltese operation, places Affinity in an ideal position to assist with all of the most attractive elements of corporate and VAT structuring currently available. Indeed, Affinity have assisted many clients with the formation of Temporary Admission structures post Brexit.

We believe the recent changes present the Isle of Man with newfound opportunity to build on its excellent reputation in the Maritime sector. Here’s to a bright future!