I. Purchasing a yacht is pure emotion!
II. Purchasing a yacht has significant legal prerequisites and consequences.
Set the course by planning carefully...
- Public International Law: The international approval in the waters of the individual states resulted in right to control by all nations with regard to the cruising in the sea. This again resulted in obligation to produce proof of nationality of a ship. This choice determines a number of legal and financial consequences which should be carefully analysed, thought over and planned in order to avoid any undesirable and often irreparable errors – I would select a couple of topics here and explain them in detail in the columns below.
- Which legal System is applicable? As per the Law of the Sea Convention, ships belong to that nation whose flag they are authorised to carry.
- Sovereign rights: This implies that the legal system of that flag country is applicable for the ships under whose sovereignty they are present without being part of ist national territory.
- German flag: Generally, all the ships (ocean vessels) meant for seafaring can and must carry the federal flag whose owners are Germans and their residence is in the territory of basic law.
- Establishing a separate ocean carrier? If the owners are corporate bodies - founding an ocean carrier primarily by owners who do not wish to leave would be beneficial from personal and economic point of view – the ajority of bodies authorised to represent must be German.
- What is an ocean vessel? Ocean vessel refers to such ships which are authorised or obligated to carry a German flag and thus are entered in the shipping register of district court in the home port or place of origin of the ship.
- The German owner of an ocean vessel is under obligation to make entry in the shipping register if the body length exceeds 15 m (The obligation to register is applicable in case of inland water vessel if it has a carrying capacity of more than 20 tonnes or a water displacement of more than 10 m³).
- If ships are below 15 m, it is up to the owner whether to make an entry for the ship or not. If there is no home port or the ship has to be operated from a foreign location, the shipping register can be chosen at discretion.
In many other countries, corresponding registers are maintained with public confidence. Thus, a large ship is like a swimming property with entry in land register and serves the public as defined by property law: The nationality of a ship as well as ist legal transactions and right on the entered ships, acquisition and loss of ownership, ship mortgages, life estate etc. are regulated and documented.
III. The succession of a yacht in professional hands.
The consequences of succession law and mainly succession duties which play a very important role in estate planning of a large yacht are also associated with nationality.
- The very popular registration in Spain with anchorage in Majorca is subject to Spanish succession law. In the absence of double-tax agreement with Germany, double taxation of the expensive yacht is applicable in case of succession which considerably erodes its value.
- Maximum exemption of approx. 15 T€ per person and at 81% succession duty on the current market value of the assets over and above the Spanish tax practically results in yacht dispossession in case of death.
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A lot can be organised by selecting nationality as well as the person who would own the ship – e.g. founding a holding company.
Germany has a maritime shipping register (second register) since 1989 which allows carrying a German flag, but the crew should not be appointed as per German Labour Law.
It is a very important planning factor for an owner with larger crew. Whereas, according to German Commercial Code, a ship owner is a person who owns a ship which is earning him income in seafaring (which is not the case of a yacht meant for sheer private use), the Social Security Code IV defines a ship owner as owner of ocean vessels and mariners as employees who are working on board of ocean vessels within the scope of ship operation during the journey, with the exception of pilots.
These provisions of social law are also applicable to the employment on a private and not commercially operated yacht. As per labour law, the Law on Protection Against Dismissal is applicable to employment contracts on ocean vessels.
- The VAT aspects are highly sensitive with respect to yacht purchase. Hence, with regard to the acquisition of a new 27 m yacht meant exclusively for non-commercial purposes, the Federal Finance Court has stated in the revision that the transport of a yacht ends as soon as it reaches its destination after acquisition. The owner ordered a new yacht in Finland which was transferred to the captain in June of 0 year. The invoice to the owner did not include any VAT. Germany was specified as the country of destination in the clearance papers of yacht. The so-called “clearance documents” stated that the ship drove in the Caribbean on its own keel via Stockholm, Kiel, Southampton, Gibraltar, Cannes, Sardinia, Spain (Gran Canaria). Apart from this, the clearance indicated that “The ship departs Kiel via Stockholm”. The ship was entered in German shipping register and carried the German flag.
- The ship was in Kiel for two days and then at different ports of Mediterranean from July to November of 0 year; it was in Martinique, St. Lucia, Antigua and St. Maarten from December to March of 1 year. Then the yacht travelled to France via Azores and Gibraltar in December 1 and back to back to German territorial waters.
- On account of a control notice of Finnish Tax Administration, VAT was stipulated for an intra-community acquisition of a new vehicle by means of a ruling. Here, it was assumed that the yacht was purchased in intra-community in June 0 in Germany. The country of destination for the yacht as defined by German VAT law was Germany although the ship sailed in the Caribbean via Stockholm, Kiel etc. Facts and hints were deduced based on the respective country of destination. According to them, the final destination was not the one specified in the clearance, but Germany.
- The Federal Finance Court argued that the yacht had a German home port as per declaration and this indicates the country of destination. A yacht implies a ocean vessel as defined by Law of Flag. Other ships, as defined by Law of Flag, include, amongst others, the non-commercial ships used for seafaring in private ownership, such as yachts. According to the German Commercial Code (HGB), the home port is the place where seafaring by the ship is carried out. Though the regulation is a part of § 480 Para. 1 of HGB, the definition of home port is applicable to all ships. It is interesting that even Federal Finance Court indicates at the end of the court ruling that it would not have permitted the specification of an inland home port either under Law of Flag or Law of Shipping Register and the specification of a foreign “Register port” would be feasible.
An expensive experience instead of timely, advantageous formation of purchase cases...