After chatting with Mr Smith at the Gibraltar Maritime Week conference, I found out that he’d been a keen sailor in his not-too-distant youth and, now that he was in a position to afford it, wanted to get back on the water with his family and friends – preferably in the Mediterranean or the Caribbean rather than the less hospitable North Sea where he had learnt the ropes. He also admitted that he hoped it would provide a useful private platform for business entertaining.
He had been giving a great deal of thought to his plans over the past three years but, as a businessman, spending around €15 million on an asset that he would only be able to use for a few weeks in a year just didn’t seem to stack up.
I agreed, but suggested that the expense might be easier to swallow if the yacht was available for charter when not in use by him and his family. A vessel built to high standards with a permanent, professional crew and able to offer high levels of hospitality and service should at least generate sufficient income to offset the operational costs, which typically run to about 12% of the value of the yacht per annum. Having a professional crew on board would also significantly enhance his own comfort and security when sailing.
A 37-metre series production yacht would keep costs down. With flexible design and a semi-customised interior, this would also allow Mr Smith – and, of course, his wife ¬¬– to feel they were commissioning a bespoke yacht. It would have capacity to host eight passengers comfortably, as well as up to six crew. Importantly the yacht would not breach the 500-ton threshold, which greatly simplifies the flag state requirements for using the yacht commercially.
I mentioned the name of a couple Dutch and Italian yacht builders by way of example, but I also gave him contact details of several yacht brokers. A 37 semi-customised yacht would generally take about two years to complete, but Mr Smith is in a hurry. Going through the right brokerage channels may allow him to find the right yacht much more quickly.
I also told Mr Smith that it was essential that, prior to any purchase, he should give very careful consideration to the ownership structure. Bearing in mind that he is not resident in the EU, I suggested that the yacht could be owned by a Gibraltar company and also registered in Gibraltar.
Under the EU’s temporary importation/admission regime, this structure would enable Mr Smith to use the yacht privately in the EU for up to 18 months without liability to VAT. Gibraltar is a member state of the EU by virtue of being a British territory but it does not form part of the EU’s Internal Market for custom purposes and is not required to levy VAT.
I further recommended that Mr Smith should set up a Maltese VAT-registered company, which would enable the vessel to trade within the EU and account for its commercial activity. Malta has centuries of experience in handling maritime issues and also offers a corporate tax rate that can be as low as 5%. Sovereign has offices in both jurisdictions and would be able to assist with setting up and managing the structure.
As we spoke, we began to form a rough plan that would allow the Smith’s to maximise the use of their yacht as well as to offset the costs through commercial charters. Mr Smith could enjoy the yacht privately in the Med during the early part of the summer, after which Sovereign would take steps to import the yacht into the EU in order to charter her out through the Maltese entity. When the summer was over the yacht could be taken across to the Caribbean, even the Pacific, where it would again be available for private or commercial use during the winter season.
In this way, Mr Smith would be able to enjoy his asset in fantastic locations around the world on a year-round basis and, with some luck and the right professional support, he could benefit from 12 weeks of commercial chartering to help to cover his costs. On this basis the expenditure began to make more sense, particularly if the yacht could genuinely help support Mr Smith’s interests as a roving platform for business entertaining.
I emphasised that the right decisions in respect of the yacht’s registration and ownership structure had to be made from the outset. If they weren’t, the dream of owning a yacht could swiftly turn into an expensive and frustrating nightmare. Not only would this ruin Mr Smith’s enjoyment of such a major asset, it might quickly discourage him from owning any yacht, let alone trading up to a larger vessel in a few years time. When you’re talking about a multi-million euro investment, brutal honesty is much better than soft-soaping.
When I met Mr Smith again, shortly before he left Gibraltar, I was able to set out what Sovereign, and more particularly RAY, could do to assist his purchase and realise the plan that we had outlined. I was relieved to discover that not only had our previous discussion not put him off, but that he was even more positive now that he’d had the chance to look round Gibraltar and speak to other owners, both at the conference and at the marinas.
RAY could act as a “one-stop shop”, I explained. We would assist Mr Smith by reviewing the clauses of the yacht sale and purchase agreement, and making sure that the transfer of ownership into the new owning entity was effected smoothly. We would ensure that the yacht registration and commercial coding were safely in place by the time she was delivered, and liaise with the radio licensing and satellite registration authorities.
On top of this we could make sure that all risks were properly insured, handle the crew employment and payroll processes, and make sure that all the contracts, accounting and banking systems were fully compliant and properly recorded. With RAY and Sovereign attending to financial and administrative matters, a competent skipper and a good yacht management company to oversee the charter brokerage and operational logistics, Mr Smith should be able to enjoy plain sailing.
It was a lot to take on board during a short visit to Gibraltar but Mr Smith seemed much more comfortable now that the benefits and pitfalls had been laid out clearly. He said he had the information needed to make the right choices and was better able to assess his risks. Just as importantly he’d got a feel for the Rock and what it has to offer yacht owners. We’ll now have to wait and see what the yacht builders and brokers can come up with to tempt Mr Smith back onto the water.