Yacht Classification and Flag State Issues

PYC, LYC, ABS, CE, +A1, Paris MoU, Tier III, Jones Act, Red Ensign, White List, SOLAS, RINA, ISM, ISPS, MLC, Lloyds, VAT, IMO.

It’s an alphabet soup of issues. Once you start drilling down into the details of registration and regulatory compliance, the choices and their consequences can seem daunting. Yacht Flag State selection and Classification are very complex issues for large yacht owners and managers. From first glance, it is an unnecessarily complicated tangle of issues, but we’re experts in helping you weigh the issues and sort out the best approach. It all starts with getting clear about how and where you’ll use the boat.

For the purposes of this necessarily simplified discussion, there are two primary components: Flag State related issues and Classification issues. They are related matters and the selection of one somewhat impacts the selection of the other. Generally, if you are intending to host paid charter guests aboard your boat, you will be subject to classification requirements. If you’re going to primarily charter your boat out in Europe, for example, it will be advisable for you to select a favorable European classification society and a Flag State that is highly recognized in your expected European ports of call.

Consider flag state registration like acquiring a passport for your boat. And simplistically, view the classification & class certification as analogous to your driver’s license and your vehicle safety inspection certificate. The Flag State and Classification Society do not have to be in the same jurisdiction, but the issues are inter-related. And while classification for large yachts is theoretically voluntary on the part of the owner, it is basically compulsory for some ports, some insurers and for the purposes of carrying charter guests in most waters.

Flag State selection is influenced by a number of factors, including qualifying ownership structure, residence or location of owners / users, whether you’ll operate the boat in charter, where you’ll intend to operate it, vessel length and vessel tonnage.

The selection of which flag state to register your yacht in, and which classification society’s rules to adopt affects your ownership structure, tax exposure, legal liabilities, cost structure, VAT liability, limits of your cruising grounds, ability to host charter guests, even the number of guests you can host aboard.

Vessel Classification is at its heart a set of safety & emissions standards, created by the twelve major regional members of the global International Association of Classification Societies (IACS), in connection with the International Maritime Organization (IMO). This group of NGOs has evolved to coordinate the development and maintenance of sets of rules that govern the design, construction, maintenance, and operation of vessels. These standards have evolved to create predictable safety protocols and environmental regulations for primarily commercial shipping. In addition to a uniform core of rules, each of these IACS member societies have established their own regionally-specific restrictions, codes, sub-classifications and requirements. Yachts have grown considerably larger in the last few decades, some almost like cruise ships, with large crews and passenger loads and their safety and environmental footprint compels compliance with these regulatory codes.

Aside from ensuring the safety and seaworthiness of the yacht, one argument in favor of classification is that it lowers the cost of insurance. But the reality is that even a large savings is unlikely to offset the added cost of yacht classification, but it is considered a necessary ‘cost of doing business’. Building “to class” is not inexpensive, since it often starts with plan approval, requires on-site surveyors to monitor the construction at certain stages, and subsequent periodic inspections for the duration of the classification of the yacht. Another, tangible benefit of keeping a yacht ‘in class’ is that when it comes time to sell, your yacht will have a higher perceived value proposition related to both maintained condition and also charter revenue cost offset.

There are cost AND benefit considerations to a vessel owner or manager related to these issues and it is important to make the right decisions for the right reasons. We can assist you with all matters related to flag state selection and classification, as well as:

• vessel construction
• purchase / sales
• registration
• crew recruiting
• crew training
• vessel management
• charter brokerage

For more inside secrets to yacht purchasing, sales and ownership, contact us: daniel@aurorayachtsales.com or call +12064076411 or +393470485433.