What do owners really want?
What solutions remain for owners wishing to enter free circulation?
In light of the recent action take against the Maltese and Cypriot leasing structures, SuperyachtNews speaks with Ken Griggs, director of Dominion Marine about the viability of an alternative structure that avoids some of the issues relating to having a VAT paid superyacht.
“Every solution has a shelf life. The Isle of Man Leasing solution was around for 15 years and the Maltese Leasing Scheme was around for 12-13 years. What the Maltese and Cypriot leasing had in common is that they were desperately trying to give you a VAT paid superyacht at a deep discount,” says Ken Griggs, director of Dominion Marine. “The Monaco solution doesn’t go anywhere near a VAT paid vessel, it has a completely different aim. What owners are really looking for is free circulation of their vessel.
“Free circulation can be achieved in a number of ways. It can be achieved by being eligible for Temporary Admission (TAR); being commercially registered; by paying the VAT; it can be under one of the legacy solutions such as the Maltese or Isle of Man solutions (which are no longer available), or it can use the Monegasque solution,” continues Griggs.
“Forty-five per cent of second-hand sales can be accounted for by US buyers, who have no desire to have a VAT paid boat, another 25 per cent use TAR because they are not EU resident like Middle Eastern or Eastern European owners. Additionally, for second-hand vessels in the 30-60m range they will often go to commercial use.
“So, who actually wants a VAT paid superyacht?”
Ken Griggs, director of Dominion Marine, and The Superyacht New Build Report
In essence, the Monaco solution uses the same system employed by companies such as Hertz, the car rental business. When Hertz buy a fleet of cars, it doesn’t pay VAT on them. In the hands of Hertz, the cars are a commercial asset. In Monaco, Dominion is established as a bare boat rental company and, in that sense, it is no different to Silver Sail and others that operate in Croatia and the Greeks islands. When you rent a boat from Silver Sail you sail the boat yourself, and the company does not pay VAT on the boats that they buy….but you pay VAT on the rental.
“When you rent a car from Hertz you pay VAT and with the rental contract that you enter into you are able to drive the car to Estonia, Puerto Banús, Dublin, Bulgaria or anywhere else within the EU that you wish to travel to,” explains Griggs. “The car is in free circulation and that is exactly what the Monaco solution achieves without needing a change in regulations or an amendment to the system.”
Where the Hertz system and the Monaco solution differ, however, is that while Hertz buys cars through a mixture of its own cash, loans, leasing and finance, Dominion buys the superyachts with a loan provided by the ultimate beneficial owner (UBO). There are three companies involved in the solution, the lending company and a rental company (both owned by the UBO) and a company in Monaco owned by Dominion. Every boat worth over €20million gets its own company in Monaco with its own VAT number in order to provide the individual lending the money total security.
“I provide the lender with a mortgage, as well as an executed notarised draft bill of sale, which can then be filed with the vessels flag state to take back ownership at any time. The lender now has a mortgage, bill of sale and he is in possession of the yacht, ensuring that Dominion is unable to sell the vessel, not that we would, but it just provides an additional level of security.
“Lastly, Dominion provides the lender with a charge of the shares of the owning company. In Monaco, it requires government approval to sell shares in a company. There is, therefore, three levels of security,” explains Griggs.
The owner rents the superyacht based on the best estimate of the future depreciation of the asset.
For instance, if the vessel is worth €50million, a broker or surveyor will determine what the vessel will be worth in five years’ time. If the predicted value if €40 million, over the course of five years, the rent is going to be €2 million a year. Under the Monegasque “use and enjoyment” rules, with VAT at 20 percent on 50 per cent of the rental value, there will be €200,000 VAT to be paid on the €2 million rental value. Dominion immediately sends the €2 million back to the lender, in essence roundtripping the money. At the end of the year, on Dominion’s balance sheet, there will be a superyacht worth €48 million and this system continues depending on the predicted rate of depreciation year on year, owing, for example, €48 million, €46 million, €44 million and so on. At the point at which the owner has found a buyer for the vessel, or wants to exit the solution, the superyacht is sailed into international waters and sold back to the owner.
It should be noted, however, that the Monaco solution is not necessarily suitable for all superyacht owners. Indeed, according to Griggs, cost effectiveness dictates that yachts with a value less that €5million are better off paying VAT in full, whereas superyachts worth between €5-10 million would be better suited to entering into a “fleet” structure under the Dominion Marine SARL. “The costs of setting up and administering an SARL, which is required for the bespoke Monaco solution, are prohibitive,” he explains. “The ideal starting point for setting up an SARL is for vessel values in excess of €20million when the administration costs will pale into insignificance relative to the tax savings.”
For more information, visit Dominion Marine at Monaco Yacht Show 2019.
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