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Understanding the intricacies, such as taxes, is part of deciding to purchase a super yacht. Most individuals investing in a superyacht have an idea of what options are available to them, but the international aspect of superyachts can be convoluted. While it isn’t news, we should state each tax situation is unique, and working with a qualified tax advisor will be the best way to make the most of tax codes and deductions for your specific situation.
Place of Registration
Where you register your yacht will have a direct impact on the taxes paid. When considering potential tax havens, be sure to consult tax experts as well as your captain. Not all countries create yacht regulations equally. Some countries have increased restrictions that come with registering in those locations—for example, hiring a local crew. Certain tax havens tend to raise flags and can increase detentions and inspections. The Netherlands and the British Virgin Islands are popular choices for low taxes and have a reputation as respected points of registration.
Section 179
If you are not already chartering your yacht, reviewing taxes might make you reconsider. Using your yacht for legitimate business purposes and being registered as an entity will qualify your yacht as a business asset. If 50% of the yacht usage is for business purposes, you should be able to deduct 50% of the expenses. There is also the added benefit of asset depreciation. Business expenses and deductions can be a great way to help pay for dockage, maintenance, insurance, and even depreciation.
Taxes are just one reason to hold corporate ownership of your yacht. Separation of liabilities, practicality, and privacy are other benefits of incorporating your yacht ownership.
Using Your Yacht as a 2nd Residence
If chartering isn’t the option for you, you could look into the possibility of claiming your yacht as a second residence. It would allow you to deduct the interest on the financing of your vessel. This tax advantage is only available if your yacht qualifies as a residence, meaning it includes a galley, head, and stateroom, according to section 936. One drawback to this approach is that you can only have one-second property; just as you designate one property as your primary residence, you will have to assign a property as your second residence. You cannot have a vacation property and a yacht as your second residence.
Tax transparency has been a hot topic for superyachts and corporate ownership. That isn’t going anywhere as the fascination with the superyacht industry only seems to grow. Common Reporting Standard is a worldwide initiative put forth by the G20. Beginning in 2022, several current US tax codes will be up for reconsideration.
Owning a yacht isn’t a luxury for those in the superyacht world. It’s a standard asset. How it fits into your portfolio is unique to your situation. Whether new to yachting or not, it may be time to check with your team of accountants, lawyers, and captains for the best tax strategy for your yacht.
