Living on a "megayacht"

Just reading the blog between yourself and HTM09 i thought i would put my two cents worth in. My son and his girlfriend have looked after a sunseeker 38M motor yacht for a prominent sports personality for 2.4 yrs

In this period the yacht was managed by a management company who very rarely came on board and he was expected to run/repair/clean/polish etc etc the whole yacht and arrange contractors for the maintenance schedule in other words run the yacht.

The owner would spend a night or two with his friends on the yacht once or twice a month and spend one month of the year cruising the med so was rarely on board due to his busy sports schedule, family or friends would spend a week here and there on board occasionally, so in en sense they had the run of the yacht for themselves and although paid below average were quite satisfied with their positions

Due to the lack of use the boat the owner recently decided to sell the boat but due to the high asking price has been unable to do so (although he tasked the management company to do so and i question their commitment as they were on a good wicket earning a good management fee), recently they persuaded the owner to charter the boat out.

Although they were informed at the last minute about this, my son and his girlfriend (chef/cook/stewardess) were quite happy to carry on working on board under this situation.

This is the point where i have to agree with the comment : Yacht careers can be great , but often a lousy profession to go into.

The management team have appointed a new skipper and decided they also need a new crew so give them a months notice with no apparent valid reason!

How do these owners then expect to have loyal and competent crew if they change on a whim. My son is a qualified yacht-master knows the yacht inside out and between them they speak Italian, french.English.

These type of management companies are the ones who give the industry a bad name and not necessarily the owners. they charge exorbitant managements charges and also tend to have a small Chandlery which supplies products to the yachts at inflated prices.

Welcome to the business end of yachting, the manager may have a friend who needs a job and will work for less than your son, if your sons contract states there is a one month notice period for either party then they are complying with the contract.

If you allow a yacht management or a yacht maintenance company to have carte blanche, they will rip you off. A general contract which only says, please manage and maintain my yacht, to be ready for me, when I want to use it, gives them the warrant for printing money!

To handle, maintain and to cherish a 38 meter (motor or sailing) yacht with a crew (couple) of just two is quite a task. I would double that for proper crew treatment and for save handling, when on voyage.

But only outsourcing the maintenance and cleaning / polishing part of it is still very costly and even with supervision by your crew, you have only limited quality control and crosschecking the amount of work billed. And if the crew is paid through those "companies" they will take some of the payment for the crew, they charge you. That is their business setup.

That is the reason, why we have set up our own management office with
allocated maintenance, low to medium level repair and cleaning / polishing staff. And all supply, provisions and spare parts are bought through this setup. Most of the crews are employed and (and far better) payed by the management company.

We have to add a very little profit margin on all services, in order to keep the status of a tax paying commercial company but we found our setup, after one season, 35 to 40 % cheaper than the everage MC on the market in the Med.

But still, the biggest advantage is the higher flexibility and carefreeness both for the ownership of all boats and even more for the crews.

Example: We operate and manage a 82 ft trawler yacht and a 64 ft sailboat for a cousin of mine here in Mallorca. A designated young crew couple from South Africa (him a 200 ton MCA master, her (STCW) deckhand, qualified chef and stew) run both boats, whereas all maintenance and cleaning is done on request (by this crew) by the land based staff.

If one of the boat leaves the harbour, they run this boat, if both boats leave simultaneously, my cousin runs one of the boats himself (mostly the sailboat) or some standby crew from other boats jumps in. This is the cheapest and most effective and the most crew friendly way of operating two yachts by one owner in the Med.

The only real problem we have, is the suspiciousness of the authorities in Spain, Italy and France, that we are secretly charter in order to avoid taxes. But we can always proof, that we dont.

Both crewmembers are overqualified for this duty, because both yachts are EU leasure type (small) yachts below 24 meters but they are paid according to their qualifications and not according to the size of their boat(s). Together with their nice appartement in Palma, they believe, they have found the job of their livetime. Especially when I told them, that they can keep their job, even if my cousin (he is almost 70 years old) quits boating (or dies) .

Will say, if you do not want to be ripped off by outsourced assets, you will have to give them very detailed contracts or orders and somebody qualified has to closely watch them doing that work for you on your boat.

It would not be the first oil change in yachting business you pay for, with the old oil still in the engine .

HTM09 please tell us if my comments are fully accurate... as it gets complicated.

Well all this sounds familiar and wholesome way of managing the boat.
I would say in France setting up that kind of situation in a basic form with legal fees is around 250-400k euro. The on shore housing for crew is an additional cost. Also, the business location is additional cost if local... which is almost mandatory. Also, the inventory and maintenance equipment costs are addition. But once set up it works pretty well.

However, the problem (and it is same in USA) is the tax situation. And, the difficulty alluded to by HTM09 is a conundrum.

First part...
If the yacht is privately held (you as owner) and you pay for everything out of after tax money personal basically the situation is like household staff that you must pay the social taxes and other legal requirements for employment of the staff and crew(s) out of pocket with basically after tax money. You must also be VAT paid on everything (USA pay sales tax on everything) fuel, parts, hired out specialized maintenance, refits etc to infinity.... this includes the purchase of the boat. This is expensive. In Monaco the basic social tax for employees is 40% on top of salary plus all the little extras in France it runs around 1/2 of that. And, don't forget retirements or things like paying for crew or staff training and liability insurances etc. This is highly unusual way of running anything but a small yacht. Strictly, lets say out of owners pocket in a formalized manner... that is the law.

The big issue with this personally owning a yacht is a huge liability and not smart to personally own. Furthermore, in France it then comes under the inheritance tax rules. Furthermore, everything as it is your personal expense and if you have residency in France all the French legal issues follow you where ever it is in the world. This includes the personal wealth taxation which is a tax on world wide net worth.

But few owners want to pay the bill; importantly complicate the personal tax return, and more importantly; accept the personal liability for everything.

Second part...
If the yacht management company is a independent company (you may control or own with proper legal protections like a corporation) and provides a bill to you. The tax and legal situation is mainly transferred from you personally to the management company. But that only happens if it is for profit company (commercial) or a non-profit (quasi-commerical is the best description). In either case if you pay the bill with personal after tax money you personally are off the hook legally and tax wise for the operations of the company. This adds if the management company is a for profit the profit to your expenses. The tax breaks passing through the VAT along can be helpful.

But here this situation divides... and the problems come up with tax authorities.

The issue still remains of what to do with the ownership and the VAT on the purchase of the yacht.

If the management company owns or leases the yacht the yacht "MAY" be VAT free... this is dangerous as then the company looks to authorities like a yacht charter company providing charters. Even if you are the only user so they want VAT applied to the charter (your payments to the company) and may even consider applying market charter rate to be applied rather than your actual billings. Also, if you are the sole charter this raises eyebrows as authorities can believe you are really the owner and what the VAT paid on the boat too.

If the yacht is personally owned and VAT paid... and you run the management company independently where you pay them for just the services of maintenance and operation you have dangers associated with that such as liability; the inheritance issues, and; and the fact you have it attached to you. But the authorities may consider it a scheme to cheat the charter taxes. Worse they can use it to claim what I call 'taxation authority ownership' on the owner (can be you) in other words determine your residency is in there jurisdiction for tax purposes.

If you have an offshore ownership company own the boat it may not matter to them.

The suspiciousness of the authorities in any case is that the charter tax basically the VAT or in USA sales tax can be applied to the bill, or other attempts to get a pound of flesh.

The reason beyond maritime rules and regulations to use a British Protectorate as the base for the ownership or even management is that under British law a corporation can be self owned (be the sole shareholder of itself) but the control or managing director has full authority and control without ownership liability. This compartmentalizes the ownership, taxation and liability issues to that corporation.

I hope I am not too confused in trying to explain.

Hello Karo,

with my humble English, I almost need a lawyer and a tax advisor to completely understand your post and I believe, we lost the majority of our members with the depth of our discussion .

But things are not as complicated as one might think.

We are only talking about privately owned and operated leisure type and VAT paid boats under EU flag and only used in the EU under this regime. Straightforward and totally legal type of operation, period. As I said before, any type of tax avoiding, law bending and illegal work around tricks are not worse it. The legal way is the easiest and best way. The advantage in our setup is just the combination and coordination of several family boats by utilising synergies.

Basically all these tax workaround games are a problematic kind of approach for good reason. If it´s your toy you´re responsible for it. With overly complicated tax avoidance concepts it´s just like hiding your wealth from government authorities. It´s probably money spent in the wrong direction, supporting structures and services that are frequently at the edge of legality (and beyond) instead of accepting responsibility. But many people try to prove beeing clever. Like the bear says: Wash my fur but don´t get me wet.

Maybe I´ll be suspected to be a socialist now. Perhaps it´s because I play with smaller boats and I´m just a dumb tax payer...

Actually, I agree with you on the tax avoidance issue. When there are very simple issues it's one thing, but when it requires a complex maneuver, one needs to question it's value vs. the risk. We choose in our lives today to own everything in the US, pay taxes on everything in the US. Our accountant was obligated to suggest to us there were ways to reduce our tax burden. We've chosen not to. We do live in a state with no income tax and operate our business 100% in the state.

On the other hand, where there are obvious differences in taxation and one legitimately sets up and operates in a favorable jurisdiction that's something else. Then there are those situations that are very clear, not the way I personally think they should be, but companies have to take advantage. The cruise industry is the first example I think of. Carnival Cruise Lines basically pays no income tax. They operate quite legitimately under the laws of the various countries. This allows them to be incorporated in a country where they don't have to pay taxes and make their money in countries that exempt them. Now, any CEO would have an obligation to the shareholders to follow that pattern. You don't write the laws but you have an obligation to operate within them and they're very clear. So $1.245 billion in income last year and taxes of $0.009 billion. But if I was employed in that industry, I'd do the same thing. Many were offended that the founder and owner chose to live in a country where he wouldn't have to pay taxes, but again, he clearly lives there. He hasn't done anything in conflict to that.

Tax avoidance in that form also bothers me, but if we oppose that then we need to rewrite the laws.

As to the detail of the schemes (and I'm not using that word negatively) Karo and HTM are discussing, I haven't studied those situations and the applicable rules enough to comment.

Part of the problem understanding my posts is I am horrible at spelling !

Anyway, I have to give HTM09 credit his operation is a humane, fair and far far too rare operation. I pretty well understand the operation and can say that is not the norm and it is taking a responsible course of action that tries to be fair in a complex environment. Part of that it requires a sophistication of operation many do not want to support or bother with. I think it is a smart approach.

This problems for a yachtsman are myriad and way beyond taxes. Unless operating in one country waters one is subject to a variety of regulation, law, cultural norms and taxation. This maze creates an unintended consequence in that it makes for more loop holes than it closes... and more expenses than necessary.

I have noticed many here have commented about paying taxes is a responsible action. Yes that is all well and good and true to a certain point. But the questions really is it responsible to pay extortion to prevent unhappiness... and at what rate is it too much. In some ways states act like pirates where yachts are fair game. Taxes in my libertarian view are extortion. I am willing to pay fairly for services and my share for the public good but unwilling to pay more than a fair share.

As time has proceeded authorities have become more and more determined to get 'their share' bigger. With economic troubles the problem is worse. Yacht owners are alway a target it seems. France was pretty benevolent on this prior to the current socialist regime. In France, Mr. Hollande's government has tried every trick to increase taxes but have run into constitutional problems of reaching for too big of share... in French law that is defined as more than 50 - 50. Perhaps if his socialist agenda were replaced with a pro-business and pro-productive plans rather than a confiscatory approach it might be more palatable. BUT socialist schemes always are for the benefit of those controlling the redistribution of wealth. With some of the European Union countries operating on the verge of bankruptcy... Greece, Spain, Portugal and Italy among them... those counties in particular are attempting at gaining a larger share from those operating in a lawful and fair manner is evident. I notice those are the vary countries where cheating is very prevalent... paying less than a fair share. And, the countries were crews are poorly treated. But those acting responsibly are the targets more often than not. Just some thoughts...

Difficult story. Partially it´s because governments often fail to take multinational corporate entities into responsibility for paying their share they fall for symbolism by robbing people, often employees they declare earning well and wealthy. Obviously yachts, as a symbol for wealth, sometimes become a target of government activities. I don´t blame large companies for avoiding taxation, but governments for letting them get away too often without making them pay their share. But I do have to blame governments for going after people they, often unjustified, declare rather wealthy instead. With far less tax exemption rules a tax system that would be more even and fair would be possible. With much lower tax rates for even really wealthy people.
But that´s really enough ranting about politics now.

How did we end up in politics again? I think we started with the safe operation of yachts and proper crew treatment.

I was born into an old and big German family (clan) of business people with activities in many fields. Being the third child and only the second son of the head of this family clan (my father), by family tradition, I was not envisaged for any leading position in this family business. That was the reason, I started a career as a military aviator and officer after school and university. When my older brother died, I was recalled by the family, left the military and started my maritime career in order to prepare for the takeover of our family business, when my father would retire.

Even I was never scheduled for this position, I was raised in a family with a long tradition of Hanseatic merchants based on the Christian and Western culture. As far as leading a business and paying taxes, my father being a very hard and rigorous head of the family, had a maxim, he followed his whole business life:

"Redde Caesari quae sunt Caesaris, et quae sunt Dei Deo" or in english

"Give to Caesar what is Caesar's and to God what is God's".

I do follow this maxim till this day and this is, what I translate with the sentence, the legal way of doing things, is the easiest way.

But this does not implement, that I (or we) accept to be ripped off. We locate and operate our strictly privately paid (incl. VAT) and owned boats within the jurisdictional borders of the EU governed by the laws of a common market. Means, if you have paid (for example) the VAT for your boat in your or any other country of the EU, you do not have to pay them again in any other EU country, just because you relocate your boat to this country. This is very straightforward and simple and fully legal.

Example: I buy a new sailboat in the Netherland, transfer it to Germany, pay the 19 % German VAT based on the final bill of the Dutch yard at the port of entry in Germany, this VAT payment is valid for the whole EU. And no other EU country is allowed to charge any kind of additional VAT, wealth taxes (we do not have wealth taxes in Germany) or any kind of luxury taxes on this boat, if relocated to any other EU country, provided the boat is not used for any type of commercial business (charter). And if we ship all supply and provisions (VAT paid) from Germany to this boat in Spain for example, the same counts for this consumable goods!

This does not mean, that those countries desperately looking for more money, are not trying to violate or work around those EU laws in order to raise more money from foreign boaters. They are setting up more and more traps in order to catch foreign boaters and to get them under an exemption of those EU laws and force them to pay (a lot of) additional money. The Spanish law concerning being property owner in Spain and the mandatory flag change for foreign flagged boats is one of those examples. Those traps are meanwhile so thick on the ground, that we have employed a solicitor specializing only on flag state and EU tax laws and rules. Not in order to avoid legal taxes and fees, only in order not to get trapped. And that is the reason, none of our boats are located in Greece anymore.

If one decides to live fully legal, he has the right to be treated according to and protected by the laws, he obeys, period.

Just my 2 (Euro) cents and sorry for my humble english.

At least you are not Swiss and speak that strange sometimes confusing to me Swiss German.

My German is very poor in speaking. I may understand what is said but am out of practice in speaking it myself, thought I can just manage reading... but I got top marks long ago in University in it! But I do like the Schlager music which helps to keep me a little in practice understanding ! A friend from S. Germany Munich area mentioned to me about Helene Fischer's 'horrible Rhinelander accent' a while back and I said I really did not notice. Now I really notice what he means. My elderly mom is English only though she grew up and a German and English speaking home and the rest here are French only (with little bits of english). This makes for when mom is present a constant translation issue though she understands a little French... enough words to get along. Interestingly, I failed French in college... after having lived in the French military for some time... but one does not argue with the professor who was the Chairman of the Language department... and show up for the second semester... my above average grade got changed to a failure... twenty years later the University changed it to a Pass after he retired!

The point I suppose on this thread is the legal political issues effect someone living on a boat more than someone using it for recreation.

Actually, HTM09 that is about the best you can do and honorable. Being German and paying German VAT is fair but not the cheapest way to go. That also is a large amount of money when you add it to the top of the yard bill on a new yacht. Many many will not pay that and bring the boat into the EU in a more favorable VAT tax country. And, many do not at all and register the boat and manage the boat so not import to the EU to skirt the VAT. If one looks at the brokerage market of the number of VAT paid boats.... or the boats with US Flag that can be purchased in the USA... in either case it is by far the smaller number on super yachts. In my history I have nearly always purchased used boats and VAT paid already... as I would get scalped by the family... very important.

Over the years, what I have found is many owners start out avoiding the issue with various schemes. But as they become older they give up. Even with American owners, were the tax issue is less... it is common to go "off-shore" particularly on larger boats. I remember Malcolm Forbes fully paid taxes and he did so with his personal after tax money... and this is from the horses month... if I remember correctly... "I am at a point in life where I can easily afford to do so, and it is just so much simpler." That comment was made on his last Highlander... very expensive for the time. Interestingly, the larger the boat the less likely this is to be the case. Another American well known now deceased yachtsman Jim ***** is another example... if you notice the very expensive last "Gallant Lady" is still fully compliant and American Flagged... but I hear it is kept at the family home. I would love to do the same (American Flag) but unless one is operating primarily in America it is hard because if one keeps the boat mostly in the Med. one pays VAT too. Furthermore, in that case the crew if American are at a disadvantage in tax to the largely English speaking and of British Commonwealth crews prevailing in the industry... however, they are given a tax exemption if they live overseas but the USA them about 105,000 tax free foreign salary before American taxes apply... but to qualify they must reside overseas as residence... so only the higher paid American Captains, First Officers and Engineers does having to pay American tax actually apply... in that fairly rare case.

Living on the boat as residence could make it complicated... and might invite scrutiny from tax authorities if not primarily resident in one country (over half the year). American Citizens as owner / live aboard would likely be paying American income tax. America is one of the very few countries where its citizens no matter residency have to pay American tax... unless there is a tax treaty with their country of residence... where they can usually make a choice.

In closing out going back to the Swiss... as an example although it is not ocean front land... the Swiss tax treaty with the USA is interesting. If resident in Switzerland an American first pays Swiss tax and then that is deducted from the US tax bill... and then the difference is paid to the American Government. Also, the residency requirement for having to pay Swiss tax is more than 30 days present in the country. So Americans can get caught out on vacation somewhat easily or if they have a vacation home. Swiss are notorious for enforcing rules too.

Btw. Karo, the German singer Helene Fischer was born in Russia. Her parents immigrated into Germany with her and applied for the German citizenship. Her, what your friend calls Rhinelander Accent, is Russian based and mixed with the accent of the Rhine River area in Germany she grew up in. Even worse .

Actually the 19 % VAT is not as high as you might believe in comparison to other EU member states. See below a list of VAT rates in Europe as of January 2015.



The VAT itself is not the worst part of it. Some countries have wealth or luxury taxes on top of that VAT. And then it gets expensive. If you buy private things out of your personal income after tax and then pay VAT on top of it is ok and common practice all over the world. But in Germany we believe (at the moment ) and this is according to our constitutional court, paying wealth tax for private mobile and consumable goods after you have bought it of your personal income after tax, is against our constitution. But this does not include real estate property. For these wealth you pay real estate transfer tax and later real estate tax. But not for private boats, aircrafts or cars, regardless of size, value and wheather it moves or not. Even a house boat is still a boat and no real estate (I am not really sure about the last one ).

Time for a test. Who remembers the topic of the thread?

Volga German girl ! Actually the American Band leader Lawrence Welk was also a Volga German from a German community in the Ukraine. I know Helene says she was born is Siberia on her television show.
No doubt you have seen the Volkswagen commercials for the Helene Fischer special vanity car.
For our US based cousins here are a Helene Fischer performances
"Atemlos... and more" (German)
"Russian Medley" (Russian)
"Power of Love" (English)
"Marathon" (German... my favorite song)

The last on is near where you are... HTM09 Well enough of Miss Perfect!

Anyway France has the wealth tax (FYI it is now about 5% annual on total worldwide wealth)
This is the big reason I did not buy a big motor boat. It is also why there are few French Mega yachts. Before Hollande it was less than 2% which was bad enough. Basically assuming a static situation in 20 years the Government has everything you did... was 40 years... so why bother. Hollande's attempts to 70-75% income tax the wealthy (over about 950K) did not work out as the Constitutional commission reviewing such things ruled it unconstitutional. But it was brought in by stealth by requiring any company paying more than that to an employee to pay the tax as a penalty. Just before Hollande came in I wanted to buy a new house in Neuilly. Now because it was new the VAT applied so the 30m price would have had 6m attached as tax. The problem is the wealth tax would be in addition to the property tax of about 2% so we are talking about 7% annual on the value of the house. I got shot down because my better half did not want to move!

The problem is for large boats like lets say Solandge the wealth tax per year would be nearly 10m doubling the operation costs... and worse the money to run would as you say be already taxed ! This is why there is few private owners of large boats.

Say what... topic... I got a disability here Alzheimers... DON'T KNOW CANNOT REMEMBER.
Actually, these things are very much part of the challenge one faces if one were to live on a boat... well maybe not the schlager music thing... but Helene is a cutie and brightens up a depressing subject! I could have posted Bardot songs...

I was beginning to wonder of my browser had been hijacked to a different forum.

K1W1
It turns out this thread fell through a wormhole to a different dimension !

That wasn't the kind of hole that I was thinking of

Ooops! I remenber it was something about boats, right? But now it´s getting scary...

Helene Fischer is really a good looking lady, she just shouldn´t sing...

Hi, Just to clarify.
The founder and owner of Carnival Cruise Lines is not living anywhere at the moment; he passed away in 1999.
He was born in Israel, moved to the US to start Carnival, moved back to Israel around 1990 to avoid a $10 Billion inheritance tax. To say he paid no tax in Israel is a fallacy. His taxes in Israel would have exceeded US taxes. His son who is chairman of Carnival lives in Bal Harbour, Florida where he will pay applicable taxes as any US citizen. I believe Carnival was a Panama company but has now, or is in the process of, becoming a US corporation. Not sure how many people were that offended since he continued up until his passing to give away a fortune to US causes.
There are many US companies that legally avoid taxes by nominating revenue to various jurisdictions; Google being only one example. Until the US closes the loophole and requires the repatriation of funds, why would they stop?