Superyachts and vessels: Maritime legal support in Thailand
The building, buying, selling, owning, operating and managing of a superyacht or vessel in Thailand
Thailand, the “Marina Hub of ASEAN”, and Phuket as “Asia’s maritime capital,” is a center of shipping and maritime activities, especially for pleasure yachts during the European off-season. Apart from the major commercial ports Bangkok Modern Terminal, Laem Chabang, Map Ta Phut, and Sattahip Commercial Port, there are currently smaller ports in Phuket, Krabi, Kantang, Ranong, Rayong, Songkhla, and Sriracha Harbour. Phuket offers yacht businesses six high-end marinas, all operated by private companies and is a prime jumping-off point to destinations throughout Asia.
Superyachts start in Thailand with more than 30 meters (instead of the standard 24 or 25 meters) but not more than 12 pax. It is a high-value asset, often built, owned, and operated in different jurisdictions. There are about 5,000 superyachts globally, and about 100 of them under Asian ownership structures. Superyachts are subject to different domestic and international rules, legislations, and jurisdictions. It operates in a complex regulatory, customs, VAT, and other tax environments. Its high loss risk requires a carefully designed contractual risk allocation between the owner and other participants.
Owning a yacht or other seagoing vessel is the top-notch of a luxury lifestyle. The choice is to build a customized yacht, to buy from the shipyard or to acquire a pre-owned vessel. As a truly international investment, the choice of the flag state resp. the country of registration, the area of navigation, the place of residence of the owner, the nationality of the crew, and the tax status are of eminent importance. Relevant aspects cover taxation mitigation and liability protection, stable fiscal and legal system, the construction, inspection and regulatory compliance regimes, the confidentiality of ownership and others. The asset can be operated as a private yacht or commercial operated vessel.
Costs: The annual maintenance costs of a yacht amount between 8 and 10 percent of the acquisition costs. This includes all costs for captain and crew, insurance, registration, homeport docking, repairs, yacht movement to various ports of call and, most importantly, a reserve for a replacement of the yacht. The only costs not included are the direct costs incurred by the owner during his time of use of the yacht, such as food, beverages, and fuel.
PUGNATORIUS Ltd. advised on the successful acquisition, yacht due diligence, cross-border tax structuring and fiscal compliance, offshore handover, import, customs declaration, and registration of a Lagoon 630 MY Catamaran for a client in Thailand. https://t.co/PpCsfO2gJg
— Bangkok Lawyer (@bangkoklawyer) February 21, 2020
Thailand’s Vessel Act constitutes the main legislation for boats trading in Thai waters. Thai vessels are defined as motor yachts of ten gross tonnages and upwards or sailing boats of twenty gross tonnages and upwards. Trading in Thai waters means the commercial transportation of passengers from one place to another place within the Thai waters. If the Thai vessel is owned by a Thai company, specific ownership requirements under the Thailand Vessel Act have to be observed.
Sale and purchase: The acquisition of a yacht from abroad, under a foreign flag, owned under an offshore corporate structure, located in- or outside of Thailand, with a place of delivery resp. completion of the purchase in a tax-haven has a broad scope of legal and tax aspects. It requires a smart investment structure, a comprehensive yacht due diligence, the negotiation of standard yacht acquisition contract templates, signing and deposit payment, a successful sea trial and condition survey, a streamlined delivery and payment process, and a clear understanding regarding the process of owning and operating the yacht.
MYBA MOA: The Mediterranean Yacht Brokers Association Memorandum of Agreement is the industry sale and purchase standard for yachting transactions. It consists of 44 sections and is governed by and construed in accordance with the laws of England with the arbitration in London. The contract is perfectly designed from the perspective of the broker paid on a success fee basis. It can and should be negotiated in accordance with the parties’ interests, the particularities of the asset and the local practices and requirements.
Temporary importation: Yachts which are temporarily imported with passengers and will be re-exported out of Thailand within one or two months, but not exceeding six months (for the purpose of traveling) will be exempted from duty, provided that the importer complies with customs rules and regulations. This is restricted to boats used solely for pleasure or sports, but not imported for commercial purposes. It requires an arrival and departure report to the customs authorities upon arrival and departure. Otherwise, the pleasure yacht might qualify for a customs rate of zero percent, so that only the 7% import VAT burden on the vessel’s t CIF value applies.
Yacht taxation: The acquisition, as well as the operation of a superyacht or vessel, has various tax aspects and the need for professional tax planning. Some tax issues are further described at “Tax planning for yachts and other luxury commodities“.
A superyacht license to do charter business in Thai waters would allow the roughly 5,000 superyachts located at the Mediterranean to come to Thailand and to offset the costs of moving by charter income. New developments on Thailand’s regulatory framework are on the horizon.
Yacht charter: Thailand’s laws allow demise charter agreements and commercial charter agreements. In the first case of a bareboat charter agreement, possession, command, and navigation of the vessel are relinquished to the charterer. This includes crew selection, vessel operation, and management. In a crewed charter contract, the charter party rents the vessel for a specified time, but the owner remains in charge of the vessel operations and selects the crew. Under Thai laws, the type of charter agreement has an influence on the owner’s liability, applicable requirements and regulations, tax implications, license requirements and more.
Foreign-flagged and/or foreign-owned vessels in Thailand
Nationality, flag, registration: Nationality is evidenced, but not created, by the ship’s papers (Certificate of Registry, Transcript of Registry) and its flag. The flying of the flag is (only) the visible sign under which laws the yacht is operating. Thailand’s shipping registry allows only the registration of a Thai (corporate-owned) vessel under the Thailand Vessel Act. Under such traditional shipping registers, the ship’s flag follows the ship’s ownership.
Flag of convenience: Other nations allow foreign companies and persons to register their vessels under that nation’s flag (open registries, flags of convenience). However, under the United Nations Convention on the Law of the Sea (UNCLOS), article 91, there must exist a genuine link between the flag state and the ship. The flag decision has to consider survey requirements, employment requirements, the flag’s position on the Paris MOU white list, cost, international status and protection, and much more.
Thai Temporary Charter License: While a vessel may have to fear the crackdown on visiting foreign charter yachts in thai waters, visiting foreign-flagged superyachts can apply for a license that enables them to enter, cruise, and depart commercially in Thai waters. This includes a complete charter without a Thai licensed captain and engineer, merely equal to Thai-flagged yachts. Visa, work permit, import-VAT, and customs issues have to be observed. An alternative is starting or ending the trip in international waters, for example in Langkawi, Malaysia as a pick-up or drop-off point for Phuket-based charters.
Foreigner legislation: Various laws and regulations restrict and limit foreign investments in superyachts and vessels which are operated in Thailand. The vessel owning company has to follow specific rules, the work of the foreign captain, engineers, and the crew are restricted by a strict regulatory framework. Other rules restrict the operations of foreign-registered and foreign-flagged vessels within the Thai territory (cabotage restrictions).
Maritime legal advice from Bangkok
PUGNATORIUS Ltd. is the Bangkok-based specialist provider of legal services and tax advice on foreign investments in Thailand’s manufacturing and service industries as well as property acquisitions and developments. The law firm advises and assists international clients on the legal and tax aspects of the construction, sale, purchase, registration, and operation of superyachts and vessels. It guides and handles the whole process, as well as coordinates and communicates with the Thai or international participants through the whole life cycle of the yacht.
TYBA: PUGNATORIUS Ltd. is a member of the Thai Yachting Business Association, formerly the Thai Marine Business Association. The TYBA is a non-profit marine leisure industry association, serving yacht builders, yacht charter operators and brokers, marinas, yacht repairs and refitters, yacht management, and other yachting related companies throughout Thailand.
The scope of professional work in the maritime and yachting sector is described at “Legal and tax advice in Thailand’s maritime and yachting industries”