When we commissioned the award-winning, sailing yacht Atalante in 2015, Dominion provided excellent detailed advice on the registration and taxation options that we used.Beneficial Owner, S/Y ATALANTE
Yachts in free circulation Monaco style
Ken Griggs recently sat down with Onboard Magazine to explain how the Monaco solution can deliver a VAT solution for owners looking for free circulation.
As a leading light of design and innovation the superyacht industry often leads the aviation and motor industries. But, its latest solution for superyacht owners, is a direct copy of a very well practiced financial scheme in the motor industry. In recent years, some owners seem to have been hit with a raft of costly legislation changes. To mention a few; abolition of duty-free fuel and the decline of the Maltese and Cypriot leasing schemes lasted for 15 years, with the afore mentioned Maltese scheme delivering the goods for about 12 years. But there was the need for something new.
With a long and successful history in providing finance for the superyacht industry Ken Griggs joined old friend Chris Allix to run Dominion Marine SARL in 2014. Dominion Marine SARL and it’s Director Ken Griggs have developed a product that in essence gives owners a free circulation yacht. Although, to be financially beneficial the value of the yacht does need to be north of €10m.
Nearly half of all second-hand yachts sales are purchased by buyers in the USA, and Ken Griggs explains how the Monaco solution can provide a yacht to owners looking for free circulation, so it’s no surprise that they have no desire to have a VAT paid boat. Non-EU residents, such as owners from the Middle East, or Eastern Europe tend to use TAR, and with the bulk of yachts either side of the 50m mark commonly used for commercial purposes, VAT has a massive impact on the decision of whether or not to buy a superyacht.
Dominion Marine SARL have developed what is now recognised as the preferred VAT deferment solution for superyacht owners. Set in Monaco, the scheme is based on the widely known car rental solutions that we’ve all used numerous times. Leasing. The vital element being that when you hire or lease a car, you pay VAT on the rental element, but you then have the ability to visit any country you fancy. The car is in free circulation, and this is precisely what the Monaco solution delivers to yacht owners.
In a simpler fashion, the scheme is already used by bare boat rental companies popular in Greece and the eastern Mediterranean. The rental company does not pay VAT on the yachts they buy as a commercial asset, but you as the renter will pay VAT on your rental fee. In his own words Ken likens the yacht solution to that used by the likes of Hertz Rental. But they do differ slightly, Ken explains “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 Marine SARL.
The yacht in question gets its own company in Monaco with its own VAT number in order to provide the individual lending the money, total security on the asset. There is obviously a fairly large cost for Monaco, but these pale into insignificance when compared to the savings that are realised by the owner through this scheme, but as mentioned before the most beneficial starting point is for yachts with a value in excess of €10M.
The simple steps are as follows:
- Dominion Marine SARL 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, this provides a more than adequate level of security….BUT
- Dominion also 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 so the UBO can be assured that the yacht cannot be sold or mortgaged without his consent
- There are, therefore, three levels of security
- The UBO then rents the superyacht from the owning company based on the best estimate of the future depreciation of the asset
HOW IT WORKS
Simple? …but here’s a working example to make it clearer.
We have a vessel worth €50 million, a broker or surveyor will determine what the vessel will be worth in five years’ time.
If the predicted value is €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 round-tripping 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 a time when the owner wants to sell or exit the solution, the superyacht is sailed into international waters and sold back to the lender. Voila!
For more information on the Monaco solution please contact us