Choosing Flags, Registration, LLCs for a New Catamaran
So we were just told that our boat is coming out in just three weeks after first being told around December it was delayed until March. Why am I surprised by this? In this post I’ll talk about our full court press to the finish line leading up to the ex-factory handover and all the flagging and registration choices we have to now decide on.
Just a month and a half ago we were told our boat was going to be late because they ran out of balsa wood. The dealer called us and asked if we were okay just doing a foam core instead of balsa and keep our original ex-factory date, which just like everything else with boats, there are tons of opinions on which is better.
After some research and debating, we decided to stick with the balsa and wait another six weeks for delivery. We had originally asked for an ex-factory date three months before we needed the boat anyway, to allow for manufacturers delays so we had the time. Our thought was, every other boat has the balsa core so anything else might open it up for other unknown issues that we just don’t by this time have the brain cells to care to worry about. Our hull number is 122, which means 121 boats before us have been scooting around the planet on balsa so we figured its best to go with what the boat was spec'd out for, versus take the risk of a new spec later. Sure, the Brightside Betty in me wanted to believe reports that foam was lighter and would make the boat go faster, but on the other hand, would it also make it less stable. Just stick to the specs guys!
So over the holidays instead of getting all our final boat things done, we focused on the Tahoe rental that I talked about in my last blog. Meanwhile, I’ve been traveling for work over the past three weeks (ya...I know…), and got a text from my husband that our broker called and told him the boat was going to be ready right on time. What’ freaking boat broker says that...the nerve...right on time! Who in the world gets their boat right on time??
As I’m writing this blog what this means in terms of timing is all the registration, insurance and final payment is due in just ONE WEEK, even though it doesn’t come out for three! Yes, because that’s how it works when you think more time than you actually have and you push things off.
As I finished out my last week on the road for work, my husband...Mr. slow and thorough, decided to go all Defcon 5 and start getting a bunch of stuff done. I’ve never seen that before, I’m still trying to fully comprehend this new person I now live with.
So we are both now going bananas trying to finalize our decisions on the Flag, where to register the boat and whether to do an LLC. All of these decisions are intricately connected so let me walk you through our little adventure on this one.
Let’s start with flagging.
Flagging the boat is pretty important, it basically dictates what laws the boat operates under. It determines taxes, liability, usage and who can operate it. The flag state has the responsibility for the boat and determines the level of construction standards it requires and who will care about how it’s used. We are US citizens, but we have no intention of bringing the boat back to the US so we have a lot more options. When we first went around on this, we decided to just go with a US flagged boat and then register the boat US Coast Guard, which means its under US jurisdiction, but it’s not attached to any given state (where you would also pay state vessel registration and potentially use taxes). Many US cruisers do this. However, in recent months we have been growing more uncomfortable with the idea of flying a US flag outside US waters due to the political climate. We just don’t want any reason to call attention to ourselves or invite any kind of bad feelings that we have nothing to do with. This opened back up our options for Red Ensign.
Red Ensign Group is one of the most respectable flags, made up of about 13 countries. These flags fall under the jurisdiction of the UK and the British Royal Navy...so there’s a bit of prestige and cache, but people tend to believe it also provides more security. However, the specifics of this remains elusive outside of just not bearing a flag from someplace people have bad feelings about. Many offshore cruising boats choose these flags just to stay neutral and also because the registration process can go quickly. We looked at Cayman Islands, BVIs and Jersey (not Jersey shores, but Jersey the island which is in the channel islands between the UK and France. Speaking of France, it took my husband (who was originally born in France) a while to get over the horror of flying a UK flag...French people generally have a thing about not adopting British flags, or liking any British sports teams...must be a holdover from the Revolution or something….it took him a while.
Here’s the quick run down on these flags, which you can hire an agent to do or do it yourself. Cayman Islands lets US LLCs register but the costs are steep, roughly $7,000 to set it up and $2,000 a year, plus the cost of the US LLC should you open one. Steep. Jersey is more affordable, roughly $3,000 to set it up $2,500 for registration that lasts 10 years but they don’t allow a US citizen or a US LLC to own the boat. An EU citizen can own the boat, which was an option for us since my husband is a dual citizen but we were concerned about any issues that would arise with VAT since you can’t be a EU resident...well you can, but then it opens you up to paying VAT on the boat in Europe which is like 20%... so we didn’t even want to leave ourselves open to dealing with that even though he’s not a resident of EU at all. The thought of having to hire an international maritime attorney to straighten things out if we got accused of anything by an overlay ambitious maritime inspector just didn’t sit well with me. With a Jersey flag, you can do it through a BVI LLC, which through this plan would be about $2,000 a year.
We settled on BVIs, it’s less expensive than Caymans, you do have to get a BVI LLC to put it under, but the process is pretty simple and our dealer knew an agent who could help us. No doubt, the cheapest option is a US flagged boat, USCG registered, but for us the peace of mind was worth it. The cost is roughly $6,000 to set it up and $600 a year for registration, plus $1,000 or so a year to maintain the LLC. So there you go.
Next we had to apply to get a BVI LLC, which means you have to do all these things to prove you are who you say you are, and you even need reference letters to prove you aren’t some mobster or drug dealer trying to launder money. The hardest part of all this was just getting all the original documents notarized and authenticated; we made the day of a mobile notary named Ben who came over for like an hour and made a couple hundred bucks on us signing our life away. I’ll let you know how this whole process turns out. We need all these things in place to get a provisional registration for the boat in the BVIs which lets us leave the dock. Why the LLC in the first place? The way I look at the LLC is it’s sort of like an umbrella insurance policy. If god forbid, something totally terrible happens, whatever legal fallout on liability is contained to the boat itself. It allows you to separate the boat from the rest of your personal assets...that’s the idea. So if someone decides to sue you the worst that will happen is you lose the boat and everything in it.
Boat insurance, which was mounted on a sticky note for months in front of my husbands desk at home collecting dust. We went to two different brokers and also called one of the big yacht insurers directly to get the ball rolling. The initial estimates are hovering at about $7K a year but the kicker on insurance is the deductible, $20K or $5K. This covers up to $1M in coverage and $10M in liability coverage.
In addition to all the registration and flagging, we are working with our broker on our paperwork for temporary importation, to prove we are leaving. This gives us the ability to pick the boat up in Europe and do the shakedown season in the Med without having to pay VAT. We aren’t keeping the boat there and it’s able to stay for up to 18 months which is well beyond the time we will be there. Even so, you need to have all this paperwork together as you engage with the authorities so you can prove that you are following all the legal procedures properly.
All of this paperwork is interdependent, so you can’t register unless you have the proof of insurance, which can’t happen until you have the boat’s bill of materials, which can’t happen until you settle payment. Then the BVI LLC requires you to show two forms of identity, we had our passports but one needs to match your current address (which means we had to get new driver’s licenses because we sold our house and moved), and getting time between business trips to visit the DMV is oh, one of life’s big joys. Then I had to show linked documents because my birth certificate and my current name on my passport doesn’t match, which includes adoption papers (long story), first marriage certificate, divorce settlement and new marriage certificate...and so it goes.
We booked my husband a flight to France and were able to get him a screaming deal on a month-long stay at an Air BNB so he’s set for the ex-factory handover and the initial round of commissioning with the local agent. I’m having a lot of guilt and anxiety about not being able to join him, but work has me on Mr. Toad’s Wild Ride currently that I need to be 100% focused on.
Meanwhile, we keep wondering about this whole balsa wood business. There had been strikes going on in France that would prohibit the factory getting the supplies, so we were still wondering about whether or not we actually have balsa on board or not. Why would it suddenly be in our boat after they spent a whole week negotiating with us to be okay with a delayed delivery date to just turn around a couple weeks later and say ‘just kidding.’ Like, how could we even check it, drill a hole in the boat? They did send us a picture that appears to be a boat surface of some kind with wood in the middle, like a cross section of sorts. On the photo separately somebody wrote ‘hull 122’ on the photo and that’s what we received. Not sure that makes us feel any better, but that was the factory’s way of proving the boat we are getting is our boat. SMH.
They also sent this photo below, which made us giddy until we realized they had accidentally installed the wrong generator. oops.
Okay, so what have I learned. Well for one thing, I learned that delivery dates are never final....which was sort of the whole thing I was banking on when we added cushion on our dates in the first place. It could still be that my husband arrives in France and they tell him it’s delayed another couple weeks. It has happened to someone we know, he was at the airport getting ready to fly over after being told the boat would definitely be out that next week, only to be told the date slipped out a couple weeks. Like how does that happen? There are only 8-10 boats on the assembly line at a time, it’s not like it’s mass production and easy to lose track of any one boat. I just don’t get it.
The other thing I learned is to get as much stuff done early as you can because for some reason everything turns into a last minute emergency, even when you are planning on a last minute emergency.