GLOBAL-WIDE: An Introduction

Yachts and Superyachts – Bargate Murray 

As superyacht experts, we are fortunate at Bargate Murray to be based in a city which has a strong claim to being at the heart of the ultra high net worth (UHNW) world.

London is reportedly home to the most UHNW individuals (UHNWIs) of any city, and their numbers continue to rise despite the political uncertainty surrounding the UK’s relationship with the European Union.

So, whilst the UK may not be the most popular cruising destination for superyachts, many of their beneficial owners have their roots here. It means that our connections here in London offer a unique insight into the thought patterns and trends that are on the rise amongst the global super rich.

The health of the superyacht market can be thought of as a bellwether for market sentiment amongst the UHNW community. A glance at the order books of the world’s top yacht builders will tell you that the industry is in good shape. Right at the top of the market, the number of newbuild yachts in the 100m+ range has remained remarkably consistent over the past ten years, albeit with a dip that echoed the 2008 banking crisis. We expect to see another six 100m+ behemoths launched in 2019, which could be representative of as much as EUR2.4 billion of private capital hitting the water. Similar figures are on the horizon for 2020.

Emerging markets, including those in the Far East, are bringing new entrants to the market with different desires and requirements, and regulation of the superyachts, which was once essentially viewed as simply an offshoot of the shipping industry, is receiving more and more care and dedication from key policymakers. The most recent development in this regard is the publication of the Red Ensign Group (REG) Yacht Code, which is the culmination of over 20 years of dedicated yacht building regulation that started with the publication of the first Large Yacht Code in 1997.

The industry has come a long way since then, and the greater focus and consideration given to yachts being very different animals to cargo ships, which they really mirror only in size, will help to ensure that yachts can be built and operated with as much flexibility as possible, which in turn should help to ensure that the requirements of new market entrants can be accommodated wherever possible.

It would be quite wrong, however, to suggest that there are no changes afoot in the industry or any risks to the current outlook.

Ever more sophisticated legislation, coupled with increased scrutiny from both governments and the media into the manner in which UHNWIs are able to arrange and conduct their affairs, means that it has never been more important for clients to ensure that they have the right lawyers and other professionals looking after their interests. Superyacht work calls for knowledge of both maritime law and high-end private client work. It is a mix of skills that is unusual if not unique. Best-in-class advice can only be given by a lawyer who has a thorough understanding of an owner’s personal circumstances, tax position and asset portfolio, in addition to the socio-economic backdrop.

Look, for example, to the recent fracas between certain EU Member States and the EU Commission, which took direct aim at the leasing structures available in some jurisdictions which enable yachts to be imported into the EU at a reduced rate of import VAT. It is a practice that does little more than utilise one of the available VAT reliefs laid down in EU law, but that did not stop Pierre Moscovici, the EU Commissioner for Economic and Financial Affairs, from accusing certain Member States of being complicit in “VAT evasion”. Fortunately, consultations between the Commission and the relevant Member States served to defuse much of the tension and resolve the key differences in interpretation of the rules. This is nonetheless emblematic of what appeared to be a “crackdown” on the superyacht industry, which itself is part of a more global effort to redress the balance between the “have nots” and the “have yachts”.

In this regard, the OECD’s Base Erosion and Profit Shifting Initiative (BEPS) calls for a brief mention. The policies pursued by BEPS have driven many international business centres, including the Cayman Islands, the British Virgin Islands and the Isle of Man, to enact economic substance legislation.

The intention of these new laws is to require entities incorporated in these jurisdictions, which carry out certain categories of business, to ensure that they carry out a proportion of their business within the jurisdiction in which they have their corporate “seat”. One category of business caught by these new rules, alongside fund management and insurance, is the shipping business. Depending on how the individual laws are framed, they may or may not have an impact on the operation of yachts that are owned by entities incorporated in such jurisdictions. By their very nature, yacht operations are international in their scope and any carefully drafted legislation should acknowledge this, or else serve to do little more than drive business away. We will be working closely with our clients to navigate through this issue.

Finally, whilst equity, real estate and luxury investment markets have enjoyed growth in 2017 and 2018, there are some signs that a correction is coming around the corner. An escalation in the US/China trade war could be a catalyst for this. Firms that work with clients across a diverse set of jurisdictions and business sectors will be best placed to deal with this.

Drawing all of these threads together, we remain optimistic about the state of play in this exciting practice area. We look forward to working with our global and growing client base to help them continue to meet their objectives over the next 12 months.