Isle of Man: Shipping Registration in the Isle of Man

Last Updated: 30 September 2010
Article by Richard Slee

The global recession has meant stormy waters for the shipping industry. Although the notorious volcanic ash cloud affecting Northern and Western Europe may have meant a temporary boost for sea passenger numbers, it had virtually no impact on the amount of cargo carried with very little transported via air.

The fall off in world trade has led to significant over-capacity and the associated tumbling of freight rates, often falling below the operating costs of some vessels.

The issue of over-capacity was not only driven by the drop off in trade but also by the fact that significant numbers of new vessels were delivered at the height of the recession, having been ordered when global economies were enjoying strong growth.

With the lead time from ordering a new ship to build completion averaging two years, the swift, almost unanticipated, nature of the global downturn led to too many ships chasing a dwindling amount of business.

Although over-capacity will remain an issue for the foreseeable future, there are signs that things are improving, thanks largely to the still impressive growth of the BRIC economies. China's economy is expected to grow by around 10% this year and demand will be strong for raw materials. As the market for manufactured goods improves then container operations will also start to recover. Additionally, some shipbuilding projects have been cancelled or deferred.

However, even ships in lay-up still need registration, management and crewing. Hence, ship owners are keen to look at ways in which they can keep their operating costs to a minimum. Some in the industry have been quick to respond. As well as operating one of the most reputable registers in the world operating to the highest international standards, the Isle of Man Ship Registry offers very competitive fees. Unlike other registries, their annual fee is not dependant upon the size of the ship or type. The fee has been set at an economical £700 per merchant vessel which allows direct and favourable comparison between the costs of registration with competitor flags. In addition there are substantial discounts available for multi-vessel owners registering with the flag. They have also announced a revised structure for fees in recognition of the tough times that many owners now face.

Due to high-profile media coverage, the issue that most people outside of the industry will be aware of is piracy, especially a problem off the coast of Somalia. The situation is worsening. In April this year the BBC reported that the EU naval force (Navfor), which is attempting to counter pirate activity in the area, said that the rate of activity it saw in arch was double that of the three months from September to November 2009. Costs of shipping goods in the area have increased, but the cost is more than financial. For example, around 90% of the World Food Programme's aid to Somalia arrives by sea and suspension of deliveries has often occurred.

Part of the maritime industry that bucked the trend in terms of the global downturn is the commercial yacht market, especially at the larger end of the market. This is reflected in the continued growth of the yacht management sector in the Isle of Man for yachts that are registered both on and off the Isle of Man. However, even here there are issues to contend with. One of them involves VAT regulation and whether a yacht is treated as commercially operated for VAT purposes.

Where it can be demonstrated that there is a genuine yacht charter or leasing business 'earnestly pursued', then VAT registration and VAT recovery is possible. 'Genuine' businesses will have a propensity of usage by unconnected third parties. Circumstances where the funder/owners also the sole or primary user will not be accepted as business ventures for VAT purposes.

Depending on the nature of the actual business activities there may also be a liability on the owning entity to either pay VAT or become VAT registered in other EU Member States.

EU Member States (including the UK and Isle of Man) will challenge those structures found to be avoiding VAT through the use of artificial chartering or leasing.

Further information on these issues can be found in the Isle of Man Customs and Excise Practice Note for Yachts via the following link :-

These issues in maritime are just a flavour of those affecting the industry as a whole. One could go on to discuss the coming implementation of the ILO Maritime Labour Convention in 2012, although this should only really formalise what quality ship registers have been doing for some time.

In conclusion, it would appear that especially in the current economic environment where fragile recovery is just starting ship owners and operators are best advised to continue using a reputable, high quality register, such as the Isle of Man.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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