Many new owners of luxury yachts often feel that they can offset part of the operational expenses of running their vessel by chartering it to others when it is otherwise not in use. Although a great idea in theory, leasing a yacht can be trickier than one would think and it is advisable that one is properly educated, guided and get facts straight in order to avoid disappointment, unnecessary costs and headaches.

For one thing, an owner needs to be prepared to share his / her prized possession and accept the fact that others who may be interested in chartering it, might not be as careful as they are with it. If this first hurdle is surpassed, then trickier issues need to be considered:

Can the yacht be chartered legally? Flag states require that the yacht meets certain conditions in order for a vessel to be eligible to be used for commercial purposes. Under the Maltese system, you would need to adhere to the standards imposed by the Commercial Yacht Code and actually convert the yacht's status from private use to commercial vessel. Such conversion and its viability (both financial and physical) will really depend on the yacht's specs. Generally, yachts over 24 meters comply to the commercial yacht standards with relative ease. Although, it must be pointed out that they might also need to undergo certain alterations and face certain expenses in order to render them eligible.

Tax implications are also another major consideration when one is looking into this segment. How will tax be accounted for? Where is it paid? What are the rates? What are the risks of conversion to the vessel's tax status?

One must also be aware of certain tax breaks associated with operating a commercial yacht, such as state aid incentives, provided as well as a reduced tax on services.

Owners should also have realistic expectations concerning how frequently the yacht will actually be chartered and in use by others. The peak season for chartering is rather limited. When one factors in the reality that the owner would also like to make use of it during the ideal time, income expectations might need to be recalibrated accordingly.

It is imperative to engage people who understand the industry and have the necessary experience in order to guide you through foreseeable pitfalls. Having good local representation will also ensure that the owner is provided with alternative options which may better cater for their needs. For example, the Maltese system allows for fast conversion to / from pleasure status in an efficient and cost sensitive way.

As with all businesses really, an good advisor will often be able to ask the pertinent questions, steer the client in the right direction and provide options which ultimately will ensure better return on investment.

Originally published by The Islander Magazine (July 2023).

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.