HOW TO FINANCE SUPERYACHTS IN EUROPEAN WATERS
The yacht finance market is a true niche market accessible only by high net worth clients. Typically, they don’t need financing to acquire the yacht they have set their eyes upon, but they are looking for a facility primarily for cash flow purposes (or possibly looking for gap finance for a limited period of time).
The present yacht finance market
Since 2008, any person seeking yacht finance has had to approach this finance market with a different frame of mind than he is accustomed to with when dealing with finance requirements for his business. He must realize that financing the acquisition of a yacht is a risky business for any bank and credit policies are very tight. Furthermore, the banks view yachts as private assets of their clients, not as a business, so any person seeking to finance an acquisition, or a refit, must be aware that the bank will not be impressed by any business (charter) plan, even if intended only to support, and not to replace, a repayment program provided by the owner.
Nowadays there are a number of finance options in the superyacht sector for yachts worth over €10 million. For less expensive yachts, lending becomes more regional as international banks tend to consider that it is not worthwhile spending effort, time and money on smaller deals. In this segment, knowledge of specialized banks or branches close to the jurisdiction where the client resides is the paramount consideration. Leasing would be easier to obtain for such yachts.
With regards to the acceptance of a “dossier”, if before 2008 the primary assessment during the application procedure was security, now the emphasis has switched to two main areas: the ability to meet payments and legal matters. Financial institutions want much more detailed information than before, which results in an application taking considerably longer to process.
Marine products available in Europe
1. Marine mortgage loan: This is the most frequent way to finance commercial and offshore registered yachts. Main features: The loan terms available will obviously be dependent upon various factors such as the creditworthiness of the owner, the age and value of the yacht, and any other collateral security that is available. However, typically terms offered are likely to be as follows:
• Available for both new or used boats of less than 5 years preferably and from renowned shipyards
• Available for both private and company ownership
• 5 to 7 years repayment loan. Some banks accept to finance up to 20 years depending on the profile of the client
• Maximum loan to value ratio is 75%
• No VAT in case of a commercial registration / offshore registration when possible
• Variable and fixed terms available
• Typical interest margins: Euribor + 3 to 6.5 % depending on client’s net worth and type of finance;
• Arrangement Fees similar to Margin: 0.35 to 1.5% + legal costs
• Monthly or quarterly repayments
• Prepayment penalties TBC depending on the bank
• Minimum security is personal liability of the owner and first ranking Marine Mortgage over the vessel + assignment of earnings and insurances and assignment of building contract in case of a new construction + possibly pledge on the shares of the holding company of the yacht
• Valuation and condition survey could be requested if the yacht is more than 12 months.
The owner may also be required to covenant that his or her net worth will never be less than a specified multiple of the amount of the loan.
The particular terms of any loan are then likely to be set out in a detailed loan agreement including the various conditions required to be satisfied prior to any drawdown and the ongoing covenants with which the owners would be required to comply until the loan is repaid (e.g. concerning the use, condition and operation of the yacht).
2. Leasing schemes
Using a leasing scheme is a very attractive way to finance the purchase of pleasure yachts as it allows minimizing the VAT impact. In simple terms, a lease involves a bank or finance house buying the asset and then effectively renting it back to the client for an agreed period at an agreed price. For VAT purposes a yacht lease is a supply of services and is deemed to take place where the person who makes the supply is established: i.e. French bank in France, Italian bank in Italy etc. At the end of the lease, the client has the option to buy the asset which then becomes a transfer of goods. In this event, a VAT paid certificate will be issued to the lessee provided that all the VAT due has been paid.
They are simple to set up and administer and can be in individual, joint, or company names. France, Italy and Malta schemes are the most popular.
French and Italian leasing
Main features :
• Leasing facility available usually from 300,000 euros (no maximum)
• Initial deposit between 20% to 34%
• Lease maturity usually from 1 to 8 years
• VAT rate on deposit and installments will vary from 6.6 % for yachts over 24m to 19.8 % in Italy and be fixed at 10% in France
• Residual value is usually 1% and will be subject to the standard rate of VAT (22% in Italy, 20% in France, 18% in Malta)
• Available for both private and company ownership
• Available for both new and used boats In two cases it is possible to have a VAT-free lease as follows:
• A charter business buying a vessel that is used 100% for chartering in EU waters
• An individual buying a vessel for use 100% outside EU waters.
The bank will arrange to buy the yacht, finance the balance, settle the VAT, and then lease the yacht to the client or to the company for the agreed period at an agreed rate per month (or quarter).
Such schemes may be set up by incorporating a Maltese company, duly registered with the Maltese VAT authorities, to act as Lessor. The said company will then be in a position to contract with any client acting as Lessee on a Maltese Yacht Lease, preferably another Maltese company to create more links with Malta.
Upon the conclusion of a Leasing Agreement a letter is written by the Lessor to the Maltese VAT Department informing them of the Leasing Agreement. The VAT Department will thereafter confirm by means of a reply letter that a Leasing Agreement is in place and that VAT will be accounted for in Malta.
• The yacht is required to enter Maltese waters at the beginning and termination of the Lease Agreement
• 40% of the VAT due must be paid upon setting up the leasing (VAT on leasing installments will vary between 5.4% for yachts over 24m and 16.2%) and the balance on quarterly basis
• The leasing must be for a period not exceeding 3 years The Maltese company shall make a profit out of the transaction (typically 5% of the value of the yacht) which shall be taxable at 35% (effective rate falling at around 5%).
• To create more links with Malta it is recommended to register the yacht under Malta pleasure flag.
At the end of the Maltese Leasing, the Lessee may exercise a purchase option on the yacht – the price of which must not be less than 1% of the value of the yacht. The purchase will be subject to VAT at the normal rate in Malta: 18%. Upon exercising the purchase option and fulfilling the other prescribed conditions including the payment of all VAT due, the Lessee will be given a VAT Paid Certificate.
Noteworthy is that in terms of the Guidelines it is possible to benefit from the above reductions without involving a bank or finance institution to the contrary of the Italian or French leasing schemes. This information is for general purposes only and should not be relied upon as a legal advice. Specific guidance should always be obtained on ownership structuring, registration and operation of a yacht.
For more information contact Janet Xanthopoulos, Rosemont Yacht Services at firstname.lastname@example.org.
Article Author: JANET XANTHOPOULOS