Delaware registration for non US citizen

[lorenzoSF]

Hi All,

My wife is japanese and she is in the process of buying a boat, currently in Croatia. The plan is to cruise worldwide, but initially it will be in Europe. We are of course aware of the 18 months rule and will be careful about that.

The Croatian company handling the deregistration and export of the boat is suggesting she registers it in Delaware as an individual (not through an LLC as some do).

I have been reading around the forums that a US state Registration is different from a USGC Documentation and somewhat "less official". I am having trouble understanding what that means.

Has anyone heard of any problems with officials (particularly in the Med) with Delaware registered boats owned by non-US individuals?

Thanks!!

[svlamorocha]

Originally Posted by lorenzoSF

Hi All,
I have been reading around the forums that a US state Registration is different from a USGC Documentation and somewhat "less official". I am having trouble understanding what that means.

The issue with state registration is that the one thing that saves your boat from having to comply with many host country rules is the "foreign" nationality of your boat. For example, many countries require boats in their waters to register in that country, but they will not require that if your boat is "foreign". Other countries may have very particular ideas of who owns a certain boat but they will put them aside if you show a registration certificate issued by another *country*, which has a very specific meaning in local law.

Other examples could be picked on areas like duty/VAT on the boat (not particularly applicably to Europe where those things are at least in theory dependent on owner´s residence instead of boat registration country)

All those written rules and unwritten traditions are based on assigning "nationality" to boats through their registration. If your boat is registered in the state of Delaware but not "documented" (US English for national registration) by the US Coast Guard then your boat is not a "USA boat" that is entitled to many benefits granted by treaties between host country and the USA and (probably most importantly) should not be recognized as a "foreign boat" that is exempted from many local rules.

In many cases you will be saved by the ignorance of local officials but you never know how much can you rely on that...

All this is theory and in many countries (say Mexico, Uruguay, Canada, most of the Caribbean ex French islands, Mexico and Canada) no one cares if you show up with just a Delaware registration.

That said, the French can be particularly nasty with boats that are neither registered in France nor in another country. I have not lived in Europe for a while now so I cannot comment on how things work there right now, but I know that in the French islands in the Caribbean they could make your life difficult if you showed up with Delaware papers.

[goboatingnow]

In the med, you will not find any issue with US State documentation, as it is not well understood and 99 out of 100 times, you are merely checking in at a marina, and they don't really care.

Note , if you are claiming TIR ( the 18 month rule) be very careful about the residency status of the owners. The VAT rules state the " beneficial" owner, so if you are an EU tax resident , I would tread very carefully , having the boat in yours wives name will not shield you, if on the off chance a customs official forms the view that the "transaction" was done to evade VAT .

Note that croatia is now in the EU for VAT purposes, so unless the boat is new, I would NOT buy a vat - free boat there, Anyone I know in croatia has homologated their boats in paying relatively small amounts of VAT. Example the province very carefully of a supposed VAT free boat, it could be a technically illegal sale.

Dave

[lorenzoSF]

Thanks to both for the very informative posts.

Is there any place where I can find the legal bases for considering a boat foreign or not? I have looked for example at the UNCLOS and they say that "States" can assign flags and that all other states that are complying to the UNCLOS have to recognize it. However it is not very clear if a US State is ok or just the federal gov.

Regarding TIR, the boat is owned by my wife (japanese citizen, with legal residence in Japan, including various proofs of fiscal residence) and I have no rights over it. In Italy we can be married with something we call "separation of property" clause, in which each person can own things independently of the other.
Considering that, I will just be skippering a VAT-free boat owned by a non EU resident, so what could the customs officials say?

[atoll]

Originally Posted by lorenzoSF

Thanks to both for the very informative posts.

Is there any place where I can find the legal bases for considering a boat foreign or not? I have looked for example at the UNCLOS and they say that "States" can assign flags and that all other states that are complying to the UNCLOS have to recognize it. However it is not very clear if a US State is ok or just the federal gov.

Regarding TIR, the boat is owned by my wife (japanese citizen, with legal residence in Japan, including various proofs of fiscal residence) and I have no rights over it. In Italy we can be married with something we call "separation of property" clause, in which each person can own things independently of the other.
Considering that, I will just be skippering a VAT-free boat owned by a non EU resident, so what could the customs officials say?

that should be fine as long as she remains a non eu resident,and you apply for extentions on your TI every 6months up to 18 months.

with the delaware reg,what will intrest the customs more is the actual residence of the registered owner,or company owner.

i've had no problem with the delaware registration certificate delivering boats in the med using one of the credit card size reg cards,though worth leaving the card attached to the document that it comes with.

also remember as a foreign flagged vessel you have to check in and out of every country in europe,unlike eu registerd vessels that have freedom of movement.

[svlamorocha]

Originally Posted by lorenzoSF

Thanks to both for the very informative posts.

Is there any place where I can find the legal bases for considering a boat foreign or not? I have looked for example at the UNCLOS and they say that "States" can assign flags and that all other states that are complying to the UNCLOS have to recognize it. However it is not very clear if a US State is ok or just the federal gov.

For UNCLOS and other international law purposes "State" means the USA, not Delaware.



Sent from my GT-I9300 using Cruisers Sailing Forum mobile app

[lorenzoSF]

Originally Posted by svlamorocha

For UNCLOS and other international law purposes "State" means the USA, not Delaware.

I suspected so, but I couldn't find anything in the UNCLOS where this was clearly spelled out. Can you help me find the reference for your statement?

[svlamorocha]

Originally Posted by lorenzoSF

I suspected so, but I couldn't find anything in the UNCLOS where this was clearly spelled out. Can you help me find the reference for your statement?

You will not find this concept in UNCLOS because it precedes UNCLOS. Look up "Montevideo Convention" of 1933 or just go to Montevideo Convention - Wikipedia, the free encyclopedia .

Cheers

[lorenzoSF]

Originally Posted by svlamorocha

You will not find this concept in UNCLOS because it precedes UNCLOS. Look up "Montevideo Convention" of 1933 or just go to Montevideo Convention - Wikipedia, the free encyclopedia .

Cheers

Thanks a lot!
Article 2 states:
"The federal state shall constitute a sole person in the eyes of international law."

So to summarize the answer to my question seems to be:
- According to international law, Delaware (or any US State) registration is irrelevant. A boat with this registration outside of the USA should be considered "unflagged".
- In practice, based on experience from various posters and other sources I have talked to, it seems that most officers will not know the difference and consider a US State registration just as valid as any other national registration. Of course there is always the risk of finding an officer that knows the rules.

Does this seem correct, or is there any different view?

[edmundsteele]

OK, here’s my two cents worth on Delaware “State” registration. There are three reasons that I know of that vessels are Delaware registered.

1) The owner is a US citizen and owns and uses the vessel in Delaware.

2) The owner is a US citizen and owns the vessel, uses it elsewhere in the USA (maybe intermittently) and doesn’t want to pay “State Sales / Use” tax on the vessel (typically around 8% on top of any applicable import duty the “Feds” get). There are 5 US States that don’t have Sales / Use taxes and these are Alaska, Delaware, Montana, New Hampshire and Oregon. Many folks pick Delaware because it is cheap, easy to get and the Delaware (at least ten years ago) did not provide convenient electronic access to their records for other States seeking Sales / Use tax evaders. If you have a vessel in Florida with a Delaware name on the stern, it is a red flag to the authorities and they will send S.W.A.T. teams to get you. Theoretically you have so many days to transit a (USA) State’s waters without triggering the tax man but the time varies by State and you may have to prove how long the vessel has been in State waters by producing fuel and marina receipts.

3) The owner is not a US citizen, maybe doesn’t live in the USA and wants a USA federal registration. In the Med these folks are often Israelis who would be foolish to fly an Israeli flag unless they have a heavily armed escort. Delaware makes it cheap and easy to form a Delaware Corporation that becomes the official owner of the vessel and the vessel can be US Coast Guard registered (Federal) because the “Corporation” is a US citizen. All you need to go from country to country is the Federal document - Nobody cares about the (USA) State registration once you leave US waters. The Feds only want a unique combination of “vessel name” and “port” painted on the stern. The “port” doesn’t have to be near the sea and you don’t have to interact with the “State” to use the name - it’s just a name. We used “Santa Fe, New Mexico” as our port of registration. Another popular “port” is “Las Vegas, Nevada”. We had to choose a State of “use”, because we purchased our vessel in Florida and we chose Delaware, simply because we wanted to avoid paying Florida Sales / use tax. We sailed the vessel to Texas and left from there to circumnavigate. We never went anywhere near Delaware.

It is my understanding that if the vessel never touches the USA, it does not need a (USA) State registration – however........if you have a dinghy, Delaware includes the dinghy under the mother ships registration. You don’t need a separate registration. Some localities want to see registration for the dinghy separately and if you do pay the few bucks for the Delaware reg. you can forcefully bull your way through the lack of separate documentation papers for your dink.

Hope this helps.
Ed

[rourkeh]

As a foreign national ( non U.S. citizen ) forming and a Delaware LLC does not necessarily make Coast Guard documentation possible.
When applying for documentation the Coast Guard will ask that the majority ownership of the LLC or corporation is by a U.S. citizen. You will require a U.S. social security number or tax id number.
It is possible to be a foreign citizen and own a U.S. corporation, but once you apply for documentation you MUST have a U.S. citizen own the majority of your company. This is to prevent foreign citizens from obtaining U.S. federal documentation.
Hope this helps.

[edmundsteele]

I agree completely. It is my understanding that you would typically use a Delaware law firm to set up the Corporation and they handle all of the tax ID issues, majority ownership etcetera. If you Google “Delaware Corporation for boat ownership”, you will get lots of hits. It’s definitely not as straight forwards as a simple Delaware registration by a USA citizen but a lot simpler than many other locales.
Ed

[dohenyboy]

So much misinformation out here.
To register a boat in Delaware, you do not need a Delaware corporation or LLC or any corporation.
All you need is an address for Delaware to mail your registration to.
You do not need to be a US citizen. As far as I know, you could be from Mars and Delaware will take your business.
But if you wanted to form a US corporation, Delaware is one of the last places I would select, unless you want to be listed on a stock exchange.. It is inconvenient and expensive. And some countries view Delaware corporations askance, due to their use by some fraudsters.
PM me if you want to know the easiest and cheapest way to do it.
Also, as far as USCG documentation of a recreational vessel is concerned, citizenship of the shareholders is irrelevant.

[belizesailor]

Originally Posted by dohenyboy

So much misinformation out here.
...
Also, as far as USCG documentation of a recreational vessel is concerned, citizenship of the shareholders is irrelevant.

Yep, misinformation all right. Per USCG:

"Citizenship is established by completion of form CG-1258. In addition to individuals, corporations, partnerships, and other entities capable of holding legal title may be deemed citizens for documentation purposes. Corporations must be registered in a state or the U.S; the chief executive officer and chairman of the board of directors must be U.S. citizens, and no more than a minority of the number of directors necessary to constitute a quorum may be non-citizens. In addition, at least 75% of the stock must be vested in U.S. citizens for a coastwise or fisheries endorsement."

[tigerpilot]

The US Coast Guard is VERY serious about the citizenship of the members of a corporation documenting a vessel in the US. A recent case against a barge operation where it was found that less than 75% of the corporate members were of US citizenship resulted in fines of $10,000 per day for the operation of each vessel. IIRC the entire bill was north of $9MM. It was made clear that the fines were non-negotiable.