By Baron Laudermilk.
As more Chinese people transform their lives from rags to riches, the purchasing of a yacht or an aircraft is becoming more of a reality. But registering one of these vehicles is not easy and requires paperwork and some knowledge of tax systems, the rule of law, location, and confidentiality issues. There are pros and cons to registering an aircraft or yacht in China, but there are other options overseas. Before buying an aircraft or a yacht in China, one should understand some of the rules that accompany them, and the benefits of overseas registrations.
Onshore Aircraft Registration.
Registering an aircraft in China entails a much different process than that of other countries. Before you can start the registration process, you must acquire a civil aircraft nationality card. To get this card, you must be in accordancewith the People's Republic of China Civil Aircraft rules. Before one considers purchasing an aircraft in China, it is a good idea to read over the rules in the China Civil Aircraft rulebook to learn about the various regulations associated with flying the plane and registering it.
Civil aircrafts may be registered in in both China and another country. But if you want to have the aircraft registered in China and another nation, you must make sure that you register it offshore first. If you register the aircraft in China first, you cannot change it without losing your Chinese registration card.
Zhao Jinyu, an executive at Civil Aviation Administration of China,told Invest In thatin order to register an aircraft in China, one's aircraft must meet some physical requirements. First, it must be a fixed wing aircraft; it must have the fuselage between the wings and tail on both sides of the tail. Second, the aircraft must tail boom on both sides or on both sides of the vertical tail.
And finally, the civil aircraft nationality and registration marks of the font and size must meet certain requirements. The letters, numbers and dashes must be solid lines without decoration. In addition to the dash, the words on the wing cannot be less than 50 cm. Many offshore centers do not have these kinds of rules.
Offshore Aircraft Registration.
Registering an aircraft offshore has many different benefits that are worth thinking about. Although the U.S. has more jets registered than any other country in the world, there are more countries where an aircraft can be registered that are cheaper and also worth considering. In the last few years, Bermuda, the Cayman Islands, the Bahamas, and Aruba have become recognized business addresses for aircraft registrations of many multi-national companies, and the number of Boeing Business Jets registered in these countries is also increasing.
The locations of these offshore centers make them accessible to the U.S. and Canada. For example, the Cayman Islands are about 90 minutes south of Miami and in the same time zone as Kansas. The aviation authorities are typically friendly and speak fluent English. But there are many considerations in determining whether to register in an offshore country.
Citizenship requirements are perhaps the most important thing to consider before starting the registration process. For example, if you wanted to register an aircraft in the U.S., you cannot unless you are a citizen of the U.S. Confidentiality is another important concern for many Chinese HNWIs. Aircraft ownership in the U.S. is a public record that is available on the Internet, but many offshore centers keep these records private. Also, security, taxes, liabilities, and easy access to the aircraft are all important factors when registering an aircraft offshore.
After speaking with different people who own aircraft in China, many have said that one of the best places to register an aircraft is in the Cayman Islands. One businessman, who wanted to remain anonymous, said, "In all my contacts, I have never met people who are more professional and courteous thanthose at the Cayman Civil Aviation Authority. They get you registered quickly, and they keep things private and safe."
The Cayman Islands aresecure, and its British based legal system and supporting infrastructure are strong compared to other exotic offshore centers such has Panama. One can keep their records private and out of the public, and the taxes are low compared to China and even relatively low compared to other offshore centers.Joannah Small, an executive at Maples and Calder, a Cayman Island's aircraft registration company, said to Invest In, "the Cayman Islands provides a safe, stable and 'friendly flag' for registration of private aircraft and a developed system for perfecting a security interest over that aircraft."
Onshore Yacht Registration.
The lack of clear rules for registering yachts has been one of the key deterrents for the low number of actual purchases in China, despite the country's large number of HNWIs.
Under previous maritime legislation, there was no difference between private boats and commercial boats, making purchasing and using private boats more complex in other countries.
In larger cities such as Shenzhen, Shanghai and Qingdao, registering yachts is much more straightforward than smaller cities where the rules are still unclear and frequently change.
The ease of registration comes down to the size of the yacht. Larger yachts may be considered passenger vessels, resulting in a complicated registration process and higher yacht ownership requirements (qualifications of the crew, number of the crew).
When deciding to purchase a yacht, owners need to prepare various certificates and documents, including the nationality certificates, the proof of ownership, and the boat's certification.
Although agents and distributors may be able to register a yacht, there are many restrictions in the actual operation and use of the boats.
In 2009, Beijing put forward the first comprehensive set of regulations for yachting called the Provisions that have simplified and standardized yacht registration. Now only the Maritime Safety Administration can change yacht registration processes.
Provisions have brought about some key changes in the yacht industry in China. First, they simplified the yacht registration procedure. Second, all seas, lakes and rivers will eventually be fully open to individuals. And nationwide piloting licenses for yachts will be available. Although local governments still do not follow these rules fully yet, more are beginning to get on board and issue these regulations.
Yacht Piloting Licenses.
Acquiring a yacht-piloting license in China is a subject of much debate in the corridors of power in Beijing and the halls of many local governments throughout China, and it is important because one must have a license to sail a yacht. Since January 2009 all yacht schools must follow national standards and fees, course hours, exams, and teaching materials, making it possible for the whole nation to use the same standardizations.
The Provisions say that the Maritime Safety Administration of China has the authority to issue piloting licenses for private yachts to students who pass the training courses of yacht piloting schools.
Qualification certificates for yacht operators are classified into qualification certificates for operators of oceanic yachts and qualification certificates for operators of inland waterway yachts.
Before the implementation of Provisions, a yacht piloting license issued in Shanghai could not be used in other provinces, which caused much confusion and anger amongst yacht owners.
There are plans by local governments in the Yangtze River Delta (Shanghai, Zhejiang and Jiangsu) to issue a uniform license that could be used by boats in rivers and lakes of all the provinces, but so far that has not become a reality.
However, the implementation of the Provisions has allowed trans-regional access to yacht operators holding a license, which is considered a breakthrough in China's yacht navigation area.
ImportDuties and Consumption Taxes.
Yachts in China are subject to a high consumption tax, which brings the total tax on importing a yacht to around 43 percent.The high taxes in China have persuaded many Chinese yacht buyers to register their boats in Hong Kong and even keep their boats there. The import duty for pleasure boats is between eight and 10.5 percent.
Offshore Yacht Registration.
Currently it is still a better idea to register yachts outside of China, as taxes in China are still high compared to other nations, and because of the blurry rules in many regions.
Many manufactures and distributors encourage buyers to register and keep their yachts in Hong Kong.The jurisdiction is known by many yacht owners for its ease of registration and excellent berthing infrastructure. Buyers will also avoid the high taxes associated with importing yachts into China.
There are many benefits to registering a yacht offshore besides just avoiding high taxes, as previously stated. Flying conventional flags still impose tough regulations and restrictions on both the owners and their yachts.
China still has an interest in safeguarding its own growing yacht building industry, as imported boats are hit with high taxes compared to domestically made yachts that are taxes at only 15 percent. This duty is also waved in all offshore registrations.
Many Chinese yacht owners have said that they have noticed exotic flags atop yacht masks instead of seeing conventional flags. The world's main offshore jurisdictions for registering a yacht are Singapore, Cayman Islands, Dominica, Malta, Panama, Marshall Islands, Seychelles, the British Virgin Islands, Malta, Antigua and Barbuda, and the Bahamas. All of these reduce significant registration costs and taxes.
Some countries also have additional benefits for yacht owners such asreduced VAT rates, and more flexible crew requirements. A good example of this is Red Ensign Flag, which offers protection and is internationally recognized. Yachts registered under Red Ensign flags, similar to flags of BermudaandBVA, are under protection of the Royal Navy and can seek assistance from any the British Embassies and Consultants throughout the world.
Another great benefit that comes with the registration of yachts offshore is that many have higher degrees of confidentiality, as they are not on public record. This works well for Chinese clients, who want to ensure that some of their assets are hidden and protected.
If a yacht owner would prefer to not disclose his identify as a yacht owner, an offshore structure can be created, through which he will be the owner of structure which also owns his vessel, therefore the yacht owner's risk and liabilities are decreased. This kind of solution would also allow using the yacht privately, without the owner's name appearing on any official records.
In summation, registering a yacht offshore will not only significantly lower taxes, but many of their registration processes are simpler, andprovide more protection than is provided in China.
China's aircraft and yacht registration processes are still blurry and complex compared to many offshore centers. To make matters worse, China's taxes on both aircraft and yachts are considered to be high if compared to many of the previously mentioned offshore centers. There is no question that if you plan to buy a yacht or aircraft, it is a good idea to register it offshore. Hong Kong appears to be a good place for Chinese investors to register their yachts and aircrafts mainly because of its lower taxes and because of its location being next door to the mainland. But if one enjoys travelling and going to the West, registering a yacht or aircraft in either the Cayman Islands, Dominica, or many other players will not only save them money, but will also protect their rights and keep the information confidential. Before one considers purchasing a yacht or an aircraft, one should look into the many different options, including purchasing inHong Kong or other offshore centers. Get a full picture of the services that are provided; look at the safety of the country, and of course, its tax system.
Procedures to buy a yacht
- Apply to the provincial maritime bureau for the name of the vessel;
- Submit the certificate of origin, transation contract, proof of delivery and invoice( for imported yachts, Customs certificate must also be submitted) to apply to the local maritime authority for the issuance of the Certificate of Ownership;
- Submit quality certificates of the products, specific equipment information, as-constructed drawing and other documents to the maritime ship inspection institutions to apply for the Ship Inspection Certificate and the Seaworthiness Certificate;
- With the Certificate of Ownership and the Ship Inspection Certificate, owners can go to the Maritime and shipping management authorities to apply for the Certificate of Nationality.
- Regularly apply for the annual review and vessel safety checks in accordance with the provisions under various certificates;
- If the yachts are to leave the region belonging to the port they are registered with, owners need to bring the ship passport to the maritime regulatory authorities for visa application.
Source: The Maritime Safety Administration of the People's Republic of China
Fourteen steps to buy an aircraft:
Step 1: Communicating with each other; the company recommending the aircraft (if a trial flight is needed, a fee of between 10,000 and 50,000 yuan per jet should be paid)
Step 2: Determine the model and the reference price;
Step 3: Signing the intention letter (its terms almost the same with those in the contract; but the client needs to pay the earnest money)
Step 4: pay 500,000 yuan worth of refundable deposit (as earnest money, only after the customer finalizes the selection of the aircraft, then it becomes the deposit)
Step 5: The company recommends parking place and aircraft configuration for the customer to approve (if the client eventually gives up, the earnest money is immediately refunded and the intention letter was nullified)
Step 6: Letter of Intent enters into force and the 500,000 yuan in deposit becomes non-refundable (starting to seek approval for aircraft import)
Step 7: Get approval and sign a formal contract
Step 8: The aircraft is delivered in the country of manufacture (or the supplier) for a test flight (when delivered in the host country, the full amount excluding taxes should be paid and the ownership is transferred)
Step 9: Transportation of the aircraft, customs clearance and re-assembly (shipping takes about a month; air transport takes about a week. Taxes should be paid.)
Step 10: domestic delivery of the aircraft (Aircraft should be shipped to the location of the customer for assembly)
Step 11: Apply for three temporary certificates for the aircraft, or the United States three certificates, test flight to inspect airworthiness
Step 12: Apply for the three certificates for the aircraft (a week after the airworthiness inspection test flight)
Step 13: Apply for non-operating navigable license and flight license
Step 14: test flight and completion of delivery (the full payment should be paid within a week after the maiden flight)
Source: China Private Aircraft Whitepaper
Import Duties & Taxes for Marine Vessels.
Hs code Description of Products Import Tariff (2011)
8903.1 Inflatable recreational or sporting boats 10%
8903.91 Sailboats, with or without auxiliary motors 8%
8903.99 Other unlisted recreational or sporting boats 10.50%
8903.99 Other unlisted recreational or sporting boats 10%
Source: The Maritime Safety Administration of China statistics