Flags have always been flown on ships as a mode of communication or expression of intent. The national ensign (i.e. the flag flown on a vessel to indicate nationality) is the most important flag, and also the largest flag on the vessel.
The modern practice of registering ships in foreign countries in order to gain certain economic advantages began in the first half of the 20th century.
The Republic of the Marshall Islands (RMI) is an attractive choice of flag for private yacht owners. RMI is a tiny sovereign state composed of more than 1,200 volcanic islands and coral atolls located in the central Pacific Ocean. But why is it such a popular choice of jurisdiction among owners of private vessels?
Some of the main reasons are:
- private yachts registered under the flag of the RMI are eligible to obtain a US Cruising Permit and can charter in French and Monégasque waters without the need for commercial registration;
- commercially compliant yachts are eligible to charter in Europe;
- the RMI has adopted groundbreaking legislation that permits the registration of a yacht that is still subject to a recorded mortgage in its present country of registry; and
- yachts may be registered while under construction.
Despite all the advantages offered by the RMI as a flag state, there are important requirements before a ship can fly the RMI flag. One such requirement is that ownership of the vessel must be through an RMI corporation, limited or general partnership, limited liability company, or a 'qualified foreign maritime entity'. RMI law is modelled on the law of the US State of Delaware and as such it is both tax-efficient and flexible in terms of the beneficial ownership structure of the newly incorporated holding entity.
Technical and administrative support to the RMI Maritime and Corporate Registries is provided by authorised agents which operate from 28 offices around the world. The authorised agents deal with applications for incorporation of RMI entities and registration of vessels.
Kiril Pehlivanov, a Solicitor, together with Austin Flynn, a Partner in the Corporate Team, recently acted in the purchase of a private yacht already registered in the RMI. In addition to providing legal support on the sale and purchase transaction, we were also asked to re-register the vessel in the RMI. Although registration of a vessel may seem like a routine administrative procedure, it was actually a case of "all hands on deck" one - just like sailing a ship. It required collaboration between all parties involved in the sale and purchase transaction, namely Morton Fraser on behalf of the purchaser, brokers acting for the buyer and the seller, as well as a surveyor approved by the RMI's registry
The choice of flag is one of the main considerations which prospective vessel owners should take into account when buying any vessel. RMI Maritime and Corporate Registries is currently one of the world's largest registries of vessels and continues to attract new vessel owners. On the last date for which figures are available, the RMI registered fleet was the second largest in the world, after Panama, as measured by reference to deadweight tonnage (DWT), with just over 223 million tons, compared to Panama's 340 million tons.
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