ABSTRACT
According to the Turkish Commercial Code numbered 6102, the yachts are qualified as ships. In Turkey, it is legally possible to register the yachts under the National Vessel Registry, Turkish International Vessel Registry or Port of Registry. However, the yacht owners prefer to register their yachts in foreign registries due to the economic advantages, lightness of requirements of registration and flag of convenience. The registration requirements of such registries and the issues to be considered in selection of the flags of convenience are analyzed in this study.
I. INTRODUCTION
As of today, almost three quarters of the world’s fleet is registered under a flag of a country other than its own1. However, the open registries which provide tax advantages2 create legal certainty issues3. In 1981, the United Nations Conference on Trade and Development (“UNCTAD”) issued and announced a report4 describing the legal certainty problems caused by the open registries. The main reason causing these problems is that these registries are located in undeveloped countries such as Panama, Bahamas etc. As a result, the Paris Memorandum which is an administrative agreement on port state control to ensure the international security and environmental standards of the ships, was signed by and between fourteen countries in January 1982. Currently, the parties of Paris Memorandum Organization (“The Paris Organization”) consist of twenty seven maritime administrations which govern the European and the North Atlantic basins. Turkey is not a member of The Paris Organization.
The Paris Organization analyzes and classifies the flags in its annual reports. The flags are listed as white, gray and black in annual reports of The Paris Organization. The white list indicates the flags with consistently low detention record whereas the black list covers poorest performing flags5. In addition to that, countries take measures against the open registries which provide the flag of convenience. Pursuant to the Implementation Directive numbered62014/260 of the Ministry of Transport, Maritime and Communications of the Republic of Turkey, it has been decided to check the conformity with international contracts and national legislation in terms of life and working conditions on the ships and to apply sanctions against nonconformities for the purpose of ensuring that the carriage at the ports of our country is carried out by vessels complying with the standard. Hence, the Turkish International Vessel Registry7 (“TIVR”) has been established in Turkey to take measures against the flags of convenience and to provide advantages of taxations.
The registration of yachts under the open registries abroad and Turkish registries, the reasons behind the preference of these registries by the yacht owners and the disadvantages thereof are mentioned below.
II. OPEN REGISTRIES
According to United Nations Convention on the Law of the Sea of 1982, a genuine link must be established between the state and the ship flying its flag. Therefore, the ships had been flying the flag of their country. However, with the beginning of the twentieth century, ship owners commenced to register their ships under the open registries in undeveloped countries such as Panama.
On the one hand, open registries constitute an alternative for ship owners to choose the most advantageous registry for procedural and economic reasons, but on the other hand, they cause a loss due to the lack of law and inspection. Some registries reflag the yachts in less than forty eight hours and some other registries perform with a simple form.
UNCTAD has drawn attention to the security issues of the open registries by publishing a report8. In this report, the issues have been highlighted that; (i) real owners of the ships are not identifiable, (ii) since the ship personnel are not citizens of the flag of convenience country, they avoid legal action by not visiting the country, (iii) security issues arise from the lack of transparency of the structures of the open registries. Furthermore, it has been noticed that the open registries have been linked with hijacked ships, ghost ships, false certifications9, smuggling and international terrorism.
Panama has become the country with the greatest maritime fleet with the commencement of the implementation of the open registry and the advantages of registration such as registering online. Panama, whose national economy is particularly comprised of fees, services and taxes from its registry, is followed by Liberia, Marshall and Honduras.
III. REGISTRATION OF THE YACHTS UNDER TURKISH REGISTRIES
Even though open registries will still operate, the problems in practice need to be solved. There must be a genuine link between the ship and the flag state in order to identify the real owners of the ships. Only due to such connection, the flag state can exercise sovereignty over the ship. As a result of sovereignty, the flag state will take measures to ensure the social and economic safety of ship owners. TIVR has been established in Turkey since the tax advantages of the open registries have not been eliminated even though the flag states did take measures. However, the registration requirements for yachts in TIVR are not convenient. The yachts flying foreign flags or built abroad may be registered to the Port of Registry which is much more appropriate.
The registration of yachts under the Port of Registy, NVR or TIVR are mentioned below.
A. Registration of the Yachts under the Port of Registry
The Port of Registry is not a registry but only a system of record. The Port of Registry is established within the field of authority of the Harbor Master or the municipalities designated by the Ministry for the inner internal waters which are not under the jurisdiction of the Harbor Master. The owners of the ships, sea vessels and inland vessels, which are not registered under TIVR and are not obliged to register under the National Vessel Registry (“NVR”), have to register the mentioned vessels under the Port of Registry whether the vessels are for the purposes of commercial or private use. With the Port of Registry, all the vessels sailing in the territorial waters of Turkey, are required to be registered. All the vessels registered under the Port of Registry, fly Turkish flag without being subject to the provisions of Article 940 of the Turkish Commercial Code (“TCC”) which regulates the right and obligation to fly Turkish flag. Ship owners obtain right to flag with a port of registry license. The owner or the operator may register their yachts under any port of registry after the measurement proceedings have been finalized.
The terms of registration, and sailing in the territorial waters of Turkey of foreign flagged yachts, have been designated by Communiqué10 which was entered into force in March 3 2017. According to the Communiqué, submitting the document indicating that the yacht has been acquired prior the date of 27/1/2017 and it is in the records of the flag state is the most crucial point in terms of registration of the yachts located outside the Turkish maritime territory, or foreign flagged yachts owned by legal entities or natural persons.
The main problem with the Port of Registry’s being only a system of record rather than a registry is that allows recording only mortgages, liens and preliminary injunction decisions. Shipyard owner’s right of mortgage, ship mortgage arising from a contract, right of usufruct, leasing agreement and annotations11 cannot be recorded under the Port of Registry.
Unlike TIVR, there are no tax exemptions or limited burdens at the Port of Registry as it is aimed solely to register all Turkish flagged vessels navigating in Turkish territorial waters. Apart from this, the license fee is lower compared to TIVR.12 On the other hand, all vessels registered under the Port of Registry are exempted from lighthouse and health fees. According to the statistics13 published by the Ministry covering the year 2015, 153 private yachts and 775 commercial yachts were registered under the Port of Registry as of December 31, 2015.
B. Registration of the Yachts under the National Vessel Registry
Merchant ships which have a right to fly Turkish flag and yachts can be registered under NVR14. Foreign ships, Turkish ships registered under foreign registries and the ships dedicated exclusively to public service cannot be registered under NVR. Consequently, foreign flagged yachts cannot be registered under NVR. The registration of yachts, which are dedicated to commercial or personal use, is optional even though the mandatory registration of ships is regulated in TCC.
The vessel registries are established where the Ministry considers appropriate. The ship’s right to flag the Turkish Flag is proven by the ship certificate given by the registry office concerning the ship’s record in the registry. The right to flag the Turkish flag cannot be exercised unless the ship certificate is obtained. Registry records are indicated exactly and completely in the certificate. The submission of the documents required for the registration of the ship and the entitlement of the ship to fly the Turkish flag are also indicated in the ship certificate.
Since it is a registry, shipyard owner’s right of mortgage, ship mortgage arising from a contract, right of usufruct, leasing agreement15, annotations, mortgages, liens and preliminary injunction can be registered under NVR.
C. Registration of the Yachts under the Turkish International Vessel Registry
The purpose of the establishment of TIVR is to avoid the ship owners to register their ships under the open registries which provide the flag of convenience. All ships and yachts, which are registered under NVR at the time the Code of Turkish International Vessel Registry (“CTIVR”) has entered into force, and the ships and yachts built in Turkey can be registered under TIVR. As CTIVR has excluded the yachts for the personal use only the commercial yachts can be registered under TIVR. In addition to that, the ships and yachts belonging to the legal entities16 which are established in accordance with the Turkish legislation, and foreigners or Turkish natural persons residing in Turkey, can be registered under TIVR.
Unlike the Port of Registry, the mortgage and other similar transactions can be registered under TIVR in accordance with the Regulation on Turkish International Vessel Registry17, on condition that they do not contravene the TCC, CTIVR and the Ship Registry Statue.
Regarding the tax advantages provided by TIVR, the incomes arising from the operation and the assignment of the ships registered under TIVR, are exempted from the income and corporate tax and the funds. Purchase, sale, mortgage, registration, credit and freight contracts regarding to the ships and yachts to be registered under TIVR are not subject to the stamp duty, fees, banking and insurance transactions taxes and funds. The registration fee is higher comparing to the Port of Registry. Nevertheless, if the ship or the yacht registered under TIVR, is registered under the Turkish Lloyd directly or as a dual class, a fifty percent discount is applied for the registration fee and annual tonnage fee. The registration fee is not applied to the tenants who will register their ships and yachts on its behalf when the transfer of ownership of the ships and the yachts registered under TIVR, from the leasing companies to the tenant is needed regarding the provisions of the leasing agreement. The fees paid to the crew members who work on the ships and the yachts registered under TIVR are exempted from the income and corporate tax and the funds, as well.
Lastly it should be noted that, the rate of Private Consumption Tax on yachts is set at zero percent (0%) by the Council of Ministers’ Decision dated 2017/9759 in order to make Turkish registries preferable for yacht owners18.
IV. CONCLUSION
It may be argued that the Port of Registry is not functional due to its nature as a system of record and not a registry, therefore the limited rights aside from the mortgages, liens and preliminary injunction cannot be registered under this registry. In order to prevent the yacht owners to register their yachts for the purpose of personal use to the open registries which provide the flag of convenience, it is needed to mention that the yachts for the purpose of personal use, the foreign flagged yachts and the yachts built in foreign countries should also be registered under TIVR. However, according to the statistics of the Ministry concerning the year 2015, 3782 vessels are registered under Istanbul NVR, while 992 vessels are registered under TIVR19. 2.754 vessels are registered under Izmir NVR while 316 vessels are registered under Izmir TIVR. And yet, the number of registered vessels, either under NVR and TIVR, has decreased or remained the same between 2011 and 2015 in the same list. Although the purpose of the establishment of TIVR is the idea of development of Turkish maritime industry, the actual situation does not reflect this, and the open registries in Panama and Liberia, which offer the flag of convenience, make regulations compatible with the IMO standards and these states enter the white list with Turkey, making it preferable by ship owners.
BIBLIOGRAPHY
Savaş Yigen, “The Privileges of Those Vessels Registered in Turkish International Ship Registry”, TAAD, Year 6, N.22, July 2015 “Why So Many Shipowners find Panama’s Flag Convenient”, BBC NEWS LATIN America & Caribbean, 04.08.2014 http://www.bbc.com/news/worIdlatinamerica-28558480 (Last access: 02.02.2017).
Togan Han Sacaklıoğlu, “Donatanlar Açısından Bayrak Seçiminde Gözönünde Bulundurulması Gereken Kriterler”, Uluslararası Deniz ve Ticaret, June 2005 Deniz Ticareti 2015 Yılı İstatistikleri, Deniz Taşıtları, Denizyolu Taşıma ve Teşvik İstatistikleri http://www.ubak.gov.tr/BLSM_WIYS/DTGM/tr/ Kitaplar/20161116_165220_64032_1_64480.pdf (Last access: 09.03.2017).
FOOTNOTE
1 “Why So Many Shipowners find Panama’s Flag Convenient”, BBC NEWS LATIN America & Caribbean, 04.08.2014, http://www.bbc.com/news/worIdlatinamerica-28558480 (Last access, 02.02.2017).
2 Savaş Yigen, “The Privileges of Those Vessels Registered in Turkish International Ship Registry”, TAAD, Year 6, N.22, July 2015, p. 530.
3 Togan Han Sacaklıoğlu, “Donatanlar Açısından Bayrak Seçiminde Gözönünde Bulundurulması Gereken Kriterler”, Uluslararası Deniz ve Ticaret, June 2005, p.76.
4 For the report please see http://unctad.org/en/ PublicationsLibrary/c4ac4d2_en.pdf (Last access: 27.04.2017).
5 For information please sea https://www.parismou.org (Last access: 10.12.2016).
6 http://imo.udhb.gov.tr/dosyam/ Dokumanlar/2014_260.pdf (Last access: 09.03.2017).
7 TIVR has been established under the Code of Turkish International Vessel Registry dated 16.12.1999, numbered 4490.
8 Please see dpn. 4.
9 In 2000, the General Secretary of the International Transport Workers’ Federation (ITF) obtained a Panama Certification which enables him to navigate the ship for 4000 Dollars, without having any training or experience in the maritime field.
10 The Communiqué (Communiqué No: 2017/3) Regarding the Transition of the Ships Which Reside Abroad, and Flag Foreign Flag, to the Turkish Flag published in Official Gazette (OG) dated 03.03.2017, numbered 29996.
11 According to the article 977/1 of TCC; an annotation could be registered under the registry in order to guarantee the establishment or removal of a right on the ship or mortgage or the right to request a change in the contents or ranking of such a right. It is possible to register an annotation under the ship registry for the purpose of guaranteeing a right of claim that would arise in the future or subject to a condition.
12 The license fees are described below according to the lengths of the yachts due to the Code on Fees numbered 492: 406,70 TL from 5 meters to 9 meters, 813,70 TL from 9 meters to 12 meters, 1.627,65TL from 12 meters to 20 meters, 3.255,60 TL from 20 meters to 30meters, 6.511,60 TL from 30 meters or longer.
13 Deniz Ticareti 2015 Yılı İstatistikleri, Deniz Taşıtları, Denizyolu Taşıma ve Teşvik İstatistikleri http://www.ubak.gov.tr/BLSM_WIYS/DTGM/tr/ Kitaplar/20161116_165220_64032_1_64480.pdf (Last access: 09.03.2017).
14 Commercial ships that have the right to flag the Turkish flag, yachts and seaman training ships that are assigned only to the purposes of trip, sport, training, education, science and the ships that are under construction in Turkey on behalf of a foreign state or its citizens, can be registered under NVR.
15 In the application of the article 940 of the Turkish Commercial Code numbered 6102 the lessee is considered owner of the ship.
16 It is sufficient for the companies to be established in Turkey according to the Turkish legislation and it is not required that their partners are Turkish citizens.
17 OG dated 06.06.2000, numbered 24088.
18 OG dated 03.02.2017, numbered 29968.
19 Deniz Ticareti 2015 Yılı İstatistikleri, Deniz Taşıtları, Denizyolu Taşıma ve Teşvik İstatistikleri http://www.ubak.gov.tr/BLSM_WIYS/DTGM/tr/ Kitaplar/20161116_165220_64032_1_64480.pdf (Last Access: 09.03.2017).
