THE FINE PRINT

For­eign ci­ti­zens of­ten must regis­ter their ves­sel out­side the United States to com­ply with reg­u­la­tions

Marlin - - CONTENTS DEPARTMENTS - BY R ALEIGH P. WAT­SON, ESQ.

I of­ten get ques­tions re­gard­ing the abil­ity of for­eign ci­ti­zens to doc­u­ment their boat with the U.S. Coast Guard or ti­tle and regis­ter their boat un­der the laws of a state within the United States. Gen­er­ally speak­ing, the re­sponse is “maybe,” but the ex­act an­swer de­pends on the spe­cific sce­nario. That be­ing said, the rules vary be­tween Coast Guard doc­u­men­ta­tion and state reg­is­tra­tion, so it’s im­por­tant to know the dif­fer­ence.

ONLY U.S. CI­TI­ZENS CAN DOC­U­MENT A VES­SEL

Coast Guard doc­u­men­ta­tion is a na­tional form of reg­is­tra­tion. It af­fords con­clu­sive ev­i­dence of the boat’s na­tion­al­ity for in­ter­na­tional pur­poses, pro­vides for un­hin­dered com­merce be­tween states, and ad­mits ves­sels to cer­tain re­stricted trades, such as coast­wise trade and fish­eries. A ves­sel must be at least 5 net tons to be doc­u­mented and wholly owned by a cit­i­zen(s) of the United States. Hence, for­eign in­di­vid­u­als can­not doc­u­ment a ves­sel with the U.S. Coast Guard. Cor­po­rate own­er­ship is where things get a bit trick­ier be­cause there are vary­ing re­quire­ments de­pend­ing on the type of en­dorse­ments — recre­ational, coast­wise, etc. — re­quired for a ves­sel’s op­er­a­tion. How­ever, all en­ti­ties, re­gard­less of en­dorse­ments sought, must be U.S. domi­ciled and man­aged by U.S. ci­ti­zens.

COR­PO­RATE OWN­ER­SHIP

A cor­po­ra­tion must be in­cor­po­rated un­der the laws of the United States or an in­di­vid­ual state, its CEO (or sim­i­lar ti­tle) and the 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 can be nonci­t­i­zens. A cor­po­ra­tion that meets the above re­quire­ments and does not seek the right to en­gage in coast­wise trade (e.g., a sport-fish­ing char­ter) can be 100 per­cent owned by nonci­t­i­zens.

In a gen­eral part­ner­ship, each gen­eral part­ner must be a U.S. cit­i­zen in or­der for the en­tity to be el­i­gi­ble to own a doc­u­mented ves­sel. Ad­di­tion­ally, U.S. ci­ti­zens must also own at least 50 per­cent of the equity in­ter­est in the part­ner­ship. Lim­ited-li­a­bil­ity com­pa­nies are a bit un­usual be­cause there are no reg­u­la­tions for such en­ti­ties with re­spect to doc­u­men­ta­tion, yet they are the most com­mon en­tity used for ves­sel own­er­ship in the United States to­day. Ac­cord­ingly, their treat­ment de­pends on whether the LLC is a man­ager-man­aged or mem­ber-man­aged en­tity, with dif­fer­ent re­quire­ments for each. In a man­ager­man­aged LLC, U.S. ci­ti­zens must man­age or con­trol the LLC and typ­i­cally own at least 50 per­cent equity in­ter­est for a recre­ational en­dorse­ment and 75 per­cent for a coast­wise or fish­ery en­dorse­ment. On the other hand, a mem­ber-man­aged LLC re­quires all mem­bers to be U.S. ci­ti­zens in or­der to be el­i­gi­ble.

The re­quire­ments be­come stricter when seek­ing some­thing other than a recre­ational en­dorse­ment, such as a

coast­wise or fish­ery en­dorse­ment. More specif­i­cally, at least 75 per­cent of the stock or equity in­ter­est in the com­pany must be owned by U.S. ci­ti­zens. Though this seems like a ba­sic re­quire­ment, it be­comes quite dif­fi­cult to ap­ply when deal­ing with large cor­po­ra­tions. The pri­mary take-away: In­di­vid­ual for­eign ci­ti­zens can­not doc­u­ment a boat with the Coast Guard, and cor­po­rate own­er­ship in­volves a com­plex set of rules and reg­u­la­tions, which might not be prac­ti­cal in all sce­nar­ios.

PER­MITS TO PRO­CEED

One mis­con­cep­tion is that nonci­t­i­zens can get around the strict rules of Coast Guard doc­u­men­ta­tion by sim­ply state ti­tling and reg­is­ter­ing their boats. Un­for­tu­nately, it isn’t that sim­ple. To avoid con­fu­sion, a nonci­t­i­zen’s ves­sel can be ti­tled/reg­is­tered in most states, but the ves­sel will not have free­dom of move­ment. United States Cus­toms treats ves­sels based on their na­tion­al­ity. A state reg­is­tered/ti­tled ves­sel does not have a “flag” or na­tion­al­ity, so if a ves­sel is not for­eign flagged or doc­u­mented with the Coast Guard (U.S. flagged), then it as­sumes the na­tion­al­ity of its ben­e­fi­cial owner. Hence, a nonci­t­i­zen’s boat, if ti­tled and reg­is­tered in Florida, is con­sid­ered to be a for­eign ves­sel, and is thus treated as such. In this case, a ves­sel must ob­tain some­thing called a “Per­mit to Pro­ceed” from U.S. Cus­toms in or­der to move from port to port. Fail­ure to fol­low th­ese reg­u­la­tions can re­sult in fines or even seizure of the ves­sel it­self. As such, for­eign ci­ti­zens typ­i­cally choose to regis­ter their boats in other ju­ris­dic­tions to avoid cus­toms for­mal­i­ties by ob­tain­ing a U.S. cruis­ing li­cense.

The de­tails are fairly ba­sic, but this pro­vides some in­sight into the com­plex­i­ties of ves­sel own­er­ship by for­eign ci­ti­zens in the U.S. Ev­ery nonci­t­i­zen should be­come fa­mil­iar with the reg­u­la­tions prior to tak­ing own­er­ship of a ves­sel, and more of­ten than not, the best op­tion for a for­eign cit­i­zen is to regis­ter their ves­sel out­side the United States.

One mis­con­cep­tion is that nonci­t­i­zens can get around the strict rules of Coast Guard doc­u­men­ta­tion by sim­ply state ti­tling and reg­is­ter­ing their boats.

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