Buying boat in Europe owned by Delaware registered LLC

[Irish Rover]

There are many boats around Europe flying the US flag which are registered in the state of Delaware. Most of these are owned by Delaware registered LLC'S set up specifically to hold ownership of the boat. Quite often when such a boat is sold the purchaser actually buys the LLC. As I'm sure you can guess this ownership model is designed to circumvent local tax and licensing requirements. I believe this form of US State registration is not actually sufficient for sailing internationally and that USCG registration is required but most European authorities seem to accept it.
I'm currently interested in a boat for sale in Turkey which is Delaware LLC owned and registered. I will be offered the option of buying the entire stock of the LLC. I could alternatively buy the boat from the LLC. The amount involved is North of $300k so I'm naturally more than a bit concerned to make sure things are done correctly. Any and all advice greatly appreciated.

 

[AlanT]

There are many boats around Europe flying the US flag which are registered in the state of Delaware. Most of these are owned by Delaware registered LLC'S set up specifically to hold ownership of the boat. Quite often when such a boat is sold the purchaser actually buys the LLC. As I'm sure you can guess this ownership model is designed to circumvent local tax and licensing requirements. I believe this form of US State registration is not actually sufficient for sailing internationally and that USCG registration is required but most European authorities seem to accept it.
I'm currently interested in a boat for sale in Turkey which is Delaware LLC owned and registered. I will be offered the option of buying the entire stock of the LLC. I could alternatively buy the boat from the LLC. The amount involved is North of $300k so I'm naturally more than a bit concerned to make sure things are done correctly. Any and all advice greatly appreciated.

The very small amount of knowledge I have about buying an LLC that owns a boat is that you are buying all the assets - and Liabilities - of that LLC. So you need to find a way to make certain that there are no outstanding, pending or latent liabilities associated with the LLC that you will be inheriting. If the sole asset of the LLC is the boat, and you receive a clean claim record from the current insurers (PD & Liability) going back a few years that may be sufficient to assuage your concerns. At the end of the day only you can determine if that approach is worth the potential savings.
~A

 

[DavidM]

Do you plan to keep it in Turkey or in the Euro zone. I assume VAT for Euro countries has not been paid.

David

 

[Irish Rover]

EU VAT has not been paid. I plan to base it in Turkey with frequent trips to Greece and beyond. I'm resident in Turkey so EU VAT is not an issue when visiting the EU.

 

[koliver]

If you are buying the assets (the boat) you will usually be subject to sales taxes in whatever jurisdiction those assets are located, so in your case, Turkey. You will also be subject to the Turkish laws if you continue to keep the boat there.
If you are buying the shares, you are subject to the laws of the home jurisdiction, Delaware. You may also be subject to Turkish laws if you are going to keep the boat there permanently.
You should get some legal advice, probably in both jurisdictions.

 

[Comodave]

Some good legal advice…

 

[Irish Rover]

Thank you. I'm very comfortable with the situation insofar as Turkidh laws, taxes are concerned. I'm more interested in hearing any advice regarding buying the company shares or buying the boat from the company as vendor.

 

[gsholz]

If you buy the boat, you'd register in Turkey and you know the costs/implications of doing that.
If you buy the LLC, you'd have to maintain the LLC in Delaware for a yearly fee. Not a big deal.
Without US Coastguard documentation, liens may be a non-issue. Liens would have to be filed in Delaware against the LLC itself. Does Delaware even provide that service, i.e. record a lien against an LLC?
Who would register a lien (for work done) in Delaware for a boat that is in Turkey? Normally, the shop would not release the boat until charges are paid. Just ensure the seller guarantees no outstanding liens/bills in the purchase agreement. If one should show up, you'd have to sue the seller.

Last boat I sold, the buyer was really concerned about the 6 week window between when the escrow company checked for liens via CG database and the actual closing. What if I took out a loan on the boat before closing? Due to Covid, the CG could not provide the usual multiple day turnaround. In the end you sign a contract that both the buyer and seller need to live up to.

 

[Irish Rover]

If you buy the boat, you'd register in Turkey and you know the costs/implications of doing that.
If you buy the LLC, you'd have to maintain the LLC in Delaware for a yearly fee. Not a big deal.
Without US Coastguard documentation, liens may be a non-issue. Liens would have to be filed in Delaware against the LLC itself. Does Delaware even provide that service, i.e. record a lien against an LLC?
Who would register a lien (for work done) in Delaware for a boat that is in Turkey? Normally, the shop would not release the boat until charges are paid. Just ensure the seller guarantees no outstanding liens in the purchase agreement. If one should show up, you'd have to sue the seller.

Thanks for your input.

Registering in Turkey is not an option. There are penal taxes for importing 2nd hand boats - that's the main reason for so many using the Delaware workaround. I have other options for registration without paying VAT but buying the LLC and keeping the Delaware registration for a period while I'm arranging that would be helpful.

 

[OldDan1943]

I formed a LLC for my N46. The below is what I remember from over 20 years ago. I am not an attorney.
In your case you think you know what assets the LLC holds, the boat.
Now you must investigate the LLC for ALL liabilities.
How many folks are listed on the LLC. Obviously, all members of the LLC need to sign off on the sale
You must hold an annual owners' meeting. An agenda, minutes etc.
In my case, no one checked on me. After a number of years, my LLC just disappeared.
IMO, I think it would be better and safer to, if you want, form a new LLC, buy the boat from the other LLC and immediately put it in your newly formed LLC.

I am not an attorney so, IMO seek legal advice.

 

[dmbraaten]

I am Luxembourg resident (EU resident like you). I own my boat via a Delaware LLC and respect the 18 month VAT exemption by traveling to Tunisa or Albania - we keep her in marinas at Varazze, IT and Barcelona, ES. Keeping the Delaware registration is simple and not expensive. So I would be buy the LLC but would get an indemnificaiton from the seller that there are not any liabilities or other obligations signed by the company. It is just legal due diligence. If you are worried in anyway about liabilities, form your own LLC and transfer the asset from one LLC to the other. Simply done in Delaware.

 

[koliver]

I am Luxembourg resident (EU resident like you). I own my boat via a Delaware LLC and respect the 18 month VAT exemption by traveling to Tunisa or Albania - we keep her in marinas at Varazze, IT and Barcelona, ES. Keeping the Delaware registration is simple and not expensive. So I would be buy the LLC but would get an indemnificaiton from the seller that there are not any liabilities or other obligations signed by the company. It is just legal due diligence. If you are worried in anyway about liabilities, form your own LLC and transfer the asset from one LLC to the other. Simply done in Delaware.

The purpose of having a boat owned by a Co of whatever description, including LLC, is to avoid the sales tax imposed in the jurisdiction of the sale, as there is no transfer of assets to attract that sales tax. If you can buy in a jurisdiction with no sales tax, there is no reason to buy the Co, so no due diligence on the liabilities of that Co.
Delaware LLCs, as in most jurisdiction, will need to pay those sales taxes when acquiring the asset, so setting up your own LLC and transferring the asset from someone else's LLC saves the due diligence on the seller LLC, but attracts the Sales tax and the cost of setting up and maintaining the new LLC. That cost can be significant, with annual reports, tax filings, accountant and legal bills to pay every year.

No Gain in my opinion (retired lawyer in Canada)

 

[JLD]

In Delaware there is no sales or personal property tax on a boat, and registration is $60 a year.

If you buy a trailerable boat, you do pay a 4.25% document tax (sales tax) on the trailer and $40 a year registration.

I don't know much about LLC's, by from the state's website:

"Domestic and Foreign Limited Liability Companies, Limited Partnerships, and General Partnerships formed or registered in Delaware are required to pay an annual tax of $300.00. There is no requirement to file an Annual Report.

The annual taxes for the prior year are due on or before June 1st. Failure to pay the required annual taxes will result in a penalty of $200.00 plus 1.5% interest per month on tax and penalty. There is no proration on alternative entity taxes. Annual taxes are assessed if the entity is active in the records of the Division of Corporations anytime during January 1st through December 31st of the current tax year."

As a new resident of Delaware, thank you for your support!

Jim