Boat Holding Company in 0% Tax Countries

[unlimited]

Hello everyone, I'm thinking ahead for future purchase of a boat to cruise around (possibly Caribbean, Med, SE Asia).


From what I have been reading on the internet & forums, it appears that many people place their private boats in a company entity. However per IRS, "A trade or business is generally an activity carried on for a livelihood or in good faith to make a profit."

1. If the company entity were formed solely for the boat & private use thereof and there is no profit motive/intention to charter it out, doesn't that violate IRS' definition for a company entity and thus may pose potential issues for the owner?
2. In the US, taxes matter. However in jurisdictions such as BVI, Cayman Islands, etc there is 0% tax. As such, do company entities in these jurisdictions also have similar definitions to "make a profit", or can entities be simply formed just to hold/flag/register a boat without any profit motive?

Thanks!

[Mickeyrouse]

The IRS is speaking to efforts of owners to claim expenses of ownership of a boat as a business loss either on Sched. C or as Rental expenses or allocated profits and losses on Sched. E. To do so , various tests have to be met. While the IRS typically does not get into flag issues, compliance with IRS criteria for business losses may conflict with other goals such as sales tax etc., depending on the location and destination of boat usage. Since the definition of “recreational boat” as opposed to “yacht” varies from state to state, it gets sticky. And since there are even greater variations country-to-country, short meaningful answers are not possible. In some places vessel size, crew conditions, usage also come into play. Short, not helpful answer is…it depends.

[unlimited]

Originally Posted by Mickeyrouse

The IRS is speaking to efforts of owners to claim expenses of ownership of a boat as a business loss either on Sched. C or as Rental expenses or allocated profits and losses on Sched. E.

I see. So if an owner does not claim those deductions, and keep reporting $0 revenue..that is okay?! Doesn't sound right according to their definition of a trade/business.

[TrentePieds]

unlimited:

You are an American I assume. You need therefore to be absolutely certain that you understand the meanings of the words you use in this particular context in the manner the US Infernal Revenue Service, and the sundry IRSs of the individual states, mean them to be understood. Generally, definitional words will NOT have the meanings in that context that they have in common, vernacular speech.

You are best advised therefore to seek the counsel of a competent "tax lawyer" or "tax accountant". If you can find one. VERY few members of our forum would fall in such a rubric.

What I CAN tell you, is that Canada Revenue Agency requires that if you try this OBVIOUS dodge, then, when YOU use the boat for your own pleasure, YOU must pay the same charter fee to the boat owning corporation (of which you are in all likelihood the sole shareholder) that the corporation would charge any other, "arm's length" client.

You can be damnsure that the IRS has "seen the movie" - and closed the loopholes! Our Canadian Tax Act and the Regulations thereto, as well as the Interpretation Bulletins, tend to reflect conditions in the US, because whether we like it or not, we are an economic dependency - indeed for most purposes a colony - of the US!

Remember also that under your system, as under ours, you are required to report your WORLDWIDE income to the HolyMotherDepartment. Thereafter, tax treaties extant twixt nations, including those in the Caribbean and the Far East, take care of what nation gets what.

Go find a tax accountant or a tax lawyer :-)!

Bonne chance,

TrentePieds

[Mickeyrouse]

I am a tax accountant, having been so for 44 years. The “ trade or business” consideration is significant to the IRS if one seeks to take tax deductions related to the costs of operating a yacht. The IRS is otherwise uninterested in the entity that claims ownership, as long as it isn’t in some way to launder Or otherwise shield income. Ownership in artificial forms - corporations or trusts- is generally attractive to persons seeking to protect assets or avoid potential legal liability. However, absent a profit motive, the legitimacy of such entities may be challenged by some jurisdictions. It’s a big wide world out there- 200-plus recognized nation-states- and each one has its own rules. This topic is huge, evolving, and precedents are established frequently. Very specific facts - ownership, location, use, crew, yacht particulars- should be shared with a specialist in the country in which the boat is flagged and used.
I will pass this on: if you really want the IRS to audit you, claim deductions on your tax return for a yacht owned, flagged, and operated solely by yourself in the US.

[SailingHarmonie]

Originally Posted by unlimited

Hello everyone, I'm thinking ahead for future purchase of a boat to cruise around (possibly Caribbean, Med, SE Asia).


From what I have been reading on the internet & forums, it appears that many people place their private boats in a company entity. However per IRS, "A trade or business is generally an activity carried on for a livelihood or in good faith to make a profit."

1. If the company entity were formed solely for the boat & private use thereof and there is no profit motive/intention to charter it out, doesn't that violate IRS' definition for a company entity and thus may pose potential issues for the owner?
2. In the US, taxes matter. However in jurisdictions such as BVI, Cayman Islands, etc there is 0% tax. As such, do company entities in these jurisdictions also have similar definitions to "make a profit", or can entities be simply formed just to hold/flag/register a boat without any profit motive?

Thanks!

First off, MOST people do not form corporations to own their boats. Most people flag their boats in their home countries. They document them as simple owners. For MOST people this is all they need.

If you think some other arrangement is best for you, you should be able to articulate WHY, and not just do it because you think it is cool, or somehow "better."

It MIGHT be that one of these alternatives is better for you. In my experience, for people with the kind of financial structure or have other reasons that make these more complex arrangements viable, they already KNOW why. It is almost always the case if you have to ask the questions, it's not for you.

If you do not have a lawyer or accountant to answer these questions for you, you are also likely not a candidate for this. Just own the boat.