Charter Yacht Ownership
Are you interested in owning a yacht in BVI and offering it for bareboat or fully crewed charters? Learn about the benefits of Charter Yacht Ownership.
View FleetIntroduction to Charter Yacht Business Ownership
What is Charter Yacht Business Ownership?
As rewarding as yacht ownership is, for some people, the costs can be more than they can comfortably budget. Often, they lack the time to personally do the routine maintenance and cleaning necessary to keep the yacht in immaculate condition. Additionally, most owners have other business interests and hobbies which prevent them from personally using their yacht numerous weeks a year. By purchasing a yacht and placing it in charter with Virgin charter Yachts, you can have the best of both worlds. You can own the yacht of your dreams and by placing it in charter with Virgin Charter Yachts we can generate substantial charter revenue to help offset your ownership expenses in addition to generating substantial business tax advantages.
A charter yacht or boat business operates much like any other for-profit enterprise. Typically structured as a corporation, often an LLC, and actively managed by you to generate revenue. You purchase the yacht of your choice, but the key is how you structure the ownership and usage of your yacht. Below is an example of an ideal bareboat power catamaran for charter yacht business ownership, the Aventura 50 MY: Scenario A: Bob Smith purchases an Aventura 50 powercat. He registers it in his personal name, docks it behind his house in Florida, and uses it with his friends and family a few weeks a year, cruising around the Florida Keys and the Bahamas. Bob pays for all of the expenses related to the ownership of his Aventura 50 out-of-pocket with after tax dollars. Those include maintenance, insurance, polishing and numerous other operational expenses.
Scenario B: Bob Smith purchases an Aventura 50 powercat. He registers it in his new LLC, ‘Smith Charters LLC,’ and places it in charter management with Virgin Charter Yachts in the BVI. Virgin Charter Yachts makes Bob’s yacht available for charter to its clients. In addition, Virgin Charter Yachts manages and maintains Bob’s yacht. The charter revenue his yacht earns offsets his operational expenses; dockage, maintenance, insurance and other necessary expenses. Virgin Charter Yachts sends Bob a financial statement each quarter, and wires him the positive charter revenue his yacht has earned on charter. Bob visits BVI a couple of weeks each year to take his boat out on the water for inspection/due diligence trips.
Even though Bob purchased the same yacht in both scenarios, in Scenario A, Bob owns the yacht personally. It is not a business, and he is not eligible for any tax or deprecation advantages. In Scenario B, Bob’s new business, ‘Smith Charters LLC’ owns the Aventura 50 powercat and it is an asset in his new business. Since the yacht is an asset in Bob’s business, and because Bob has the intent and ability to make a profit with his business, he is eligible for tax benefits and depreciation from his yacht business. Bob’s business is offering yacht charters and his business asset is its new Aventura 50 powercat. This is the same small-business model as a farmer purchasing a new tractor for his farming business or a home builder purchasing a new truck for his construction business.
Where to start when buying a charter yacht as a business?
If you are considering purchasing a yacht as a business, please, CALL US FIRST! We have decades of experience in charter yachts sales and charter yacht management. We want to speak with you when you are in the initial planning stages so we can help advise you on the right yacht to buy. We DO NOT CHARGE for our yacht consulting services, so speaking with us does not cost you more, but it can help save you money if you avoid purchasing the wrong yacht. Since most new yachts have wait lists that are 12-18 months long, it is never too early to call us and talk with us to start a discussion and begin laying the groundwork for your charter yacht business.
Although you may love a particular yacht or catamaran, that does not necessarily mean it will be a good charter yacht or create a profitable charter yacht business. Virgin Charter Yachts has been based in the BVI for over 25 years. We have watched the trends and seen the changes in the charter industry since the mid 90’s. We currently manage a fleet of more than 25 yachts. Our team of charter brokers have booked thousands of yachts world-wide, so we know what yacht brands, sizes and features are most popular with charter guests and which yachts clients should consider for charter yacht ownership.
We are also uniquely positioned to offer you advice and guidance on which yacht to buy from both a sales and charter perspective. We are not a salesperson at a boat show trying to sell you a yacht just to earn a commission, who you will never see or hear from again. We view every client and every yacht as a long-term partnership. We have multiple charter yacht owners who are on their 2nd and 3rd yacht in our charter management fleet! Since we are the company who helps recommend which charter yacht you should purchase AND we are the company who ultimately manages and charters your yacht, we will only recommend a yacht for charter yacht ownership that we are confident will be a great fit for both our owners and our clients.
We know that charter yacht ownership is a big purchase, and it requires extensive tax and financial planning. We partner with some of the leading financial experts in the industry, including Bill Lahr, YachtCFO. Bill is an independent fiduciary, CPA and financial advisor. He has decades of experience advising hundreds of clients on how to structure their charter yacht business to maximize their tax advantages and depreciation strategies. Bill is 100% independent, and offers objective and unbiased financial advice to potential buyers. Bill creates detailed financial models for each client to illustrate the financial returns for any yachts we suggest for charter yacht ownership.
Purchasing the Right Yacht for Charter Yacht Business Ownership
We know our clients have many questions when deciding on the ideal charter yacht to buy for their business: Do you choose a motor yacht, power catamaran or sailing catamaran? Which one of the hundreds of yacht brands is best? Do you purchase a new yacht or a used yacht? With decades of experience, we can help advise you on the very best yacht to meet your needs as well as the needs of our charter clients.
At Virgin Charter Yachts, we are factory dealers for multiple industry leading brands including; Aventura, Horizon Power Catamarans, Horizon Motor Yachts, Sunreef, Iliad, and Fountaine Pajot. We are also yacht brokers for any used brands/yachts including; Leopard, Aquila, Lagoon and more. Because we are not exclusive to any one brand, we give our clients HONEST and UNBIASED OPINIONS on which yacht would be the best purchase for yacht ownership and for charter.
Based on helping dozens of client purchase the perfect yacht for charter yacht ownership, below are some of the most important things to consider when you are evaluating different yachts for charter yacht ownership:
New vs. Used
- Many charter companies will only accept new yachts. Many will only accept a yacht into charter that they have sold you and they will typically not allow you to purchase a yacht from a different company and place it into their charter fleet
- At Virgin Charter Yachts, we will accept new or used yachts into our charter management fleet. Our focus is on whether the yacht will still offer our guests a positive charter experience
- Most buyers do purchase a new yacht, since 5-10 years is considered the typical lifespan of a charter yacht
- If you buy a used yacht you can potentially save on some of the initial depreciation, but this is often offset by the higher maintenance costs and additional expenses that come from the maintenance and upkeep on an older yacht
- We do not consider yachts more than 10 years old are not good options for charter. The general style is normally more dated and less popular with clients. They generate lower charter revenue for fewer weeks and can have significantly higher expenses
Bareboat vs. Crewed
- We can help assist with the purchase and charter management of yachts for bareboat charter (guests captain themselves) or fully-crewed charter (where there is always at least a full-time captain and chef on board
- Bareboat yachts are usually 55’ or smaller, as they must be able to be secured on a mooring ball
- The most popular yacht for bareboat charter is a power catamaran
- Bareboat power catamarans will typically generate a stronger ROI than a crewed yacht due to their lower fixed overhead costs
- Crewed yachts are popular with buyers who are specifically interested in purchasing a larger yacht or simply want to always have crew on board when they are using the yacht
- Crewed yachts have higher fixed overhead costs due to the need for a full-time crew even when the yacht is not on charter
Motor Yacht / Power Catamaran / Sailing Catamaran
- Most of the decision around whether to buy a motor yacht, power catamaran or sailing catamaran usually comes down to personal preference and budget
- The most popular charter option for bareboat charter at Virgin Charter Yachts is a bareboat power catamaran
- The most popular option for a fully-crewed charter in BVI is a sailing catamaran
Number of Cabins
- The most popular yachts for charter yacht business ownership are those with AT LEAST 4 cabins and 4 heads
- Most charterers are couples who want to charter together in order to divide the cost. The more cabins you have, the more couples who can split the charter rate, giving you the best opportunity to maximize charter revenue
- The optimal charter layout is a yacht with 5 or 6 double cabins and 5 or 6 heads
- Charter guests typically DO NOT care about having a large master cabin, they spend very little time in the cabin and if a group is dividing the charter cost evenly, they would actually prefer that the cabins that are all the same size
Options
As yachts become more luxurious and guests have higher expectations of what they expect to have included as ‘standard’ on their charter yacht: large generators to run air conditioning 24/7, watermaker, ice maker, full-size refrigerator/freezer, and hydraulic swim platforms. These are ‘options’ more owners are including on their yachts to make them more desirable for charter as well as their owner use. There are also many options that are totally unnecessary for charter and just drive up the purchase price. We can help advise which options are ‘must have,’ ‘nice to have’ and ‘do not need to have’.
How to Establish a Legitimate, For-Profit Yacht Business
After consulting with us at Virgin Charter Yachts and selecting the perfect yacht for your charter yacht business, how do you properly establish your charter business correctly?
Just like selecting the right yacht from the beginning, you need to start planning the structure and financials of your charter yacht business BEFORE you purchase your yacht. It is essential to work with a financial advisor who specializes in yacht ownership, and understand the nuances and intricacies of properly flagging, registration, LLC structure to mention just a few. We HIGHLY RECOMMEND Bill Lahr, of YachtCFO. Bill is completely independent from Virgin Charter Yachts, but among his specialities is yacht ownership as a business. More than half of our owners use Bill to assist with their business plans, tax strategies and tax filings for their charter yacht business. You can also work with your own CPA or trusted individual, but it is imperative that you have a financial advisor with experience in the yacht industry guiding you through the process of charter yacht ownership.
At Virgin Charter Yachts, we are not CPA’s or financial experts. We have a good understanding of best practices for charter yacht ownership but, we are not in a position to give you financial or tax advice. You need to ensure you consult with a professional.
Careful planning and thorough documentation are essential to ensure you comply with IRS regulations. The key, as we understand it, is to establish your charter yacht business with a genuine intent and capacity to turn a profit. Authenticity in how you operate your charter yacht business is essential. You cannot purchase a yacht, register it in an LLC, park it on a dock behind your house, put a banner on it that says ‘Available For Charter’ and expect to receive tax benefits. Conversely, by partnering with Virgin Charter Yachts, a well-established charter company, you are demonstrating the intent to actively charter your yacht and turn a profit from those charters. When planned and executed correctly, this approach offers legal tax benefits, and a cost effective means of charter yacht ownership.
What is active vs. passive participation in a business? How can I achieve active participation with my charter yacht ownership business?
Active versus passive participation in an LLC can significantly impact the tax advantages available to its members.
Active participation typically involves directly engaging in the management and decision-making processes of the LLC’s operations. This can include participating in day-to-day business activities, making key strategic decisions, or overseeing the company’s affairs.
For tax purposes, active participation can allow members to deduct losses from the LLC against other income, such as wages or investment gains. These deductions can help offset taxable income, potentially reducing the member’s overall tax liability.
On the other hand, passive participation generally refers to a more hands-off approach, where the member is not actively involved in the management of the LLC. Passive members typically contribute capital or invest in the company but do not play an active role in its operations.
Passive participation may limit the ability to deduct LLC losses against other income. Instead, passive losses may only be used to offset passive income. It’s important to keep in mind that if you see charter companies that offer ‘Guaranteed Revenue’ payments, these types of fixed payments are considered “passive income” and do not qualify for certain tax benefits, such as those from section 179. At Virgin Charter Yachts, we do not offer ‘Guaranteed Revenue’ payments for any of our yachts.
How can I show I am an active participant in my charter yacht ownership business?
The generally accepted benchmark typically requires the owner to engage in a minimum of 100 hours of work annually for the business. The owner must exceed the involvement of any other single individual associated with the yacht’s operations (given how many different employees are at Virgin Charter Yachts, it is unlikely any one individual on the team would spend more time on your yacht than you would). By participating in activities such as attending boat shows, conducting familiarization trips to BVI, performing technical equipment inspections directly linked to your charter yacht business, maintaining dedicated social media for your yacht, it is likely you will surpass the 100-hour threshold. It’s advisable to log at least 150 hours, just to err on the safe side.
It is important for charter yacht owners to carefully document their business activities and maintain records demonstrating your efforts to operate the yacht as a legitimate business in order to support your tax position in case of IRS review. Your personal financial advisor will be able to advise on the specific documentation they recommend you retain.
Isn’t owning a charter yacht just a hobby business?
According to the IRS, a hobby business is an activity not carried out with the intent of making a profit. It is an endeavor pursued primarily for personal enjoyment or recreation rather than as a bona fide business. The IRS distinguishes between a hobby and a business based on various factors, including the manner in which the activity is conducted, the taxpayer’s expertise and efforts to make the activity profitable, and the presence of profit motives. If an activity is deemed a hobby by the IRS, expenses related to it may not be deductible to the same extent as those of a legitimate business.
The IRS does not automatically view yacht ownership as a hobby business. Whether yacht ownership is considered a legitimate business or a hobby depends on how the yacht is used and operated. If the yacht is actively used for business purposes, such as chartering, corporate events, or client entertainment, and if efforts are made to generate income and operate the yacht in a profitable manner, it can be considered a legitimate business by the IRS.
Charter Yacht Business Ownership Tax strategies
If you set up your charter yacht business correctly, and establish yourself as a legitimate business, then you can be eligible for substantial tax
advantages. There are tax strategies related to the operation of your charter yacht business as well as depreciation options for your yacht, the primary asset in your business. Be sure to consult with your personal tax advisor or CPA on which specific strategies work best for your personal financial situation and individual portfolio.
Do I file an individual tax return for my charter yacht business?
Once you establish an LLC for your charter yacht business, you will typically file a ‘Schedule C’ with your personal tax return. A Schedule C tax return, officially known as “Form 1040, Schedule C: Profit or Loss from Business,” is a document used by sole proprietors to report income and expenses from their business activities. It is a supplemental form to the standard Form 1040.
Your Schedule C directly impacts your personal tax return because it passes through to your individual tax return. On your Schedule C, you report all income earned and expenses incurred by your business throughout the tax year. This includes revenue from charters on your yacht, as well as deductible business expenses such as supplies, equipment, rent, utilities, and other operating costs. After reporting all income and expenses on Schedule C, you calculate your business’s net profit or loss. The net profit or loss from Schedule C is then transferred to your personal tax return. If your business has a net profit, it is added to other sources of income on Form 1040 and taxed at your individual tax rate. If your business incurs a net loss, it can be used to offset other income on your personal tax return, subject to certain limitations.
What is Section 179 and how can I leverage in for my charter yacht business?
Section 179 of the United States Internal Revenue Code allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. This deduction is commonly referred to as the Section 179 deduction. The purpose of this deduction is to encourage businesses to invest in themselves by allowing them to deduct the full cost of qualifying assets upfront rather than depreciating them over time.
The maximum deduction for equipment purchased/financed and placed in service by 12/31/2024 is $1,220,000. Your yacht charter business can deduct the full cost of your charter yacht (your equipment) as an expense, in the year you place the yacht in charter service.
What is ‘Bonus Depreciation’ and how is it beneficial for charter yacht ownership?
Bonus depreciation is an additional deduction that allows businesses to depreciate a certain percentage of the cost of qualifying assets in the year they are placed in service. This deduction is separate from the Section 179 deduction but can often be used in conjunction with it. Bonus depreciation is typically available for new assets and, in certain cases, used assets as well.
Both the Section 179 deduction and bonus depreciation can offer substantial tax savings for businesses, especially those making significant investments in equipment or software. It is important for you to consult with a tax professional to understand how these deductions apply to their specific situation and to ensure compliance with IRS regulations.
Who do I Partner with to help Manage my Charter Yacht in BVI?
As an active participant in your charter yacht business, you will need to select and hire a charter yacht manager/consultant ‘on the ground’ in BVI to oversee the chartering and maintenance of your charter yacht. The company you hire will be a critical partner in the success of your charter yacht business. They will be the ‘face’ that a charter guest sees when they choose to charter your yacht. Your charter management company will assist you with key pieces of your charter yacht business, including but not limited to, charter insurance, charter licenses, charter rate pricing, marketing/differentiation, maintenance and any warranty claims/repairs. It is critical that you hire a company for charter yacht management/consulting with the experience and team to provide the highest level of care and service to your yacht and the guests who charter it.
At Virgin Charter Yachts, we specialize in the management of both bareboat and fully-crewed yachts for more than 25 yacht owners. We are a small, family-owned and operated company. We spend hours working with each owner before their charter yacht purchase to establish a positive partnership and set them up for charter success before they join our fleet. Our yacht owners have direct access to us anytime they have any questions or need any type of support. We pride ourselves on treating our owner’s yachts as if they were our own, because without your charter yacht, we do not have a business!
- When you choose Virgin Charter Yachts as your yacht management partner, we provide a hassle-free charter yacht ownership experience. We collaborate with you to make all the key decisions for your charter yacht. With more than 25 years of experience, you can trust our advice for which charter yacht to purchase, which companies to work with for insurance and all your other ownership needs. We can and will coordinate all aspects of ownership so the only thing you need to worry about is when you want to come down and visit your charter yacht! We can organize everything related to yacht ownership and chartering; insurance, dockage, maintenance, reservations, crew, booking calendars, marketing, parts ordering, polishing schedules and many more to list. It is truly WORRY-FREE yacht ownership!
- We also maintain a full-time team of more than twenty professionals to care for your yacht, many of whom have been with our company for over 15 years including: engineers, shipwrights, operations managers, fleet managers, interior and exterior cleaners and our outstanding office staff team. Our entire team will meticulously maintain your yacht to the most demanding industry standards. All work will be performed by our team of professionals in accordance with our rigorous guidelines, and your direct oversight.
- We pride ourselves on offering exceptional customer service to each and every guest and owner. Our team includes a professional support staff and reservations managers as well as customer service concierges who are always available to assist with any need or request. Our exceptional focus on customer service has earned us hundreds of 5-star reviews and the Tripadvisor ‘Certificate of Excellence’ for many years.
What if I choose a fully-crewed charter yacht, how do I find crew?
At Virgin Charter Yachts, we have multiple fully crewed yachts. If you purchase a fully crewed charter yacht, we can assist you with finding the very best crew. Since we are based on Tortola in BVI we know the best yachts and the best crews personally. We see them in our ‘backyard’ all the time. We are always on the lookout for great crew, and many reach out to us proactively when they are looking to upgrade to a newer/larger yacht. When we know there is a new crewed yacht joining our fleet, we already have multiple crews in mind that we can interview to help the owner select the very best fit for their yacht.
In addition to assisting with crew placement, when utilizing Virgin Charter Yachts for your crewed yacht management/consulting needs, we also help our owners with all aspects of crewed yacht retention including: crewed yacht employment contracts, securing work permits/work visas, on-island payroll withholdings for tax, social security and national health insurance.
Benefits of Basing Your Charter Yacht Business in BVI
If you are considering purchasing a yacht and offering it for charter, the best place in the world to base your yacht is in the British Virgin Islands! The British Virgin Islands (BVI) are regarded as the yachting capital of the world for several reasons:
- Idyllic Setting: The BVI is blessed with stunning natural beauty, including crystal-clear turquoise waters, pristine beaches, and picturesque islands. This scenic backdrop creates an ideal environment for yachting and attracts charter guests from around the globe.
- Year-Round Conditions: The BVI enjoys favorable weather conditions for chartering throughout the year, with consistent trade winds, calm seas, and warm temperatures. These conditions provide optimal opportunities for both experienced sailors and novices to enjoy chartering adventures.
- Protected Waters: The BVI’s geography consists of numerous sheltered bays, coves, and protected anchorages, making it a safe and navigable destination. Most of the islands in the BVI are only 5-10 miles apart, so there is ‘line of sight’ navigation between islands and short passages between islands. The calm waters are perfect for leisurely cruising, and comfortable overnight anchoring.
- Island-Hopping Opportunities: With over 60 islands and cays to explore, the BVI offers endless opportunities for island-hopping adventures. Charterers can cruise from one island to another each day, discovering hidden gems, secluded beaches, and charming island communities along the way.
Charter guests regard the BVI as a top destination when they are considering either a bareboat or fully-crewed charter. Because of the popularity of the BVI, there are thousands of yachts in the BVI, and it offers a proven business model and location for charter yacht owners. Additionally, the charter yachts in the BVI typically achieve more weeks of charter at higher rates than anywhere else in the world. By basing your charter yacht business in BVI, you have the opportunity to maximize your charter revenue and generate the most income possible to offset your operational expenses.
The BVI is easy to get to, with direct flights daily with American Airlines from Miami to BVI. Guests and charter yacht owners can also get to BVI via flights from San Juan, Puerto Rico or by flying into St. Thomas in the USVI and taking a water taxi or ferry to BVI. The convenience of direct flights makes it easy for charter yacht owners to visit BVI for due diligence trips to check on their yacht and yacht management company, as an active participant in their charter yacht business.
