Choosing Among Open Registry Systems

Choosing Among Open Registry Systems

When a shipowner decides to register a vessel under an international registry rather than under the flag of the owner’s legal residence, place of business, or other factors based on a genuine link, the owner is faced with the issue of choosing among a large number of open registry systems that actively seek vessel registration.

If the shipowner is searching for the primary factor in selecting an open registry system, the most significant common factor among all such systems is tax exemption. Since tax exemption is a shared characteristic of all open registries, the shipowner must consider additional criteria when selecting the appropriate registration system.

Legal Foundations and Theoretical Approaches to Open Registration of Assets and Transactions

Some of the most important factors influencing the choice of an open registry include the following:

• Vessel Eligibility: Primary registries typically impose restrictions on the types, sizes, and ages of vessels they accept under their flag. Most open registry systems accept self-propelled vessels of various types. However, for vessels lacking propulsion systems, such as offshore oil platforms or inflatable craft, the range of available registries may be more limited. Certain registry systems impose minimum size requirements for vessels eligible for registration. Since fees from open registries are typically calculated on a gross tonnage basis, the rationale for these limitations is clear. In some cases, a vessel length of less than 24 meters may become a decisive factor preventing registration under a specific flag. For example, certain states may permit the registration of commercial vessels of this size, but their domestic laws may restrict the owner’s ability to charter small vessels.
• Age of the Vessel: Another limitation imposed by some registries concerns the vessel’s age. For example, the Bahamas imposes a maximum age limit of 12 years. However, a procedure exists for registering older vessels, provided that special ministerial approval is obtained.
• Ownership Restrictions: Although none of the international registries impose restrictions on beneficial ownership, several registries require that the owning company be incorporated under the laws of the relevant jurisdiction. States imposing such requirements include Liberia, Singapore, and Vanuatu. In Liberia, this ownership requirement may be waived upon presentation of valid reasons and if the owning company is registered as a foreign maritime entity under the Liberian Business Corporation Act. Vanuatu has adopted a liberal policy on waiving ownership requirements. By contrast, jurisdictions such as Panama, the Bahamas, and Barbados do not impose similar ownership restrictions.
• Government Stability: Although government stability is often cited as a factor influencing flag selection, in practice, it is less decisive than other considerations. External conflicts and international disputes tend to have a greater impact on shipowners’ decisions, as conflicts involving a flag state and other countries may affect the safety and security of international navigation.
• Costs: Given that all open registry systems offer broadly similar advantages, competition among them is largely focused on initial registration fees and annual charges. For example, Liberia has completely waived initial registration fees regardless of vessel size. However, annual ownership fees are still generally calculated based on the vessel’s gross tonnage and constitute the flag state’s primary source of income. Shipowners seeking to reduce costs should look beyond headline figures, as additional expenses such as document translation fees and other legal charges imposed by each jurisdiction must also be taken into account.
• Nationality Preferences: Some open registry systems exhibit a preference for certain nationalities for cultural or historical reasons. Shipowners should therefore consider nationality preferences when selecting a flag.
• Accessibility: Not all registry systems offer registration services at all major maritime centers. Given the importance of speed in international trade, dealing with a readily accessible registry is often more efficient than relying on remote communication. Time zone differences among maritime centers worldwide can further complicate the process. For example, in a sale-and-purchase transaction, particularly when a vessel is subject to a tight delivery deadline, the ability to register the vessel immediately upon delivery is crucial. For this reason, some registry systems operate 24/7 to facilitate simultaneous or urgent vessel registration.
• Fishing Vessels: When a fishing vessel is intended for commercial fishing, such use typically requires the owner to obtain a license or quota authorizing the operations. This authorization may be obtained through an application to the relevant governmental authority or, as practiced in the United Kingdom, by purchasing the license of the existing owner of a registered fishing vessel.
• Pleasure Craft: Owners of pleasure yachts generally enjoy the widest range of choices when selecting a flag, as regulatory requirements tend to be more flexible in comparison to commercial vessels.
• Commercial Yachts: Commercial activities constitute the most significant and widespread use within maritime operations. For this reason, most maritime legislation in many jurisdictions, including Iran, focuses primarily on commercial shipping. The professional use of large yachts over the past twenty-five years has highlighted that many commercial shipping regulations were either unsuitable or inapplicable to such vessels, even though they often employ professional crews and are chartered on a commercial basis for substantial sums.

Frequently Asked Questions About Choosing an Open Registry