Foreign trade zone offers new options for foreign-flagged yachts
By Dorie Cox
M/Y Clorinda is able to do what few other foreign-flagged yachts for sale in the United States can do: The 120-foot ISA can be shown and sold to an American. The yacht is one of a handful that is in a new U.S. Foreign Trade Zone (FTZ).
Currently in Lauderdale Marine Center in Fort Lauderdale for yard work, the yacht was able to travel to the Fort Lauderdale International Boat Show (FLIBS) at Bahia Mar Yachting Center. And the phones have been ringing at Bahia Mar ever since, marina General Manager Megan Lagasse said.
“We have gotten a lot of follow up from yachts that are not sold that want to come into the Foreign Trade Zone,” Lagasse said of the marina at the center of FLIBS. “They want to show to a whole new market that didn’t see the boat during the show.”
Previously, a foreign-flagged yacht had two main options when for sale at the world’s largest boat show: pay the U.S. import duty, or get a boat show bond. The duty can come with a “Not for sale or charter to U.S. residents while in U.S. waters” placard, and the boat show bond restricts potential buyers to contacts made during the show.
The FTZ does not have those restrictions. Yachts in the zone are available to show to new prospects, can conduct sea trials and can visit shipyards for repairs and maintenance.
“Yachts can even close and sell and don’t pay duty,” said Steele Reeder, owner of Howard S. Reeder, a customs brokerage based in Miami. “Whoever buys it has to satisfy what is needed, whether to take it out of the country or register to use it. Or he may export it and go foreign.”
Yacht owners, brokers and captains will want to weigh costs, owner use and travel schedules to see if being part of the FTZ works for them, Reeder said.
And there will be some cost. The initial cost has been covered by the main operator of the FTZ subzone, the Marine Industries Association of South Florida (MIASF). The association paid Interport Group of Companies, a customs brokerage and consulting firm in Miami, to create the zone, said Gary Goldfarb, Interport’s chief strategy officer. But the association activated the zone free for members who applied to join. Those 14 or so businesses will split an $8,000-a-year bond cost. And each business has made investments to tailor zones to meet U.S. Customs and Border Protection (CBP) and other federal government requirements. Yachts fees involve coverage in case a law is broken or the yacht leaves the zone incorrectly.
“Each marina has to have a bond with customs to cover if the vessel takes off,” Goldfarb said.
Reeder explained that it is known as a back-to-back bond.
“It is a bond the owner of the yacht purchases that protects the zone in case he takes the yacht and never returns or does not come back in 120 days,” Reeder said. “This would trigger the duty. We can’t risk being in that bind with customs. It is highly unlikely that this will happen, maybe a first-time user who doesn’t understand it.”
Yachts will see yards like Lauderdale Marine Center (LMC) require payment for a berth in the zone whether the yacht is physically in the slip or traveling. This stems from CBP monitoring requirements.
“We’re not charging markup on the slip, it’s just regular dockage,” said George Whitehouse, business development director at LMC. Although the yard will charge a fee of several thousand dollars to maintain compliance with CBP paperwork and administration, those costs will be worth the benefits, he said.
“It will benefit brokerages in the U.S.,” Whitehouse said. “They don’t have to take the yacht offshore to close. If it is going through a refit, anything they bring from outside the U.S. is duty- or tax-free. And they can leave the slip and promote the boat for 120 days.”
M/Y Clorinda is expected to reap these benefits when LMC gains official “production authority” in January. Although LMC is currently activated as an FTZ, once all the government paperwork is complete, duties can be deferred on all imported parts while a yacht is in the zone on site. Whether it is piping or furniture, the yacht will not pay duty or sales tax on components. Once a project such as Clorinda is ready to leave the zone, the vessel must depart the U.S. to avoid paying required duties or taxes on those items.
Although there is great potential for specific scenarios, not every yacht will want to participate in the FTZ, Reeder said.
“The FTZ eliminates owner use – they can’t even spend the night,” Reeder said.
If a yacht just wants to be for sale for a boat show, they can do it easier and less expensively on a boat show bond, Reeder said.
“For them to be in FTZ may not be economically feasible,” Reeder said. “The zone definitely works for brand new boats. I see this zone being useful to commercial importers, brand new boats with no intent to use.”
Pier 66, another FTZ that has been activated, has just such a scenario. Sanlorenzo Americas is a longtime tenant on the Fort Lauderdale property, and George Jousma, president and CEO of Sanlorenzo Americas, said the company had several yachts in this year’s show. Historically, the company pays the duty on its yachts, but this year Jousma tried the FTZ and delayed the typical 1.5 percent import duty on the foreign-made new yachts. Jousma said after the show that the company is still assessing the benefits.
Many businesses have high hopes for the foreign trade zones. Bahia Mar expects to benefit financially from an increase in the quantity of yachts and subsequent business from those visitors, said John R. Hopwood, vice president of special projects with RCI Group, one of Bahia Mar’s group of owners.
“We feel it will be such an advantage to people to be able to show to the U.S. market,” Hopwood said. “So much so, the savings will be worth paying dockage to sit.”
He expects brokers will find the zone beneficial to continue to show the boat and use it to attend the Palm Beach and Miami shows.
“The approval came so close to the show, next year we hope for more boats,” Hopwood said.
“In the future, this whole marina could be a foreign trade zone.”
So, in addition to potential buyers, M/Y Clorinda is being watched by Foreign Trade Zone applicants, yachting businesses, and the U.S. Customs and Border Protection to see if everything works as expected.
“The intention of the Fort Lauderdale show, and the zone, is to sell boats,” said Charles Walker, marina manager at Bahia Mar. “In 2018 and ’19, this foreign trade zone will have a different face. It has opened our eyes to what is possible.”
Dorie Cox is editor of The Triton. Comments are welcome below.