On Course: A seafarer’s income is not tax-free

Feb 27, 2018 by Clive McCartney

On Course: by Clive McCartney

Tax season, wonderful.  Add that to the myriad rumors and the resultant press articles about immigration visas for crew coming to the U.S., and we have a mix of topics that my late mother would wisely advise me to steer clear of in polite conversation – but which, if handled professionally, should have little impact on the operation of a yacht that travels internationally. We can’t avoid the fact of taxes, however, and the modern-day professional yacht crew keeping their careers on course need to take some responsibility for how their tax status is managed.

There is evidence that tax status – or at the very least, payroll activity – is relevant information for the U.S. Customs and Border Protection officers when assessing a crew member’s B1/B2 application at the port of entry. We know that CBP wants to see evidence of a real tie to a home country. What could do that better than a bank account domiciled in the home country and evidence of tax returns submitted in that home country?

There is a bigger issue at stake in the arena of taxes though, and it is definitely associated with the immigration difficulties that have been recently reported. This issue may be one of the “sacred cows” that yachting must come to grips with in the modern world. The concept of the seafarer’s income being “tax-free” is incorrect. This is not only a U.S.-based issue. Just check with any French yacht crew or the many British crew who are resident in France.

Much has been written in recent months about the correct visa for yacht crew in the U.S. The correct visa for working on a yacht that is temporarily in the U.S. is the B1. The same visa is appropriate for attending short training courses. There are two aspects of the B1/B2 visa that are not well understood in our community. First, while you may have a B1/B2 visa with plenty of validity remaining on your passport, it remains the discretion of the CBP officer when you enter the country whether to allow you in or not. And second, it is illegal to look for work while in the U.S. on a B1 visa. It seems likely that many of the immigration issues that we have heard about recently may have been triggered by the fact that regardless of the actual law, non-U.S. crew continue to look for work here while traveling either on a visa waiver or a B1/B2 visa.  Whether we like it or not, this is illegal.

The economic impact of yachting on South Florida and on the U.S. in general is something which our industry associations, both USSA and MIASF, have made great efforts to quantify and to share with legislators in their lobbying activities. The high number of yachts that are owned by U.S. principals, plus those that come in and out of U.S. ports as part of their cruising schedules, bring a great deal of employment not only to crew, but also to the supporting infrastructure of contracting service providers. There simply are not sufficient U.S. seafarers available to support this activity when the yachts are in the U.S., so we need the international community of seafarers to meet manning compliance. To do this legally, and therefore in a sustainable manner, these seafarers need to be employed and paid in manners that are consistent with U.S. tax and immigration requirements.

The Maritime Labour Convention has done administrators some favors in this arena, since the social benefits provided by owners to crew on commercial yachts over 500 GT are now regulated. Employment and payroll frameworks have been put in place that “handle” these social benefits on behalf of owners through non-EU entities to manage the owner’s exposure to those social (security) costs. The U.S. has not ratified the MLC, but the time is fast approaching when non-U.S. seafarers must submit themselves to the brave new world whereby their employment by U.S. owners or while working on yachts in the U.S. must be demonstrably compliant with U.S. tax and social security requirements.

Some long-held attitudes or positions must change. Seafarers must be ready to demonstrate a link to their home country. Day working on a visa waiver is not legal. Salary earned while in the U.S. is subject to U.S. taxes.
The industry must find a way to adjust to these facts or we may anticipate heavy-handed U.S. government enforcement of U.S. law. This could result in a reduction in the number of yachts coming to the U.S., which certainly avoids these issues for those particular owners altogether, but has far-reaching negative consequences for pretty much the rest of the interested parties here.  Forward-thinking yacht/crew management companies would be well-advised to establish solid employment infrastructure which satisfies these requirements while allowing the wonderful, cosmopolitan melting pot of yacht crew to both meet the owners’ needs and keep their career on course.

Clive McCartney is vice president of maritime operations and business development at Bluewater Management & Crew Training USA in Fort Lauderdale. Comments are welcome below.