U.S. Flagging vs. Importation: Clearing up the Confusion

Unraveling the Biggest Myth of Coast Guard Titles and Importation

Dec 28, 2024

If you’re new to owning a boat, or even if you’ve been at it for years, you’ve probably heard the notion that a U.S. flagged boat must have had U.S. import duties paid. It makes sense, right? You shouldn’t be able to title a boat under a country without paying duties (aka: taxes) on the boat. Well, shockingly that’s not the case, and it’s a common misunderstanding. The truth is that flagging and titling a boat and importing a boat are completely separate processes handled by different agencies, and are not related to one another.

This matters, especially if you’re thinking about buying, selling, or commercially operating a foreign-built boat within the United States. The last thing you want is to run into are unexpected expenses or worse, legal trouble - because you didn’t know the rules. So without further ado, let’s break it down!

Flagging a Boat: What it Actually Means

When we talk about flagging a boat, we’re referring to the legal process of registering your vessel under a country’s flag. I like to think about it as the “nationality” of your boat. For most U.S. citizen buyers, this happens through either the U.S. Coast Guard or a local state agency like the department of motor vehicles or department of natural resources (this varies from state-to-state).

U.S. Coast Guard Documentation

This is a federal process managed through the National Vessel Documentation Center, a department of the U.S. Coast Guard. Federal documentation gives your boat a U.S. “nationality”, which can be handy if you’re cruising internationally. It also acts as a title, or proof of ownership, so it’s often required by lenders if you’re financing the purchase.

State Registration

If you’re not federally documenting the boat through the U.S. Coast Guard, you’ll need to register and title it in your home state. This usually applies to smaller boats or those that only operate in state waters.

Your Key Takeaway: Flagging your boat in the U.S., whether through federal USCG documentation or state registration, has nothing to do with import duties. Case-and-point, you can have a U.S. flagged boat that has never even been in U.S. waters, which means it would never have had U.S. importation duties paid.

Importation: Where Customs Comes In

Importation is an entirely different process that comes into play when a foreign-built boat is brought into U.S. waters for extended use. This is handled by U.S. Customs and Border Protection (CBP), not the U.S. Coast Guard or your state vessel registration office.

When you import a boat, you’ll need to pay an importation duties (or taxes), typically 1.5% of the vessel’s value (however that will vary by where the boat is manufactured), plus administrative fees. This duty is a one-time payment that allows the boat to remain in U.S. waters legally. As a side note, it also permits you to sell the boat in U.S. waters to U.S. residents.

When Are Import Duties Required?

If you’re buying a foreign-built boat and plan to keep it in the U.S., import duties apply. However, if the boat is staying outside of U.S. waters (say, in the Caribbean for example), there are no requirements to pay U.S. import duties.

Temporary Visits

Foreign-flagged boats can enter U.S. waters temporarily under a cruising permit, but if they overstay the permit, which typically can be up to 1 year, import duties will apply. Additionally, a U.S. flagged vessel that has not had importation duties paid, will be required to obtain a cruising permit for temporary visits to U.S. waters.

The bottom line: Import duties depend on where the boat is being used, not what flag it flies.

Looking Ahead: Why Importation Status Matters for Resale

One thing many owners overlook is how the importation status of their boat will affect the end of their ownership journey. Whether you’re buying or selling, it’s important to think about where the boat will likely be when it’s time to sell.

For boats not yet imported into the U.S., the selling process can get tricky:

Complications for U.S. Buyers

If a foreign-built boat has not been imported, U.S. residents will need to pay the import duties when they buy it, or as is more common if the boat is listed within U.S. waters, the seller will have to import and pay duty on the boat prior to closing. This added expense, along with a perceived notion that the importation process is complicated, often-times deters buyers from inquiring on a boat.

Flagged Listings

Boats that haven’t been imported are often flagged with red font in listings as “not for sale to U.S. residents while in U.S. Waters.” This warning can discourage inquiries, even if the boat is otherwise a great deal. If you’re listing your boat in the U.S., my advise is to just import the boat and pay the duties - it just makes for a more simple and straightforward sales process, and your boat will theoretically be worth more than the seller down the dock that hasn’t imported their boat.

Market Limitations

If your boat isn’t imported, it may be harder to market to U.S. based buyers, who make up a very large portion of the market for cruising catamarans.

Planning Ahead: If you’re buying a boat outside the U.S., consider whether you’ll eventually sell it in the U.S. If so, importing the boat sooner rather than later might make sense to streamline the resale process and attract a wider pool of buyers. Since boats cannot be imported into the U.S. until they are in U.S. waters, this process can be nuanced if you’re taking delivery outside the U.S. Send me a note if you’d like some guidance on how to effectively do this and for referrals to importation brokers.

A Side Note on Flagging and Insurance

Probably the most common question I get is about flagging and if it matters. Much of this has to do with your cruising plans, but a huge factor to take into account when flagging is insurance, and closely related to that, financing.

“Does it matter where I flag my new boat?”

Here’s where the Paris List (aka the Paris Memorandum of Understanding on Port State Control List) comes into play. The Paris List is a ranking system that categorizes flag states based on their safety and compliance record, amongst many other categories. Insurance companies use this list to assess risk, with flags on the White List (such as the U.S.) seen as lower risk than those on the Black or Grey List (such as Panama or Saint Kitts and Nevis).

While we won’t dive too deeply into the Paris List here today (stay tuned for that in a future article), it’s worth noting that choosing a reputable flag state, whether the U.S. or another country, can make it easier to secure coverage and avoid surprises during inspections abroad. If your new boat is financed, your lender very likely will have their own flagging requirements as a condition of the loan.

The Big Picture

Flagging your boat and importing it in the U.S. are two completely separate concepts and processes, each with its own rules and requirements. A U.S. flagged boat doesn’t automatically mean import duties have been paid, and a both a U.S. and foreign-flagged boat can legally cruise U.S. waters temporarily without being imported.

For most U.S. based cruisers, sticking with the U.S. flag makes sense - it’s familiar, straightforward, widely accepted, and easier to insure than many other countries. However, if you’re buying a foreign-built boat, it’s critical to think about the long-term plan: where you’ll cruise, whether you’ll sell it in the U.S. when the time comes, and how its importation status might affect your options.

If you’re weighing your options or have questions about your flagging or importation, feel free to reach out. Navigating these waters can be tricky, but with the right guidance, it doesn’t have to be.

Disclosure Statement

The information provided in this article is for general guidance only. Every boat owner’s situation is unique, and decisions about flagging, importation, and resale should be made based on your specific circumstances. For expert advice, feel free to contact me, and I’ll be happy to provide referrals to trusted professionals who can help you navigate these concepts and processes with confidence.