Hiring Bahamian national on US flagged vessel?

K1W1:
What I am going to say first will support what you say in a way if you are in love with the guy and want to deal with operating around the rules... then there is the big but.... anyway.

K1W1... I think you are thinking a Foreign Vessel not US registered---
Crew Members
"Income from the performance of services by a nonresident alien in connection with the individual's temporary presence in the United States as a regular member of the crew of a foreign vessel engaged in transportation between the United States and a foreign country or a U.S. possession is not income from U.S. sources."

But for some deviling extenuating circumstances...
Key here one might be interested in Publication 515
"USA sourced income..."
"Personal Serviced performed..."
Now these guys are operating in the Caribbean and likely stopping at US Territory Ports or entering in port or waters controlled by US... and importantly they are US FLAGGED remember that last one.

"Source of Income - Personal Service Income
All wages and any other compensation for services performed in the United States are considered to be from sources in the United States. The place where the personal services are performed determines the source of the personal service income, regardless of where the contract was made, the place of payment, or the residence of the payer."

"Territorial Limits
Wages received for services rendered inside the territorial limits of the United States, as well as wages of an alien seaman earned on a voyage along the coast of the United States, are regarded as from sources in the United States. Wages or salaries for personal services performed in a mine or on an oil or gas well located or being developed on the continental shelf of the United States are treated as from sources in the United States."

Vessel or Aircraft Services
"Income from the performance of services directly related to the use of a vessel or aircraft is treated as derived entirely from sources in the United States if the use begins and ends in the United States. This income is subject to nonresident alien withholding if it is not effectively connected with a U.S. trade or business. If the use of a vessel or aircraft either begins or ends in the United States, refer to Transportation Income in Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities." This usually applies to foreign registered ships... and you see visiting the USA on a foreign yacht can be interesting tax wise.

On that one can play games and say oh this guy came on in Bahama's and we cruised around and dropped him off in the Bahama's... but you might have stopped somewhere along the line or entered US waters along the way. Then you get into counting days in and out of the US territory.

Now if you start operating your yacht and you own it you and are a US citizen the services are considered for your benefit and you is responsible. Even if you have a company running it. And, also you may not want to keep track of or limit your operational opportunites. You start getting into counting time in or out of territorial waters... and ports of call for tax purposes and then there is the big problem. In light of the above stated rules you might wonder why worry well if you are responsible you are also responsible for the tax withholding. Better just hire US crew if you are US Flagged... why is:

BUT >>>
The real problem is that a US Flagged ships/yachts etc. are controlled, regulated and subject to US Coast Guard Regs. As they are subject to the laws of the US it means they are considered territorial to the US... even outside of US waters. You know or remember that little thing about US Coast Guard can board any US vessel anywhere in the world... this is why. So US law is applicable and US tax law. Its those pesky flag of registry rules which are so complicated from place to place. So wherever you are on a US Flagged vessel you are under the laws of the United States... so the foreign crew member is subject too unless he is under a tax cooperation treaty exempting you might as well consider him operating in the US because he is on a US vessel in your employment.

One might wonder why there are so many US Flagged commercial vessels in international trade... I do not see this to be the case.

If I were an owner of a US Flagged boat I would not want take tax regulations lightly. In operations particularly ... or be sloppy in how this was handled. Just for some passing fancy. EVEN IF IT IS A PLEASURE YACHT. Also, there are a lot of tax guys telling you this or that because people will pay to hear what they want... and people like making money.

Its like my long term business attorney said, you pay millions in attorneys fees for us to sort out it all and really protect you the assets... but these guys that think they can do it simple or cheap always find out that that is not the case. And, he is a friend... but many of may other friends don't much like him because of those monkey wrenches... and if left to my own devices I would be totally tangled up.

Cannot sleep again so up reading the forum here again.
Anyway reread my posts today. A comment... sorry for my poor grammatical skills. I never proof read until after the fact.

This whole issue of nationality is rather frustrating... and taxes is more so. It is a sad world that these issues control us.

This man subject of this thread should be allowed to work without penalty wherever he can get it. That is not the case. My posts are all about the problems hiring him. Now likely you could ignore the rules and get by most of the time. But it seems more and more the rules and law are more and more restrictive.

I don't like it nor do I like having to uphold all this. But practically you get stuck unless you are willing to take the consequences.

In America you have no excuse under the law for not following that despite the situation of statutory, precedent and equity law intersecting in a combined muddle only attorneys can really comprehend.

In France, one of the big issues following the revolution was that the common man should be able to understand and have equal access to understanding the law. This is fundamental to the Napoleonic Code... but even in France it gets beyond the average person to understand or know because modern society is so complicated and needs lots of law.

So I am sorry my posts are what they are and that I feel to help out I feel the need to make them.

Difficulty understanding the law is inevitable. Natural human languages all have a great deal of ambiguity to them. When the law has ambiguity that is when lawyers run amok.

There are two issues that have come up here, and I think it would make the thread more useful if they were addressed more specifically.

The first issue is whether this gentlemen who is eager to work can legally work. Can he hop on the boat tomorrow and work his way south? Can he continue to work even when the boat returns to US waters?

The second issue is one of tax liability. What tax penalties will he have to pay to work on the US flagged vessel? How do those tax penalties change if heading to or departing from US waters? If he starts in the Bahamas, heads to the US, then returns to the Bahamas is that the same as starting in the US, going to the Bahamas, then returning to the US?

In terms of taxes, we might not even be correct in assuming that that is a problem. It is possible that the figure he is willing to work for, and the figure that the owner is willing to pay, have enough space in between them to fit an extra tax penalty. It sucks, but you know... death and taxes.

Hi,

This statement has me curious.

How much of the Caribbean does the US Revenue revenue gathering machine actually have the legal right to impose taxes upon?

The Us Virgin Islands and Puerto Rico extending 3 miles offshore as far as I know.

The US Revenueers are trying very hard to put the entire world under their greedy little thumbs.

Anyway, the problem he is in this definition by the US IRS
Vessel or Aircraft Services
"Income from the performance of services directly related to the use of a vessel or aircraft is treated as derived entirely from sources in the United States if the use begins and ends in the United States.This income is subject to nonresident alien withholding if it is not effectively connected with a U.S. trade or business. If the use of a vessel or aircraft either begins or ends in the United States, refer to Transportation Income in Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities." This usually applies to foreign registered ships... and you see visiting the USA on a foreign yacht can be interesting tax wise.

That does not mean the crew members tenure on the boat but the boat itself. This is how the US enforces withholding tax on foreign registered cruise ships operating out of and returning to a US port. But the problem is the boat here is registered under the American Flag so it is both extraterritorial to the US and its origin and return is to US port most likely... (two strikes against you) and most likely that is how the IRS will enforce if they find out. So in my understanding it does not matter where he gets on or off at... you must do the withholding because it is the boats origin and return.

Sad... comment!

Now recently there has been an international furor about an Indian Diplomate jailed and strip searched in the US for her employment of an Indian national in her home. This is two fold first she was not paying the minimum wage and for poor working conditions... and second she was not doing withholding. She is not getting out of it no matter the stink raised in India.

Unless you operate the boat as a corporation (or other entity to itself) the tax authorities consider the crew as your household staff... and rules apply there too. Many of my American based yachting friends do this as they either don't think they have a large enough boat or they are lax. An 80 foot long boat is not a what the authorities would consider a weekend recreational boat... as it has crew. The problem really comes up when the boat becomes a yacht... that in my definition means full time crewed. That is the third strike against you... that it has staff. How most tax authorities view staff household or yacht is that the staff are 'employees'.

Now in Monaco which people often think of as a tax haven but this is misleading. Monaco has real strict employment and employment tax rules... much more onerous than the US and much much more expensive on all fronts... SEVERAL TIMES AS EXPENSIVE... the Prince wants people well looked after. In France is is actually not a whole lot more than the USA... may be less after the full effect of the American healthcare laws take full effect.

But most yachts are registered in British protectorates
but even as the world wide recession took hole in 2008 you would see the bullies on the block get desperate and go looking for revenue... a few year old new story... lots of law has been passed since...
BBC - Panorama - Nowhere to hide for tax havens?

Now you see my pet peeve... even operating in Europe and Caribbean... with mixed nationality crew... and beneficial registry and beneficial business structure and professional management... its a pain... and expensive... and someone makes a mistake it costs. And, even some mistakes can imperil the yacht asset like drugs... particularly in the US... remember the authorities can board you anywhere in the world... US Authorities which are draconian as to drugs. But back to the subject, this makes for some crew having withholding because of nationality and others not any. So in the mixed crew scenario then a US nationality crew member has deductions taken that other crew members don't... effectively reducing his pay. In contrast in Monaco there is no personal tax but the employer has very heavy tax burden for having employees.

Basically and simply you can hire the Bahamian guy...
But he is likely going to have to get a greed card (with your help) and you may be subject to paying for his deportation from the US if you reach a US port with him on board. Trying the deceit that he is a guest is simply illegal as it is not really the case.

And, you are going to likely have to do 30% withholding on him if he doesn't have the green card...
Or, if he does get a green card standard withholding like any other US nationality crew member.
You might get into a situation of counting days in and out of territorial waters and that record keeping nightmare for your captain or yourself.

And, what if he "smuggles some dope on board"... ???

Actually the US Internal Revenue Service has the legal right to impose taxes and tax laws on a US citizen, partnership or corporation regardless of where that entity's boat might be at the moment.

What makes tax laws extremely complicated is that multiple governments can have those rights at the same time.

This is totally separate from the rights of the USCG and it's equivalencies in other countries.

I would hope that anyone in this situation would have a qualified maritime lawyer they could access (as well as an accountant). A simple call to the lawyer should give them a quick answer. The rules and laws and especially tax laws are very complex and can hinge on details that we may well not know. We preface questions with "Can I" but often it isn't an "I". Boats are owned in many different ways. Employees paid many different ways. Even different states involved. Then this can hinge further on questions like "How long will he be employed and how much will he be paid." You have the same complications when a foreign flagged vessel wants to hire a US citizen or a non-US citizen while they are in the US. This is before you get into the question of whether any Bahamian laws come into play.

I know many consider this an unneeded expense. But at least to have someone you've been in contact with previously and is available for your call I think is very important if you intend a lot of international cruising. I know if I'd been one of those in Mexico to have issues in the past and be required to stay until they could be resolved, I would have been very happy to have someone expert in the field to contact. That's really the place I turn for my legal advice.

Each of our situations is different. I know in my case each of my boats is a separate legal entity but my crew is paid by another Corporation. While my wife and I are owners of each of these, this structure would be something only my attorney and accountant would be aware of and know to correctly answer the question.

This is well known and I believe this is what has driven US Citizens to renounce their citizenship if they have another one available.

As the chap being asked about is a Bahamian he shouldn't be liable for anything if he does not go to USVI and or Puerto Rican waters while down island.

The U.S. is not that unique in that regard. Other countries have very strict employment laws. The there are those who have been notorious for going after famous athletes.

As a Bahamian however, there are Bahamian payroll taxes and employment laws. Is he subject to those? Before hiring him does the US entity need to be qualified to do business in the Bahamas? I don't know the answers, but just as double taxation seems wrong so does escaping taxation so it seems there should be some tax paid to some government. Much of this is covered by expatriate laws which most nations have. Most countries have tax treaties in regard to those. What Bahamas employment laws come into play? I don't know. But the issue isn't strictly a US one.

In the US it is complicated one step further by states. For instance we might deal with someone who works in one state and lives in another. The worst example is a professional athlete who is responsible for taxes in every state in which they play a game, excluding those states without income taxes.

Some people do elect to move from the US and many European countries as well to "Tax Havens". They may or may not change citizenship. This may be done to reduce their tax burdens in many ways whether income taxes, property taxes, or inheritance taxes. But even the benefits of the tax havens are lost if one continues to do business in the country they're leaving.

Olderboater... is very right about the differing authorities, and various jurisdictions complicating things.

He is also right that likely a US registered boat would be incorporated on land somewhere in the US... wherever the elected agent is... usually that is an attorney. So the boat can be wherever and still subject to where it is incorporated or the business is based. If that is the owner personally (really really stupid) then that is his personal address... or agent's address. So really the money is US sourced.

The issue on board is controlled by the registering country and its rules of that. On a US boat the issue is with were it is... but that is covered by the laws of registry, tax law and where it is in the world.

I looked at this primarily from the tax issue and a little by the registry based on the boat being offshore to the US buy having originated and returning (home port in the US) somewhere in the US. This trumps you on IRS rules and the registry rules.

But as Olderboat states where you are also effects the law and how it effects you... and the crew... and taxes.

Easy to get caught out if you are stupid.
A case in point is a long long time ago I was broke... on my own... in France... wondering around... could not speak the language... and eventually worried about making ends meet. A job in those days in most places in France required you to be able to speak the language... I really had little clue... and money was running out. I also did not have a passport this complicated the issue (accidentally left I at my grandmothers in England and she was 94 years old at the time and there was no way of by remote control finding it there)... not in roaming around from town to town but getting a job or doing anything that might rise to official. I had walked from the north in Brittany to the south because it was autumn and starting to get cold... did get a ride for a couple days with an English gent who had a barge on the Canal Midi (fixed his generator which was not working well). By time I hit Carcassonne I was getting really broke... needed some money bad. So I can really understand your Bahama guy's situation.
Anyway, met a couple Brits you were serving in the French military as paratroops. They bought me lunch... ! Well they said if I was desperate enough I could join up in Aubagne... outside Marseille. Having served in the US Navy and gone to military school too... so by time I got there thought why not. Well out of that developed a lot of very interesting friends during that time... and learned to cuss in French!

Anyway, one of my friends from this time was from America but was Portuguese by birth... came over when he was 7 or 8 years old. Well after his term in the green hell... a few years later he set up a bar in Portugal on the coast. Johnny did pretty well. But he was an American citizen. He was paying Portuguese taxes... . In a couple years the US tax authorities somehow found out. As Portugal did not have a tax treaty at the time with the US he got to pay back taxes to the US too for a couple years... really set him back as he owed more than he made... having to pay both Portuguese and American taxes and penal its for the US! So his solution was to live 183 + days in the US at another of our friends house who now lived in California (Chris got that little run down shack he had... because he married and then got divorced and got the house as part of the settlement form the wife... rare) and so Johnny could only be in Portugal during the season. This way he could be resident for taxes in the US and only pay the business taxes in Portugal. And, Chris and him could hang around the house when they weren't out getting into trouble. Have not heard from them for now well over 30 years... in Chad we had made up a little bit of what the French call Mafia Anglais... meaning any group of english speakers together!

So maybe some stupid younger guys can get into tax trouble but if you can afford a couple million for a yacht... you really have no excuse.

Going through the new this evening found this story on the US AP... I thought it applicable here... considering some of the comments.

Notice the charge of visa fraud and how that has caused a lot of uproar... and the work rules as far as pay and conditions. What is interesting is that the prosecutor did not back down in light of the international diplomatic incident created. I am sure any Yacht owner will not be so stupid... pay so little... violate regs. or.... law knowingly.

But for a US flagged yacht... I would not risk my quiet enjoyment of it by... doing do a wink and nod to drug, labor, tax and visa violations under US law as they all are seriously pursued. I suppose it is better safe than sorry.

Indian diplomat tells of anguish at leaving US without children

That's good as the lawyer may have information neither you nor the owner does or at least don't grasp it's significance. Just processing payment becomes a complexity.

Now from a practical standpoint, have you and owner run a background check on the person, including criminal and in this case perhaps even personal and financial. Do you have a responsibility to return him to the Bahamas?

I don't know how thorough most Captains and Boat owners are in this regard on crew. I know that when I hire an office employee, I do basic background checks, but also if something arises that was undiscovered and undisclosed on an application, a simple termination takes care of it. If the employee has drugs at home then that's not my problem. If they're running from child support or an outstanding judgement, then easily handled. If they have warrants, it's obvious.

Now when I hire them for a job on my boat it's more complicated. Bringing drugs on the boat has far more severe consequences than having them at home. If there's an outstanding warrant of some sort or they're on parole for something then I can be harboring a fugitive. Things like taxes and child support are still basic since I do pay as employees from a US Company and garnishments can still be made. Also if there are unforeseen issues such as alcoholism or unmanaged mental illnesses I can always send them back home. If it's someone I've picked up in the Bahamas, not got on payroll, have no real legal control over, then the situation is more complicated. So a little extra due diligence seems in order.

I was running a 65' sailboat some years back in San Diego. The owner put one of his employees, a Columbian, on board with me and my crew on a trip to Cabo San Lucas. When we went to check in, the Immigration authorities would not let the Colombian into the country (Colombians are required to have a special visa to enter Mexico). Not only was he denied entry, they took him and me to the airport so that I could buy him a ticket and put him on a plane! Since then, my crew is only U.S. citizens. At least we're all " in the same boat".

Perhaps this is moot issue by now as likely the guy has not been hired or the whole issue is forgotten.

However, I thought I might finish out the discussion...

Today my US business attorney and I had a very nice conversation, on other issues. And, by circumstance the British manager of the yacht management company happened to be present. Over some drinks we were relaxing, and I asked about this situation, the following is what I was told in no uncertain terms:

First a US Flagged Vessel is definitely considered extraterritorial to the United States. What this means legally is that wherever it is while under the Flag of the United State (meaning with current registry): It is considered TERRITORY OF THE UNITED STATES, period. You might as well be back landlocked in the State of Kansas or something. Actually, when I said that I was told "not really" because it is not in a State so State laws only apply when it is present in a particular State.

So all tax regulations apply just as if you were in Kansas whether or not you are actually in the middle of the ocean somewhere.

Second, the crew member would have to have a green card to work on the yacht.

Third, you would be responsible when he leaves your employment to pay for his return to wherever he first came on board as a crew member. This is universal not just a US registry requirement.

Forth, you would have to comply with all US regulations and law in whatever you did.

Fifth, some of the schemes and suggestions of this thread could land you in jail, if the US authorities found out and decided to prosecute you!

46 U.S.C.
United States Code, 2011 Edition
Title 46 - SHIPPING
Subtitle II - Vessels and Seamen
Part F - Manning of Vessels
CHAPTER 81 - GENERAL
Sec. 8103 - Citizenship and Navy Reserve requirements
From the U.S. Government Printing Office, U.S. Government Printing Office Home Page

§8103. Citizenship and Navy Reserve requirements

(a) Except as otherwise provided in this title, only a citizen of the United States may serve as master, chief engineer, radio officer, or officer in charge of a deck watch or engineering watch on a documented vessel.

(b)(1) Except as otherwise provided in this section, on a documented vessel—

(A) each unlicensed seaman must be—

(i) a citizen of the United States;

(ii) an alien lawfully admitted to the United States for permanent residence; or

(iii) a foreign national who is enrolled in the United States Merchant Marine Academy.1

(B) not more than 25 percent of the total number of unlicensed seamen on the vessel may be aliens lawfully admitted to the United States for permanent residence.

(2) Paragraph (1) of this subsection does not apply to—

(A) a yacht;

Why is this so difficult. A yacht is specifically excluded.

There is no such thing as a commercial yacht in the US. If it carries passengers for hire it is a commercial vessel and the manning rules apply, otherwise it is a toy boat and the hired hands can be anything you want outside the US.

Being particularly dumb and a walking liability... as I was once told that very same attorney and friend this leaves me wondering. It is a little late for me to ask now about further details.

So while you have those books of regulations handy... as I didn't ask or didn't think to ask... and it would be very helpful to know:

When is a boat considered a yacht and when is it not?

I wonder about if it is used for charter at anytime, and

also if it carries more than 6 passengers?

And, what if it is a blow up boat with US Flag stuck is on it adrift in international water filled with a dozen salty wet back first time shwag sailors high on chino choke trying to avoid the US Coast Guard who lost track of the fresh water bucket and pee pot dumping it over the side ?

Why I ask, it is very rare in my neck of the sea to see a US Flagged boat at all!

All American rules and regulations are readily available for study and review from several online sources. The one I quoted above is a good place to start.

If I were being paid to analyze them for you and had a law license I would be happy to suggest answers to your questions but I am not an attorney and I am not being paid for my time so I will leave that to others. I am absolutely certain there will be another 15 or 20 posts on the subject of charters, charter scams, certificates of inspection, and commercial documentation.