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Bareboat registration in/out of the Norwegian flags; legal effects worth to consider

The Norwegian flags - the Norwegian International Ship Register (NIS) as well as the Norwegian Ordinary Ship Register (NOR) - are expected to further increase their competitive strength and attractiveness to industry players as bareboat registration will be permitted (in and out) taking effect from 1 July 2020.
| Article | Written by Jan Vablum
Aerial view of freight ship with cargo containers

Whilst this fresh gain is likely to entail an upturn in registration of tonnage in the Norwegian flags due its positive advantages, ship owners and other stakeholders are well advised to be aware and consider other potential legal effects which bareboat registration may impose. We take the opportunity to mention a few:

  • The jurisdiction of the primary flag will be applicable in so far as concerns ownership and mortgage while that of the bareboat (secondary) flag will apply to other legal aspects such as i.a. vessel operation and crew matters
  • As such, vessels bareboat registered into Norwegian flags are required to comply with national legislation relating to i.a. security, crew and environment. In particular, it should be noted that the Ship Labour Act will apply in full in respect of vessels bareboat registered into NOR, whilst some few provisions may be deviated for vessels in NIS.
  • Bareboat registration into Norwegian flags may impose some notable restrictions/duties on ship owners/operators, i.a. relating to limits on trading area in Norwegian territorial waters, cabotage restrictions towards other EU states, conduct of management taking place in Norway etc.
  • Preparatory works suggests that crew members are entitled to resign without a period of notice when the vessel is no longer flying the Norwegian flag in case of bareboat registration out of Norway, and further that same will be deemed legal basis for discharging crew members by their employees
  • The Norwegian scheme in respect of Grants for the employment of employees at sea will (subject compliance all conditions set out therein) be applicable in respect of vessels bareboat registered into NIS/NOR, however not in respect of vessels flying foreign bareboat flags
  • Bareboat arrangements are subject to the shipping tax scheme (approved by ESA) for a 10-year period, lasting until 31 December 2028
  • There are several provisions in the tax scheme which will need to be further assessed, however the starting point being that rental on bareboat terms is limited to 40% of total tonnage in the group. Bareboat contracts cannot be of so-called “financial” nature. It is stated that a bareboat charter is financial, inter alia, if it is probable that the lessor or a third party will take over the vessel on terms other than market conditions during or after the end of the lease period.

These are only some of the various issues which should be taken into account if and when assessing bareboat registration under the Norwegian flag. Simonsen Vogt Wiig assist industry players in respect of a wide range of shipping and maritime matters, including hereunder registration of vessels worldwide.