1. THE GRAND-DUCHY OF LUXEMBOURG MERCHANT FLAG EXCELLING IN MEGA YACHTING Meeting of Friday 10 th of February 2012

2. MERCHANT MARINE YACHTING : QUITE A UNIQUE CHOICE OF THE RED LION FLAG THE DIASPORA OF THE MEGA & SUPERYACHTS: At the end of the day all “commercial yacht” under Red ensign Flags or other international Flags remains from the fiscal & maritime laws point of view “a pleasure yacht registered for commercial purposes”. Mr. Ayuk Ntuibane (Moore & Stephens, Isle of Man) did this best to be heard analyse : “ The large yacht continues to be known by its dubious distinction of “pleasure craft” regardless of its commercial undertaking. That status ensures that it is docked by VAT pitfalls in its every EU transaction, ranging from purchase and use to maintenance and provisioning. This historical typecasting will change if the growth of commercial yachting continues in place”. Operated in early 2006, the sole lack of this analyse is that such changing in status from a registration as pleasure craft in the nowadays more appropriate status of a merchant vessel, largely foreseen in general by the industry, is, since 1994, a reality under the Grand-Duchy of Luxembourg flag regulation. Me André HARPES 10/02/2012

3. MERCHANT MARINE YACHTING : QUITE A UNIQUE CHOICE OF THE RED LION FLAG THE INTERNATIONAL BASICS: THE MONTEGO BAY CONVENTION Article 91 of the International Maritime Convention : Nationality of ships: 1. Every State shall fix the conditions for the grant of its nationality to ships, for the registration of ships in its territory, and for the right to fly its flag. Ships have the nationality of the State whose flag they are entitled to fly. There must exist a genuine link between the State and the ship (technical rules, social care etc.). 2.Every State shall issue to ships to which it has granted the right to fly its flag, documents to that effect. Consequently the Grand-Duchy of Luxembourg as sovereign Flag state, in exercise of his sovereignty rights, was perfectly entitled to render upon 1994 yachts eligible for the registering under the international merchant flag statute. Me André HARPES 10/02/2012

4. MERCHANT MARINE YACHTING : QUITE A UNIQUE CHOICE OF THE RED LION FLAG WHO IS ENTITLED TO REGISTER A VESSEL ? -Only the beneficiary of an ministerial accreditation as a shipping company may request for the entry of a vessel in the Luxembourg merchant marine register. -For obtaining such accreditation, the company must have appointed a shipping manager accredited himself by the Luxembourg government (for ex.: www.mama.lu Maritime Management Luxembourg).www.mama.lu -This double degree condition fulfilled, the shipping company must have a registered office in the EU, out of practical and fiscal reasons preferably situated in Luxembourg. None residence or nationality restrictions are foreseen regarding the beneficial owner. -The accreditation process of the shipping company has to be started latest along with the first application for registration of the vessel. PRACTICAL DETAILS -Upfront to the first step of the registration process, the shipping company should be VAT registered, such registration, taking upon six weeks in the timetable. So the incorporation process should be started early. Me André HARPES 10/02/2012

5. MERCHANT MARINE YACHTING : QUITE A UNIQUE CHOICE OF THE RED LION FLAG THE NATIONAL TECHNICAL RULES: Upfront it has to be stated that the MCA (LY2-code), ruling the registration of any commercial yacht under British Flags, does not apply, but the capacity limitation of 12 (ex-crew) passengers, when sailing, remains fully applicable; LESS THAN 24 METRES: 1.Class Certificate or Certificate of compliance with Luxembourg Technical Regulations for vessels of less than 24M of length issued by the class assorted to the EC Certificate (type-proofing) 2.Report of the load line survey and stability test data 6. Preliminary inspection of the vessel performed by a classification society, namely (BV/RINA/LRS/GL/DNV/ ABS/NKK). OVER 24 METRES: 1.Class Certificate as Load line survey and stability test by the classification society; 2.International Tonnage Certificate ; 3. Valid Class survey report; 4.Preliminary inspection of the vessel performed by the classification society Me André HARPES 10/02/2012

6. MERCHANT MARINE YACHTING : QUITE A UNIQUE CHOICE OF THE RED LION FLAG THE NATIONAL CREWING RULES: THE REFERENCE TO IMO/ILO: -Qualification of the officers : Class IV-stcw95. -Safe Manning Regulations apply. -Officers should be EU-resident, exemption are foreseen. SOCIAL PROTECTION SYSTEM ACCORDING TO IMO/ILO: -For EU-national crew members the membership in the state social security system is required by law. -The social security system is all inclusive at a rate of 24% of the taxable income of the crew member, who, after 10 years of membership, upon the age of 65 years, becomes eligible for the national retirement plan. -For non EU-resident crew members the operator has to proof that the crew is socially covered by private cover with approximate costs at the rate of 3.000.-€ /per year. -The income taxation on wages is fixed at the rate of 10% of the monthly income exceeding 1.800.-€ Me André HARPES 10/02/2012

7. MERCHANT MARINE YACHTING : QUITE A UNIQUE CHOICE OF THE RED LION FLAG THE INTERNATIONAL PROTECTION PROVIDED BY A MERCHANT FLAG -As unrestricted member of the IMO/ILO the Red Lion Flag states provides to any vessel of his merchant register the highest possible international protection system, the one provided by the International Maritime Convention, the “Montego Bay Convention” as by all other international convention related to the protection at sea; -As part of the EU merchant marine, the Red Lion registered yacht got the benefit of the EU regulation EC 3577/92/EEC of 7 December 1992, the « Cabotage Act» for Community ship-owners operating ships registered in a Member State and flying the merchant flag of that Member State; -In Spain article 65 of the “Impuestos Especiales” only refers to pleasure registered vessels (“ Embarcaciones de recreacion”), so this special Spanish tax of 12% does not apply to merchant vessels. Your Luxembourg “commercial cruising vessels” as merchant registered and under the protection of the “Cabotage Act”, escapes this articles 65 of the Spanish tax law. Me André HARPES 10/02/2012

8. MERCHANT MARINE YACHTING : QUITE A UNIQUE CHOICE OF THE RED LION FLAG THE NATIONAL FISCAL BASICS: YOUR MERCHANT YACHT BECOMES AN INVESTEMENT GOOD -For the fiscal people a yacht, by entering the Luxembourg register of the merchant marine, looses all qualifications such beautiful luxurious etc.. -The yacht becomes a unit of the merchant marine under the technical typification of a “Vessel for Commercial Cruising ”. -As any merchant vessel held by a Luxembourg maritime company, the yacht now qualifies as investment good and is fiscally regarded and treated as such. -The consequences are fundamental, may this be for VAT-matters and finally for direct taxation processes. Me André HARPES 10/02/2012

9. MERCHANT MARINE YACHTING : QUITE A UNIQUE CHOICE OF THE RED LION FLAG VAT EXEMPTION -Articles 15.4. as 15.5. of the 6 th EC Directives, today Articles 148 a) and c) of the EC Regulation 2006/12/112 provides tax exemption for the acquisition of merchant vessels, and this VAT exemption stated applicable for operating and maintaining costs. -The Red Lion registered yachts, by the full statute as merchant vessel, qualifies for the benefit of the VAT –exemption, exemption formalized by the governmental decision dated 22nd December 2006 stating that “Commercial Cruising Vessel” has to be considered as part of the merchant marine. -Full VAT exemption is given but on the charter party for exclusive pleasure aims, VAT will be charged. -It must be pointed out, in this regard, that the actual wording of Article 15.5 of the 6 th EC Directive, which contains a reference to Article 15.4(a), covers the hiring of vessels used for navigation on the high seas and carrying passengers for reward or used for the purpose of commercial, industrial or fishing activities. In order for such a hiring service to be capable of exemption under that provision, the lessee of the vessel concerned must use it for an economic activity. (ECJ, C116/10 dated 22.12.2010) Me André HARPES 10/02/2012

10. MERCHANT YACHTING : QUITE A UNIQUE CHOICE OF THE RED LION FLAG THE DIRECT TAXATION: -As investment good a yacht qualifies to the benefit of a tax credit balance up to 14% of the new invest. -The annually fiscal depreciation of a vessel is given at the rate of linear 8,33% of the investment sum with the option for an accelerated depreciation at a rate up to 25%. -Roll over capital gains on the sale of the vessel: After 5 years of property a tax exemption of a possible sale profit applies under the condition, that this profit will be reinvested within 2 years in a ship or another fixed investment asset such as real estates, shareholding etc.. -Luxembourg tax authorities usually accept that reasonable provisions concerning large scale repair and maintenance work on ships are deductible in the year they are booked. -Losses may be carried forward without limitation in time. - No local taxes on the profit of an maritime company so direct taxation rate is limited to 22,88% Me André HARPES 10/02/2012

11. MERCHANT MARINE YACHTING : QUITE A UNIQUE CHOICE OF THE RED LION FLAG THE DIRECT TAXATION IN FIGURES: -The yacht investment is: 10.000.000.€ -The tax credit is 14%: 1.400.000.-€ -The yearly operating costs are covered by the charter income. The losses only occure by the fiscal accelerated depreciation of the vessel at the rate of 25% so the reported losses has to be figured after the 4th year at the sum of 10.000.000.-€. -The Vessel is sold after five years for 5.000.000.- € against a book value of 1.-€. The roll over capital gain is to be established at the amount of 5.000.000.-€. -This roll over capital gain is reinvested within 24 months upon the aquisition in a real estate located within the EU. So after a ruling (acceptance of the kind of the new investment) from the tax authorities, none taxation of the roll over gain is given. -The maritime company still carries forward losses of 10.000.000.-€ increased by the tax credit up to total amount of 11.400.000.-€, the beneficial owner may use for tax neutralisation with benefits coming from other than maritime activities. -Merchant Yachting costs can be remployed by providing tax saving. Me André HARPES 10/02/2012

12. MERCHANT MARINE YACHTING : QUITE A UNIQUE CHOICE OF THE RED LION FLAG THE RED LION FLAG : YACHT OWNER’S NEAR PARADISE The Red Lion Register provides: -Merchant registration for your yacht under the flag of a founding partner of the EEC and full member of the ILO/IMO; -Protection at sea und the terms of the Montego Bay Convention; - In the respect of the « Leitmotiv » in yachting, « Happy Crew, Happy Owner », a most performant social system at lowest possible costs; -Full VAT exemption on the yachts initial price and conditionnal VAT exemption on the operating costs inclusive tax-free bunkering; -Non application of Article 65 of the Spanish Impuestes Especiales; -High onshore potential in direct tax saving if operated as part of a structured entrepreneurial group. Me André HARPES 10/02/2012

13. MERCHANT MARINE YACHTING : QUITE A UNIQUE CHOICE OF THE RED LION FLAG Me André HARPES 10/02/2012 WELCOME ON BOARD