Bareboat Charter in the Philippines: Registration and Rules Under RA 9295

A bareboat charter is a lease of a vessel in which the charterer takes over full possession, control, and operation of the ship, including crewing and maintenance, while the owner steps back. In the Philippines, the charter of a vessel is treated as a form of importation under the Domestic Shipping Development Act of 2004, Republic Act No. 9295. This means that a bareboat charter used for domestic trade must be registered with the Maritime Industry Authority (MARINA), and the vessel must be classed and operated in accordance with Philippine rules. Foreign vessels generally cannot carry passengers or cargo between Philippine ports without a Special Permit from MARINA.

What is a bareboat charter?

In a bareboat charter, sometimes called a demise charter, the charterer leases the vessel itself rather than a service. The owner provides the bare hull, and the charterer supplies the crew, fuel, provisions, insurance, and operational management. The charterer effectively steps into the shoes of the shipowner for the duration of the charter.

Philippine law does not define "bareboat charter" in RA 9295, but it does treat a charter as an importation. Under the definition of terms in Section 3 of RA 9295, "importation" covers the direct purchase, lease, or charter of newly constructed or previously owned ships, or the purchase of ship's spare parts from foreign sources. A charter is therefore an acquisition mode that brings a vessel into the Philippine registry.

Why registration with MARINA matters

MARINA is the agency that registers vessels and issues the authorities needed to operate in domestic shipping. Section 10 of RA 9295 gives MARINA the power to register vessels, issue certificates of public convenience, set safety standards, and inspect vessels.

Registration is not a mere formality. A vessel that will engage in domestic trade must be properly documented, classed, and covered by the required insurance. Operating without a valid certificate of public convenience, accreditation, or other authority is a prohibited act under Section 16 of RA 9295, and MARINA may impose fines or suspend or revoke licenses under Section 18.

Who may operate a chartered vessel in domestic trade

Domestic shipping in the Philippines is reserved to Filipino interests. Under Section 2 of RA 9295, the State promotes a domestic merchant fleet owned and controlled by Filipinos, or by corporations at least sixty percent of the capital of which is owned by Filipinos. Section 3 defines a domestic ship operator or owner as a Philippine citizen, a commercial partnership wholly owned by Filipinos, or a corporation at least sixty percent of whose capital is Filipino-owned, duly authorized by MARINA to engage in domestic shipping.

Section 5 reinforces this: no franchise, certificate, or other authorization for the carriage of cargo or passengers in domestic trade shall be granted except to domestic ship owners or operators. A bareboat charter therefore does not open the domestic trade to foreign operators; the charterer must still qualify as a domestic ship operator.

The rule on foreign vessels

A foreign vessel may not transport passengers or cargo between ports or places within Philippine territorial waters. Section 6 of RA 9295 allows a foreign vessel to do so only upon the grant of a Special Permit by MARINA, and only when no domestic vessel is available or suitable to provide the needed shipping service and public interest warrants it.

This is the key limitation for bareboat charters involving foreign-owned tonnage. The vessel may be foreign-built or foreign-owned, but its operation in domestic trade depends on Philippine registration and, where applicable, a Special Permit.

Age limits and classification

Vessels brought in through importation, including by charter, must comply with age limits. Section 4 of RA 9295 sets the following age limits at the time of acquisition, counted from the vessel's original commissioning: fifteen years for passenger or cargo vessels, ten years for tankers, and five years for high-speed passenger crafts.

Classification is also mandatory. Section 22 requires that all vessels, whether newly built or previously owned, acquired on or after the effectivity of RA 9295, be classed by a government-recognized classification society on the date of acquisition prior to operation in the domestic trade. Section 23 directs MARINA to implement a mandatory vessel retirement program for unclassed vessels that fail to meet classification standards.

Tax and incentive considerations

Charters can carry tax consequences. Section 4 of RA 9295 grants qualified domestic ship operators exemption from value-added tax on the importation and local purchase of passenger or cargo vessels of 150 tons and above, including engine and spare parts, subject to conditions. These conditions include that the articles are not manufactured domestically in sufficient quantity, of comparable quality, and at reasonable prices; that they are directly imported by a MARINA-registered domestic shipping operator; that they are reasonably needed and used exclusively in the operator's transport operations; and that MARINA approval was obtained prior to importation.

Any sale, transfer, or disposition of articles covered by these incentives within ten years to another registered shipping operator enjoying similar incentives requires prior approval of MARINA. If the transfer is made without approval, both the vendor and the transferee may be liable to pay twice the amount of the value-added tax exemption given. A transfer to a non-exempt entity within the same period makes both parties solidarily liable for twice the value-added tax waived.

Frequently asked questions

Can a foreign-owned vessel be bareboat chartered for Philippine domestic trade? The vessel may be chartered, but the domestic ship operator must qualify under RA 9295, which requires Filipino ownership or a corporation at least sixty percent Filipino-owned. A foreign vessel may carry cargo or passengers between Philippine ports only with a Special Permit from MARINA under Section 6.

Is a bareboat charter considered an importation in the Philippines? Yes. Section 3 of RA 9295 defines importation to include the direct purchase, lease, or charter of newly constructed or previously owned ships from foreign sources.

What age limits apply to chartered vessels? Under Section 4 of RA 9295, the age limits at the time of acquisition are fifteen years for passenger or cargo vessels, ten years for tankers, and five years for high-speed passenger crafts, counted from the date of the vessel's original commissioning.

Practical takeaways

• A bareboat charter transfers possession, control, crewing, and operation of the vessel to the charterer, who must be a qualified domestic ship operator.
• A charter is treated as an importation under Section 3 of RA 9295 and must be registered with MARINA.
• Foreign vessels cannot carry passengers or cargo between Philippine ports without a Special Permit from MARINA under Section 6.
• Vessels acquired by charter must meet the age limits in Section 4 and be classed by a government-recognized classification society under Section 22.
• VAT exemptions on importation are conditional and require prior MARINA approval; improper transfers can trigger liability for twice the tax exemption given.

Primary sources

The rules discussed above are drawn from the following primary sources, as published in the Official Gazette and the national statute book.

• IRR of REPUBLIC ACT NO. 10635 - 2022 IMPLEMENTING RULES AND REGULATIONS OF REPUBLIC ACT 10635, "ACT ESTABLISHING THE MARINA AS THE SINGLE MARITIME ADMINISTRATION RESPONSIBLE FOR THE IMPLEMENTATION AND ENFORCEMENT OF THE INTERNATIONAL CONVENTION ON STANDARDS OF TRAINING, CERTIFICATION AND WATCHKEEPING FOR SEAFARERS, 1978, AS AMENDED, AND INTERNATIONAL AGREEMENTS OR COVENANTS RELATED THERETO:

• REPUBLIC ACT NO. 9295 - AN ACT PROMOTING THE DEVELOPMENT OF PHILIPPINE DOMESTIC SHIPPING, SHIPBUILDING, SHIP REPAIR AND SHIP BREAKING, ORDAINING REFORMS IN GOVERNMENT POLICIES TOWARDS SHIPPING IN THE PHILIPPINES, AND FOR OTHER PURPOSES

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.