In no area of maritime law has there been greater interplay between economics
and regulation than flag state issue. When a ship is registered in a particular country
(the ‘flag state’), the ship and its owner become subject to the laws of that state.
Registration makes the ship an extension of national territory while it is at sea. It
also qualifies for its protection. Because of the interdependence between legal
regulation and ship operating economics, the choice of register has become a
major issue for shipowners, as has the drive to extend and tighten the control
imposed by maritime law on shipping operations through international conventions.
There are four principal consequences of choosing to register in one state rather
than another:
1 Tax, company law and financial law. A company that has registered a ship in
a particular country becomes subject to that country’s commercial laws. These
laws will determine the company’s liability to pay tax and may impose
regulations in such areas as company organization, auditing of accounts,
employment of staff and limitation of liability. All of these affect the economics
of the business.