Registering a commercial ship under a flag of convenience, such as that of Panama, has some benefits if you are a little low on scruples. You don't need to maintain the ship to accepted international standards and you can employ crew under industrial conditions which would bring a tear to Charles Dickens' eyes.
Registering a recreational yacht under the Panamanian flag is extremely expensive and, unlike most developed countries where one payment is all that is required, you will need to pay the initial fee ($1500 + or -) plus about $500 per year, every year you own the boat under Panama's flag. There are no crewing or maintenance benefits, no ongoing tax benefits, no diplomatic benefits, no economic benefits, some very good reasons for extraordinarily high insurance premiums...and, smaller vessels operating under flags of convenience are scrutinised heavily as they are officially suspected to be carrying out illegal activities, when visiting countries such as the US, Canada, Australia, New Zealand and the UK.
Unless you are a Panamanian citizen, there is absolutely no benefit in registering your 40 foot pleasure yacht under the Panama flag.
So, sorry Stephanie, but to realise just how poorly regarded is the Panama registry, all you need to do is Google it, or look at the regime for registration in say, Australia and make a simple comparisson. The UN grades flags of convenience and Panama is not on the so-called 'white' list (the list of good guys).
To have full diplomatic protection, and merely to comply with accepted convention, there is nothing quite so worthwhile as 'doing-it-right' in the first place. There is no substitute in a recreational vessel, for registering under your own flag.
When registering in Panama, you simply do not get what you pay for and you can be sure that agents who broker your registration will want to charge a hefty up-front premium.
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