EU VAT
When operating a yacht in EU waters clients must consider EU VAT obligations and how these impact on the yacht. Such obligations will determine the most appropriate ownership and flagging arrangements for their yacht.
Amendments to the European Union (EU) Sixth Directive on Value Added Tax (VAT) came into force on 1st January 1993. The amendments require that all yachts which are in any way owned or used by an EU resident in EU waters must have proof of VAT exemption or pay VAT. It is possible to claim exemption in certain countries, with the main criteria being that the yacht was put into service before 1985 and was in EU waters on 31st December 1992.
Temporary Admission
Clients who are not EU residents and who wish to use their yachts in EU waters for private pleasure purposes do not have to be concerned about VAT, providing they comply with the latest temporary importation rules under Article 562, which came into effect on July 1, 2001. This basically allows private pleasure yachts to remain in commission in EU waters for the extended period of 18 months, after which the yacht must physically be exported before re–entry into the EU under the same rules.
Yachts operating in the EU under temporary import should not be marketed for sale in the EU otherwise the temporary import status could be revoked.
Commercial charter yachts
Where a yacht is used for commercial charter operations an owner may wish to consider registering the yacht operating company for VAT and thereby take advantage of the VAT efficiencies available to an EU based business. The fundamental concept of VAT places the cost on the final consumer. It is inefficient for a yacht charter business to suffer the VAT burden as opposed to passing on this cost.
Where VAT registration is appropriate for the charter business we can assist with application, VAT registration and ongoing management of the VAT obligations.
We usually register such businesses for VAT in either Malta or the Isle of Man, with both jurisdictions having a sound understanding and experience with luxury yachting and its associated charter businesses.
Following VAT registration in the chosen jurisdiction a pay and reclaim of VAT on the hull value can be achieved, as the yacht would constitute part of the working capital of the yacht charter business.
If the yacht acquisition occurs with the yacht situate outside of the country of VAT registration, but still within the EU, the payment and reclaim of VAT can be a notional payment through an intra community supply.
The yacht charter business will have an EU fiscal address and it is important that the flag state is also within the EU to ensure continuity of the VAT status of the yacht.
Ongoing the yacht must be seen to charter and if used by the owner a charter contract must be in place with evidence of payment of a market charter fee to the owning company. The owner should not be the preferred charterer when booking periods of charter and we recommend that owner use is not excessive.
All yachts used for commercial purposes and registered under the British flag should comply to the relevant (either over or under 24 metres load line length) MCA Code of Practice and the yard/Classification Society appointed by the yard will be able to assist in this respect.
Other simplified VAT rules exist within the EU and if the charter yacht charters in French waters only, then a simple ownership structure can be used and operation of the vessel made under the French ‘commercial’ rules. In summary, provided the vessel is:
- Permanently available for charter
- Fully provisioned
- Permanently crewed
- Commercially registered
… then one does not need to be concerned with VAT on charter fees or hull value in French Waters.
It should be noted that the French Commercial rules are currently under review by the EU Commission.
If the vessel is to be used in either Spanish or Greek waters, or even other EU waters such as the Baltic area, then it is important that the yacht charter business be VAT registered to ensure no unnecessary liability to VAT on hull value arises.
Italy had tended to follow France for commercial yachts but the acceptance of these rules has now been questioned since the VAT place of supply changes of 1st January 2010, resulting in a prudent need for the provision of collecting VAT on charter fees and to have an established place of business in the EU. There are also more stringent requirements when it comes to obtaining duty free fuel. In addition, we would strongly recommend an EU port of registry when operating commercially in Italy.
Private and / or non business use by EU residents
Where specific finance is required for the purchase of a yacht to be used by EU residents on a private and / or non business basis then certain VAT benefits can be achieved. Examples being Maltese, French and Italian lease finance provisions.
Maltese, French, Italian Leasing
Under respective legislation, where lease finance is required for the purchase of a yacht, favourable VAT treatment is available depending on the size of the yacht.
In general Malta and Italy have legislation permitting a sliding scale of reduced VAT rates levelling off at a maximum reduction for yachts over 24m. Upon exercising the lease purchase option after a defined number of years the yacht can usually be purchased from the lease finance company for a reduced sum and with the VAT charged on the acquisition price.
Importation Services
Sarnia Yachts is experienced in the importation of yachts into the EU and is available to offer advice and assistance on the specific requirements for importation, the required jurisdiction for importation, or the most efficient place and method for importation.
Certain EU member states are not familiar with the importation of luxury yachts and Sarnia Yachts can assist clients in avoiding the pitfalls and peculiarities that can arise with importation.
Yachts coming into the EU, which:
- Are not eligible to operate under the TA rules and
- Have not previously been imported into the EU or
- Have previously been imported, but have remained outside the EU for more than 3 years or
- Have previously been imported, but subsequently sold outside the EU
must be formally imported into the EU.