Many articles have been written about the various aspects of charter yacht operation, however it is important that three areas are considered, not just one element in isolation.
So what does a charter vessel/owner need to do? Quite simply three criteria should be met;
- The owning company should have a place of business in the EU and this is achieved with a VAT registration in the EU – an EU company is advisable to mitigate withholding tax issues however a Non EU company can be used in certain circumstances although not recommended.
- The vessel must be “In Free Circulation” which can be achieved by way of formal importation in to the EU. This is usually undertaken in France under the French Commercial Exemption (FCE) or Reverse Charge Mechanism, in Malta under a commercial import, or in the country of VAT registration.
- The requisite fiscal and charter arrangements are put in place for each country where the yacht is put at the disposal of the charterer. This is usually one and the same as where the charter commences.
Running a charter yacht is the same as running a small business and as such, all activity must be on a commercial, arms length basis. Where charter vessels encounter problems from fiscal and customs authorities we see that problems have inevitably arisen as a result of the failure to comply to the criteria mentioned above. All use of the yacht must be under charter contract with evidence of the payment of a market value charter fee and any applicable VAT available onboard for production in the event of a control. With a large number of articles written from differing perspectives, it is easy to understand how the message has been miss-interpreted by owners, resulting in innocent exposure to a VAT liability and possible penalties. Historic operation without challenge is also no basis for comfort of correct structuring, especially with boardings, inspections and scrutiny from the authorities at an all time high. Whilst part of the problem is the varying rules and interpretations between member states, the other problem lies where the most favourable interpretations are adopted and considered the norm.
The rules that apply to chartering in each country do vary enormously and some countries rules are still very fluid such as Greece. The most popular countries for fiscal charter arrangements are France, Italy and Spain, followed by Croatia and Greece. As we know yachts often move from country to country during a charter so the VAT application for each charter need to be considered collectively.