So what does a charter vessel/owner need to do? Quite simply three criteria should be met;
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.