It has been two complete charter seasons in which we as an industry have been addressing the payment of VAT on Italian charters. At a rate of 22% since 1 October 2013, VAT is applicable to both the charter fee itself and certain supplies, fuel and other APA items depending on the purchase method used.
The VAT on charter fees is applicable to a percentage of the charter fee depending on the documented use outside of Italian/EU waters and the charter itinerary itself.
With the majority of the charter fleet being over 24 metres, VAT is only applicable on 30% of the charter fee giving an effective rate of 6.6%. For smaller motor and sailing vessels the calculation changes with size as follows:
Any charter solely operating in Italian waters cannot benefit from these reductions and so VAT will be payable on the whole charter fee.
It has only been half a charter season but the effects of VAT on French charters since the 15 July 2013 are felt just as keenly. With an increased VAT rate of 20% since the 1 January 2014, most charters with an international transit or visit to a non-French port will suffer VAT on 50% of the charter costs.
Nevertheless, the industry seems to have adapted well to the reality of payment of VAT on charter rates in France.
With the removal of the 15 metre limit for matriculation tax exemptions, one would expect the Spanish charter market to open in 2014. Critical to this is that beneficial owner use is not allowed in Spanish waters whilst operating under the exemption so only full time charter vessels flying EU flags need apply.
A domestic rate of 21% is comparable to other EU member states but no mechanism currently exists to reduce this for charter vessels. As the charter market increases, one can only speculate if the Spanish government will consider a basis for reduction.
Complex rules of Cabotage exist in Greece and are applicable to any charter that starts or finishes in the Country. A domestic VAT rate of 23% also applies with no existing basis for reduction for luxury yacht charter. Most charter vessels therefore operate transit charters only.
Acceding to the EU on the 1 July 2013, VAT on charter activities becomes payable on Croatian charters which has recently been clarified to be at a rate of 13% and therefore slightly higher than the applicable rates of the traditional charter areas. The size of the vessel and its flag will play a part in whether any vessel may charter in Croatia, with non-EU flagged vessels less than 40M in length being subject to the most stringent regulations. Some details are yet to be clarified but the basic framework is unlikely to change.
What is clear is that all EU charters should be by way of a formal charter agreement at market rates and for which funds should change hands. VAT is applicable and payable on all charters and payable to the relevant administration via an appointed fiscal agent in each territory. This also applies to ‘owner’ charter so it is perhaps another sign that charter vessels and private pleasure vessels are two distinct ventures, with fewer benefits and increased costs when the two overlap.