Potential tax liability for Italian new build yachts

Commissioning a new yacht can be an exciting time however before signing up to their dream build, prospective owners should step back and consider how best to contract with the shipyard.

Security for an owner is critical during the construction of a new yacht, as owners want to secure title on the yacht as they pay over the instalments, minimising the risk should a shipyard go bust during the build phase. Progressive transfer of title of the yacht at various stages during the build process has therefore become more popular and provides a valid option for securing the buyer’s position on yachts of all sizes.

In their enthusiasm some owners sign up in their own name and then seek to assign this build contract later during the build phase to another party, such as the company that will ultimately own and operate the yacht.

Under the historic arrangement of title transfer at delivery, the assignment of a yacht build contract into a corporate ownership structure was a simple and inexpensive process. If the shipyard is in Italy however, a Progressive Transfer of Title, could trigger a 3% transfer tax. Bruce Maltwood Director at Praxis Yacht Services, explains.

“The Italian authorities make a provision under the Italian Shipping Code ‘codice della navigazione’ for the registration of a yacht under construction in their regulations which provides security, by way of progressive transfer of title for buyers entering into new build contracts with Italian shipyards. Any change of owning company during the build process once the registration as a yacht under construction is in place, will trigger a transfer tax called ‘imposta di registro’, calculated at a rate of 3% payable on the value of a part-built yacht where title is being progressively transferred to the owner. This means that there is a fiscal cost for any owner (or entity) who wants to transfer a partly built yacht to another party. This cost is clearly lower in the early stages of the build, but they increase towards delivery in line with the increased value. This fiscal cost is also of no future benefit to the owner and adds no value to the yacht. It is money down the drain, so to speak.”

It is more cost effective for any owners contemplating a yacht build to first establish the corporate or other vehicle that will ultimately own the yacht. This vehicle is the best party to contract with the shipyard, particularly in Italy given the tax on progressive title transfer, as it removes any need to assign the build contract in the future. Wherever possible the contracting party should remain in place and end up taking physical delivery of the yacht in their own name.

Please note that this article is intended to provide a general overview of the matters to which it relates. It is not intended as professional advice and should not be relied upon as such. Any engagement in respect of our professional services is subject to our standard terms and conditions of business and the provision of all necessary due diligence. © Praxis 2023