Reducing the EU VAT cost of superyacht ownership
by Chris Stewart
Benjamin Franklin once wrote, In this world nothing can be said to be certain, except death and taxes. Whilst the former is undeniably certain, the latter has gone through a huge period of uncertainly in recent times.
The European Unions value added tax (EU VAT) is the consumption tax system common to nations in the EU. The EU itself does not collect the tax, but EU member states are each required to adopt a value added tax (VAT) that complies with the EU VAT system.
VAT is applicable on all goods and services supplied or operating within the EU. Whilst there are basic pan-European principles governing VAT, a wide number of local VAT rates and idiosyncrasies exist. A cynic may argue that these differences are deliberately maintained to obfuscate, confuse and catch out the unwary.
As a yacht owner/operator, you will be exposed to VAT in one form or another if you operate in EU territorial waters, regardless of your nationality or the flag of your vessel; although there are some differences.
There are some formal relief schemes including relief for temporary importation, for truly non-EU-owned vessels but the rules are complex. Exposure in the form of assessment for VAT and import duties can be on the hull value, any commercial activity, and on the supplies rendered to the vessel or the owner.
Spains VAT approach is indeed onerous and has negatively impacted cruising and berthing there.
In recent years, most EU governments have sought to plug their deepening financial black holes with a range of new taxes. In some instances, the changes have been obvious and wholesale, such as the raising rates of income tax, corporate tax and VAT.
In other instances, the changes have been more subtle, looking to introduce a number of so-called stealth taxes on certain industries or markets. Yachting is one market so affected, perhaps with some seeing boat owners and owners of private aircraft as soft targets.
Here is an important run-down on some key jurisdictional changes:
France was a safe berth for commercially operating yachts, until the operation of, and supplies to, commercial yachts was challenged by the European Court of Justice in 2010.
This caused France to amend its regime in January 2011. Now vessels have to be seagoing in order to qualify for continued exemption under Article 262.
UK and Isle of Man
Her Majestys Revenue and Customs (HMRC) made three substantial changes to VAT regarding yachting.
Firstly, it enforced, on the Isle of Man, a number of major changes to the practice note on charter yacht structures. A practice note is a document issued by HMRC to indicate best practice with regard to certain activities and issued pre-legislation.
Secondly, it repealed (under Customs Brief 20/11) the concession under the fall back provision, which precluded UK VAT registered business from reclaiming acquisition VAT without goods physically arriving in to the UK. The Isle of Man has been one of the major registries.
Thirdly, on 1 January 2012 HMRC ended the so called Sailaway Boat Scheme (SBS) that allowed UK VAT-registered businesses to exempt from VAT the sale of private pleasure craft, sold to private individuals, which would be sailed away to a destination outside the EU.
According to Ayuk Ntuiabane of Moore Stephens Consulting Ltd., the withdrawal of SBS means the burden of VAT compliance on boats that are exported under their own power to a destination outside the VAT territory of the EU has tilted towards to UK suppliers. In essence, the SBS can now only be used for the private purchase of a boat by overseas visitors normally resident outside the EU.
Spains situation has been problematic ever since EU talks began. Confusion still abounds over the extent of the application of the matriculation tax (currently 12 per cent on the value of the vessel) on yachts operating in, or based in Spanish waters.
The basic premise is that yachts cannot operate commercially under charter in Spanish waters unless they have a charter license. To get a charter license, they need to pay the matriculation tax. Clearly, no owner or charter guest would want to pay this to spend a few days on Andalusias coast.
This long-applied tax was challenged at European Commission (EC) level under restraint of trade issues and the EC seems to favour upholding such a challenge.
Italy is considering the implementation of a berthing tax for yachts operating in Italian waters.
This tax will be charged beginning 1 May 2012, for all yachts over 10m on a daily basis, based on a sliding scale of vessel size. As it is a new tax, the practical aspects are still being ironed out.
The tax comes as no surprise, notes Ntuiabane, because it harks back to the recent past. First conceived in Sardinia as an arrival taxin 2006, it was scrapped two years into its existence following pressure from the footloose yachting trade and the Italian federal government. Now the tax is making a comeback in its more developed form as an Imposta di Stazionamento, or berthing tax, that will cover all of Italy.
The basic law applies to vessels in Italian waters or in Italian berths. Where the charter begins or ends is irrelevant. It is levied on time spent in Italy, and will be assessed regardless of nationality or flag state of the vessel.