Following the 2013 European Court of Justice (ECJ) ruling against France and the French Exemption for charter yachts, the French Authorities have produced new regulations BOFIP 1205-15. These regulations set out the exact requirements for a charter yacht to maintain its VAT exempt status. Each year the decision will be taken based on the previous year’s charters. So, for example, the 2016 season will be based on charter activity in 2015.
Losing the Exempt status under the strict interpretation of the new regulations would result in:
1. Loss of VAT-free supplies to the yacht
2. VAT becoming payable on the yacht at 20% of the market value of the boat. We understand that the French may decide to postpone this aspect, but it is very much out of the control of the owners and yacht managers.
In addition to the changes to Commercial Exemption, the French and other European Authorities are becoming more focussed on whether yachts are genuinely running a rental business and involved in third party charters. The French are looking at guest lists to see when the beneficial owner is on board and have issued a Statement of Commercial Activity which must be signed on behalf of each yacht. Failure to carry the statement or giving incorrect information could have serious implications.
The UK and other European authorities are also becoming more active and have instructed customs and maritime officials to check that the charterer is not primarily associated with the beneficial owner, or any company chartering is not a company in which the beneficial owner has an interest.
Most charter yachts owned through a company have VAT registrations in different EU countries where they embark charterers, and there is a serious risk of loss of VAT registration in different jurisdictions such as France, Italy, Greece and Spain, when failing to comply.
With new VAT requirements and Flag State and MLC regulations, many owners are looking for other ways to mitigate the VAT on the yacht. Some owners are deciding to pay the tax on the market value of the boat, but even this can cause problems.
If the charter yacht owner wants to reduce the tax liability there are really only the following solutions:
1. For yachts under 40 metres (130 feet) the following solutions can be used where the tax is paid on the full value at reduced rates over the lease period:
a. Malta Leasing: minimum rate of 5.4% and minimum lease period of 1 year
b. Cyprus Leasing: minimum rate of 3.8% and minimum lease period of 3 months
2. For yachts over 40 metres the following solutions can be used:
a. Malta or Cyprus Leasing (please consult modalities with us)
b. The Monaco VAT solution: VAT is paid at 10% on a rental payment based on the depreciation.
The Monaco solution is the most efficient as it not only defers the tax but leaves options open for the client to revert to a fully commercial charter company, pay the VAT in full on the book value, export the yacht or even transfer into a Malta or Cyprus Leasing structure.
YACHTS INVEST is now able to provide these solutions through its YACHT MANAGEMENT program.