The VAT regulation (BOI-TVA-CHAMP-30-30-10) issued back in 2013 authorising a 50% flat-rate reduction of taxable charter revenue, has been abolished by the French Tax Authority. An Official bulletin of the French Administration published on 6th Nov. 2020 has just reviewed the VAT rules applicable to yacht charters.
The newly published French Official Tax Bulletin (BOI-TVA-CHAMP-20-50-30) is self-explicit: VAT lump sum reduction will be replaced by an effective reduction in proportion of the time spent outside European waters.
Now, the rental of pleasure yachts to a taxable or non-taxable person is subject to VAT in France when the boat has been made available to the charterer in France (meaning for all yacht charters embarked in France). The charter rate is taxable in France in proportion of the use of the boat in French national waters and EU waters, assessed by the Owner, under his (its) responsibility and subject to the right of verifications by Tax Authorities. This assessment, which may result from the terms of the charter/rental agreement, must be corroborated by all means and evidence. However, it is accepted that boat Owners, who find it difficult to carry out this assessment, determine the use of the vessel outside EU territorial waters on a flat-rate basis, by applying a 50% rebate on the total amount of the rate, regardless of the category of pleasure vessel concerned.
This means that the full French VAT rate of 20% will be applied to yacht charters in French waters and/or EU waters: the VAT rebate will only concern the time spent outside French / EU waters and will be calculated on a pro-rata temporis basis.
Technically, the international itineraries of yacht charters, must be proven by all available means: AIS, (Automatic Identification System), GPS (Global Positioning System), logbook and the itinerary set on the charter contract itself.
This new Tax regulation will be enforced from 1st Nov. 2020 with retroactive effect applied to charter contracts signed as of 1st November.
Although expected, yachting professionals have expressed their strong opposition to this ruling, particularly given the context of the present lockdown in France and closure of EU borders, which should seriously compromise the upcoming yacht charter season on 2021. Professional yachting associations, such as FIN (French Federation of Nautical Industries) and ECPY (European Committee for Professional Yachting), have expressed their disagreement to this untimely measure. FIN demands an immediate moratorium, evoking the already strenuous economical context caused by the Covid-19 pandemic, and accusing authorities of “adding a crisis on top of a crisis”.
On the other hand, this turnover in VAT regulation will, of course, promote the use of Maritime Cruise Agreement, regulated by the French Transport Code, instead of the more common MYBA Charter Agreement. The coming season will show how the yacht charter industry and recreational boating evolves in France.
As for the 70% rule in the context of the VAT exemption for services, supplies or goods billed to commercial vessels, it remains applicable and it is therefore necessary that, at least 70% of the trips include a portion of navigation outside French territorial waters.
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