EU VAT and Yachts

SUPER YACHTS

Frequently Asked Questions Regarding EU VAT & Yachts

Introduction

For owners sailing within the EU, EU VAT is a crucial issue that occasionally influences the choice of yacht registration. To address some of the more frequent queries boat owners have regarding EU VAT, we have created this FAQ document:

1. What is the general guideline for yachts and EU VAT?

Unless the owner is eligible for a customs relief, such as Temporary Admission, or is eligible for a VAT exemption, such as the operation of the vessel for legitimate commercial purposes, all yachts sailing within EU waters shall pay EU VAT. Pay VAT if unsure.

2. If I live in the EU and use my yacht there for personal enjoyment, must I pay EU VAT on it?

Yes, the EU authorities will anticipate that your vessel has paid its VAT.

3. If I own and/or register my boat in a non-EU country while living in the EU and using it for private enjoyment, are I able to lawfully avoid paying VAT?

No, the EU authorities “look through” any non-EU ownership and/or registration that a yacht may have in order to assess the yacht’s VAT responsibility based on the domicile of the major users of the vessel, or, to put it simply, the person(s) who are using the yacht for recreational purposes. 4. Can I avoid paying VAT on my yacht by running it as a yacht charter business?

4. Can I operate my yacht as a yacht charter company without having to pay VAT on it?

In a few specific cases, yachts operated as legitimate businesses may be excluded from paying sales tax. On our website, at the following link, you may find a handbook we created on some of the fiscal and legal aspects of yacht charter in the EU, which includes a section on VAT exemption:

A Guide to Yacht Charter in the EU

The European Union’s Yacht Charter Regime

Introduction

This guide’s main goal is to outline some of the most important legal and financial factors for yacht chartering in the EU.

Ownership of a yacht

Choosing a suitable location for the development of a corporate structure to own the boat and operate the charter business is one of the crucial initial tasks.

Registration of Yachts

It’s crucial to choose the best flag state for the yacht’s registration concurrently with setting up the yacht charter firm.

The nationality of the yacht and, thus, the appropriate operating system, are determined by the registration of the yacht. Yachts used for commercial purposes, such as charter, must have a registration that enables them to operate legally under the laws of their flag state.

In terms of port state control, it is crucial to choose a flag state that ranks highly under the Paris Memorandum of Understanding and offers yacht-friendly interpretations of global marine regulations for commercial boats.

The optimal location to incorporate the yacht charter business will mostly depend on the client’s own personal circumstances, thus the owner will typically consult their accountants for legal and tax guidance.

It is usual practise to utilise EU firms or a company formed in a nation or territory with which the relevant EU member state where the vessel will charter has a double taxation agreement to avoid cabotage restrictions and withholding tax on charter income. 

Operation of Yachts

Consideration must be given to how the yacht will abide by operating standards and regulations, such as minimum safe manning levels, safety management systems, and labour laws, in addition to choosing the flag state.

Fiscal Responsibility

It is crucial that the yacht charter operation is carried out in accordance with any applicable local laws and appropriate EU fiscal requirements, for instance:

The yacht ought to be formally brought into unrestricted use within the EU.

The yacht-owning firm and the vessel must adhere to all applicable local VAT and fiscal laws, which includes registering for VAT in the member states where it will start accepting charter bookings.

All charters (even those conducted by the underlying owners and their friends or family) must be charged with VAT and be accounted for.

Income must be disclosed and, when necessary, tax must be paid to the appropriate member state.

Exemption from VAT

Under certain conditions, yachts that are operated as seriously pursued commercial operations may be eligible for VAT exemption on the yacht itself and some suppliers.

Different EU member states have different “business tests” to determine if an activity qualifies for VAT exemption, but generally speaking, the authorities look for the following commercial features in a legitimate yacht charter firm:

The vessel must be marketed for charter at an acceptable market rate in comparison to other similar vessels, and a central professional charter agent must be hired.

All visitor use of the vessel (including use by the underlying owners and their friends or family) must be done so according to a charter agreement.

The quantity of genuine third-party charter activity should be proportionate to the amount of charter by the owners of the underlying vessel and their friends or family.

The owning firm must be able to prove that charter proceeds were deposited into a corporate account.

In conclusion, any agreement whose primary goal is to get a VAT benefit, and which lacks an underlying commercial objective may be challenged by the EU authorities as being abusive.

The following guidelines from the UK HMRC outline potential signs of an abusive practise and can be used to determine if a yacht charter structure is abusive:

The existence of one or more of the following characteristics (the list is not inclusive; the indicators are illustrative of the factors that HMRC may consider, along with others) may suggest an abusive structure:

The ultimate owner of the chartering or leasing organisation is the primary user of a pleasure vessel.

A pleasure craft’s primary user (directly or indirectly) paid for the purchase.

During the busiest season for chartering, the person who (directly or indirectly) paid for the purchase of a pleasure craft makes frequent use of the boat.

It would need more consistency and substance than simply renting out a pleasure boat to other people to qualify as an economic enterprise.

The chartering or leasing entity’s financial statements reveal large continuous losses.

The primary user of a pleasure vessel is required to pay charter fees or lease instalments, which are solely handled on paper (for instance, by offsetting them against debts).

Less than open market value is paid in charter fees or lease payments.

The terms of a lease are notably different from customary business practise (the lease’s duration, for instance, is unusually long).”

Warning and Conclusion

Before beginning any boat charter activity in any nation, we always advise seeking local guidance because yacht charter regulations differ significantly between EU member states.

5. Does my yacht need to have EU VAT paid if I am a non-EU resident using it for private enjoyment in the EU?

If you can adhere to the EU regulations for Temporary Admission, you could be able to keep the vessel inside the EU without paying. For more details, see this link to our online manual:

Yachts in Europe: Temporary Admission (Temporary Importation)

Introduction

This guide’s objective is to provide additional details about the Temporary Admission Relief from VAT for boats accessing EU waters.

Temporary admission, also known as temporary importation, is a procedure that permits non-resident yacht owners to bring their vessels into Europe for a brief period of time, such as a vacation, and subject to certain restrictions without having to pay VAT on the value of their vessels.

Such a method is necessary because without it, many non-EU resident boat owners would simply avoid travelling to European seas because the expense of paying VAT upon arrival would be too high.

Criteria for Temporary Admission

The primary prerequisite for a boat to be approved for Temporary Admission is that it must be owned by a natural person (i.e., an individual) or a legal person (i.e., a company) who is established (i.e., a resident) outside the VAT territory of the EU.

Time Allowed for Temporary Admission

After its first arrival, the yacht may only be utilised within the EU for a maximum of eighteen months. If the vessel is lay-up and typically bonded with the advance consent of the authorities, this time period may be extended under specific circumstances up to a maximum of 24 months.

Restrictions for Temporary Admission

In reality, it does not suffice for a yacht to be owned by a natural person or a legal entity based outside of the EU. The authorities always check to see if a certain vessel has non-EU ownership listed on its registry, and they pay great attention to how a specific vessel is being operated.

This indicates that they would anticipate the vessel’s chief user, i.e., the person or persons who are the yacht’s primary users, to be located outside the EU’s VAT jurisdiction.

Therefore, the main users of yachts sailing within the EU on Temporary Admission should be ready to show the authorities proof that they are indeed not based in or a resident of the EU.

Entry into the EU with Temporary Admission

The following is stated in the official EU handbook to temporary admission:

“In most cases, it suffices to simply cross the border of the Community’s customs territory. However, customs may compel you to follow a particular path and submit either an oral or written customs statement. In order to cover the payment of the customs charges and VAT that become payable if the boat does not leave the EU, they might demand the supply of some sort of security or guarantee.

The main takeaway from this message is that formalities differ from country to country. It is crucial that a yacht owner who wishes to enter the EU under Temporary Admission carefully chooses their EU entry point and is aware of what formalities are required upon arrival before travelling there.

Temporary Admission – Exiting the EU

When terminating Temporary Admission after leaving the EU and arriving at a non-EU port, caution should be exercised. It is crucial that the owner of the yacht is aware of all the formalities needed to exit from the EU, and they should also check to see whether any documentation is needed for arrival in an EU country or any other countries they visit in between.

According to the official EU guidance on temporary admission, a boat must be outside the EU for the following amount of time before it can enter again:

You are not constrained to a single temporary import period, yes. The yacht can be sailed out of the EU, and a fresh temporary importation period can start when you return for another vacation. The customs regulations do not stipulate a “minimum period” in which the products must stay outside of EU customs jurisdiction.

Charter for Temporary Admission

Only yachts used for personal pleasure are theoretically eligible for Temporary Admission.

The ability to charter yachts operating under Temporary Admission relief has recently become available in some EU member states, but usually with the requirement that the charter guests must not be citizens of the EU and with the caveat that the owner and vessel comply with all applicable legal and fiscal requirements.

Sale of the Vessel – Temporary Admission

The terms of the relief would be broken if a yacht was sold while the owner was residing in the EU under temporary admission.

Boat shows: Temporary Admission

The particular Temporary Admission exemption for a means of transport will not apply if a yacht is temporarily imported for reasons other than cruising. For instance, the Temporary Admission relief for exhibits would be appropriate if a yacht were temporarily imported for a boat display.

Refit and Repair Admission on a Temporary Basis

A boat will not be eligible for temporary admission if it is being imported for the purpose of extensive overhaul, refitting, or refurbishment. IPR (Inward Processing Relief) would be appropriate in this situation.

Caveat

We usually advise seeking local guidance before cruising in any specific nation because the regulations for the Temporary Admission of boats vary significantly between EU member states.

6. Where do I pay the yacht’s VAT?

The fundamental requirement for a new vessel purchased by a private individual from an EU VAT registered supplier is that VAT must be paid in the EU member state where the vessel will be consumed (i.e., used/kept principally).

In order to prevent private owners from acquiring a yacht in an EU member state with a low VAT rate and then using the yacht in an EU member state with a higher rate of VAT, this treatment is outlined by EU VAT rules relating to New Means of Transport.

According to the New Means of Transport regulations, a new vessel is any boat that is over 7.5 metres in length overall, has been in operation for less than three months, or has gone less than 100 hours under its own power.

The fundamental rule is that VAT must be paid in the EU member state of importation or in the EU member state where the vessel is located at the time of purchase for a vessel purchased by an individual that is not a New Means of Transport. 

7. Is it possible to postpone or lower the amount of EU VAT that I must pay on a private yacht through a leasing or renting arrangement?

We advise exercising caution if the yacht leasing and/or rental scheme being considered is a mechanism designed principally to postpone and/or minimise the amount of VAT due on the purchase of a private yacht made in the EU or imported into the EU.

The fundamental consistency of these schemes, despite the fact that their approach varies greatly, is the construction of an artificial structure to exploit the usage of an EU VAT registration in order to achieve a financial advantage that a private yacht would not otherwise be able to take advantage of.

Given the constantly changing EU caselaw and current investigations by the EU Tax Commission, such strategies are not without danger and are probably best avoided.

8. Is an old yacht still eligible for VAT reimbursement?

Certain yachts that were being used as private pleasure craft at the time the EU single market was established are “deemed” to have had VAT paid under the Age-Related Relief Scheme under the EU Single Market transitional procedures.

It must be proven that a yacht was both moored in the EU on December 31, 1992, and in use as a pleasure craft on January 1, 1985, for it to qualify for this programme.

The essential dates are “in use before 1 January 1987 AND moored in the EU on 31 December 1994,” as Austria, Finland, and Sweden joined the Single Market two years later.

Given that it appears there were no official transitional plans put in place for yachts to become “deemed” VAT paid, the situation for nations that later joined the EU is less clear. In general, before presuming that their vessel can be considered to have “deemed” VAT paid, we highly advise owners to contact the relevant EU member state for detailed guidance.

9. Can a boat with EU VAT lose its VAT-paid status?

Yes, a yacht that has paid EU VAT may no longer be considered VAT paid. Examples of how a yacht could cease to be VAT-paid include:

If the owner was VAT registered and qualified to reclaim the VAT they paid on the vessel acquisition, the VAT paid is reclaimed; or

the vessel is sold while being physically outside of the EU’s VAT territory; or

The ship has been physically outside the EU for more than three years.

Additionally, a vessel may no longer be regarded as fully VAT paid if major upgrades or modifications are made to it without EU VAT having been paid on those improvements or modifications.

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