Superyacht  Intelligence REPORT

Quarterly White Paper 2014 Issue One

 A guide to operating within the fiscal confines of European cruising grounds: Summer 2014

    THE SUPERYACHT GROUP

Superyachtlntelligence

 

   



Foreword The current fiscal landscape -

Martin H. Redmayne, editor-in-chief,
The Superyacht Group                                                          4

Western Mediterranean

 
France - Freddy Desplanques, senior associate, Ince & Co                                                  6

Italy -  Carlo Galli, partner and  head of tax, Clifford Chance                                              7

Spain -  Alex Chumillas,  managing director, Tax Marine                                                     8

Eastern Mediterranean

Croatia & Montenegro Nic Arnold, senior manager, Private  Client Division, PricewaterhouseCoopers                        10

Greece Ads Geronymakis, founding partner,  Geronymakis & Partners  Law Office                                                       12

Malta -  Alison Vassallo, senior associate,  Fenech & Fenech Advocates                                                                             13




VAT White Paper                                                                                 

Foreword                                                                                 

  
The current fiscal  landscape

Martin H. Redmayne, Editor-in-Chief;

The Superyacht Group

The superyacht fraternity's fiscal landscape is constantly evolving due to changes in legislation and piqued interest on the part of customs authorities in these transient entities. This is nowhere more pronounced than within the territorial waters of  the European federal state, which at times presents itself as a messy hybrid of heterogeneous and homogenous law.

The ability for diametrically opposed federal and national legislative interpretation to transform the parameters that govern superyachts has been evidenced within the last 12 months in a number of key jurisdictions.

We've seen French charter rules brought largely into line with the rest of the EU, while the landmark extension of matriculation tax exemption, to include charter vessels over 15m, offered encouragement for companies operating in Spain.

Meanwhile Italy's reputation for ease of operation in the eyes of visitors appears to have suffered through the seemingly arbitrary governance

of its ports on the part of customs authorities. On top of all of this, one emerging cruising ground acquired a new fiscal regime, as Croatia joined the EU in July.


Attending a recent industry forum, I was shocked at the level of discord among delegates at the idea of appointing a fiscal specialist for each jurisdiction that their vessel planned to cruise in. For some it remains anathema that today's superyachts

are treated as transnational enterprises; but that is the reality, and it is our job

to adapt to rules and regulations, not the other way round.

This guide, therefore, has been designed to provide a succinct summary of the key fiscal considerations that should be made for superyachts, both commercial

and private, operating in the major EU cruising grounds of both the western and eastern Mediterranean.

Each jurisdiction has been analysed by fiscal experts that operate within them, and make it their business to know the latest developments and interpretations being applied to superyachts. This is your essential guide to ensuring that your vessel remains within the confines of the law this summer ...






 
Western

Mediterranean

France, Italy, Spain




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Western Mediterranean                                                                                                   brought to you by

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France

Freddy Desplanques, senior associate, Ince & Co

Facing pressure from the EU Commission, France was compelled to rethink its fiscal landscape for the chartering of yachts:

1. The French Commercial Exemption (FCE) regime

The European Court of Justice (ECJ) declared that France, which provides a VAT exemption for vessels used commercially, did not comply with the provisions of Article 148 of its VAT Directive.

Since then, France has been holding discussions with the EU Commission on how to define a commercial vessel used for navigation on the high seas.

Changes are expected in summer 2014, as French customs authorities decided on 15 April 2014 to abrogate an administrative instruction dealing with the FCE (BOD 6603 of 24 June 2004), which clarified the regime for charter vessels and provided definitions for the FCE criteria.

Thus, upcoming changes in French fiscal doctrine should have an impact on the customs and tax treatment

of commercially operated yachts in French and EU waters.

2. VAT on charters

Since 15 July 2014, VAT has been due on yacht charters that start from France if the charterer uses the yacht for purposes of leisure travel (B01 30-30­30-10 of 25 June 2013).


This implies new requirements for owning companies, including the

need for VAT registration, appointment of a tax representative for companies established outside the EU, and

general obligations regarding

invoices and VAT return.

Monaco applies the same rules, except that the appointment of a tax representative is required

whatever the place of establishment of the owning company.

3. The end of the duty-free

supply of fuel for yachts?

Following the ECJ cases Helmoltz and Haltergemeinschaft (1 December and 21 December 2011), France was invited by the EU Commission to modify its excise legislation on the exemption of excise duties on supply of fuel for commercial vessels. As a consequence, Article 265 bis of the

French Tax Code was recently modified on 1 January 2014 to read that only vessels used commercially by their end-users can benefit from the duty exemption.

Hence, yachts chartered for recreational purposes should now be excluded from the excise exemption on fuel supplies, as their end users do not use them for commercial purposes.

However, the French customs authorities unofficially agreed to postpone the entry into force of the measure, as the excise legislation of the EU member states has not yet been harmonised.




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Western Mediterranean                                                                                                   brought to you by

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Italy

Carlo Galli, partner and head of tax, Clifford Chance, Milan

Italy has enjoyed a degree of consistency with regards to the taxation of superyacht operation, but the process of bunkering and the application of duty still remain a minefield.

1.  VAT on charters

Regardless of the yacht's flag, VAT on charters starting from Italy is applied at 22 per cent on the portion of the charter that is deemed to

take place within European waters. The proportionality of time spent in European waters is determined on the basis of the length of the vessel in the `absence of evidence to the contrary'. So in the case of vessels over 24m, the percentage is currently set at

30 per cent.

2.  Importation duties

Although the VAT-free importation of commercially registered vessels is, in principle, possible under the law, as a matter of practice such importations are not widely practised in Italy.


3. Duty on bunkering in Italian ports The approach to duty-free fuel is still somewhat inconsistent along the shores of Italy. The central customs authority has embarked on a process to streamline the treatment of superyachts in accordance with that provided for fuel used for intra-community cruising (green fuel), but no definitive outcome has been reached as yet.

4. The treatment of non-EU-flagged

yachts operating in Italian waters The liberalisation of charters in Italian waters for non-EU-flagged vessels has somehow calmed the confusion on the significance of a yacht's flag for tax purposes, which, in reality, is close to none. Non-EU-flagged vessels remain subject to the same tax rules as their EU counterparts.




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Spain

Alex Chumillas, managing director, Tax Marine

When analysing taxation surrounding yachts in Spain, two major taxes must taken into consideration: VAT and matriculation tax.

1.   Rules on importation

The importation of a yacht in Spain is subject to a 21 per cent VAT. In those cases where the importer is a Spanish resident, an additional 12 per cent matriculation tax could be imposed. This additional 12 per cent will depend on whether the yacht is

latterly commercially registered or not. Where the importer is an individual who qualifies as a Spanish resident there is the possibility to apply for relief from matriculation tax and VAT.

2.   Sale and purchase duties

Like the rest of the EU, the acquisition of a yacht is subject to VAT, depending on the nature of the seller. Its application or exemption depends on whether the transaction is classified as an intra-community supply or a domestic supply. However, in Spain there are no VAT reduction schemes, such as the French, Italian or Maltese leasing, which are all based on the `use and enjoyment' provision of the 6th Directive. This provision has not been incorporated into Spanish VAT legislation.


3. Charter rules for EU-flagged vessels Since October 2013, yachts that

are engaged in charter activities

can benefit from matriculation tax exemption, whatever their length. Prior to this only yachts below 15m could qualify for exemption. Besides this

the Spanish authorities require yachts commercially operated in Spain to be officially imported into the EU.

The identity of a vessel's flag is currently an administrative grey area, as there are some regions that limit the possibility for non EU-flagged yachts to secure authorisation to operate

in Spanish waters. However, this is distinct from the vessel's tax status, which is awarded independently of its registry of choice.






 
Eastern

Mediterranean

Croatia &

Montenegro,

Greece, Malta




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Eastern Mediterranean                                                                                                    brought to you by

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Croatia &

Montenegro

Nic Arnold, senior manager, Private Client division, PricewaterhouseCoopers

While Montenegro continues to grow in stature as a charter destination, its

Croatian neighbour's EU accession has brought with it a new fiscal regime.

Croatia's changing fiscal landscape

1. VAT on charters

Despite having historically low rates of tax, since Croatia joined the EU in

2013 VAT is now payable at 25 per cent on yachts over 12m. VAT on charters beginning in Croatia is, however, relatively low at 13 per cent, and

this rate does not apply to charters starting outside Croatia which sail into Croatian waters.

Recent changes to open up the market now enable all EU-flagged yachts over 40m to charter from Croatia, although non-EU yachts will have to obtain

an annual licence. All yachts starting charters from Croatian waters must have a local fiscal representative and obtain a local VAT number. Croatia's focus on the luxury end of the market does, however, mean that any commercially registered yachts under 40m are not permitted to take guests on board in Croatia and thus cannot run a Croatian charter business.


Despite the relatively low tax on Croatian charters, the country's accession to the EU has meant that attention is increasingly turning to its neighbour Montenegro, which, for now, remains outside the EU. However, sailing between EU and non-EU countries presents tax complexities that can lead to unintended consequences and pitfalls and care is required.

Montenegro - an emerging yachting destination

1.   VAT on charters

As an emerging economy, Montenegro has been eager to promote itself

as a yachting destination and, with fledgling tax legislation, it offers a favourable tax and customs regime. While VAT is payable at 19 per cent on charters starting in Montenegro, there are tax exemptions for foreign

registered yachts temporarily imported into Montenegro, and fuel can be purchased duty free if the yacht is leaving Montenegrin waters.

2.   VAT on repair and refit work A zero per cent VAT rate is available for repair work on yachts brought to Montenegro, bolstering the attractiveness of local shipyards. Berthing costs and other services provided in marinas are subject to a reduced seven per cent VAT rate, which is also attracting visitors to newly constructed marinas.




3. EU import VAT and customs duty Care must be taken when moving in and out of the EU, especially when tax has not been paid on fuel or improvements to a yacht. The

attitude of EU jurisdictions can vary considerably, and while the Croatian authorities may not make extensive checks on yachts moving between Montenegro and Croatia, this may not be the case with other EU jurisdictions. In particular, there can be uncertainty as to whether EU import VAT and customs duty is payable on items

such as the yacht itself, improvement works, fuel and even items on board the yacht such as artwork when a yacht comes into the EU. This is normally dependent on the status of the yacht and even this can be unclear at times. Where customs duties or VAT are paid, consideration must be given as to

what is and isn't refundable; another complex topic that isn't going away.




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Eastern Mediterranean                                                                                                    brought to you by

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Greece

Aris Geronymakis, founding partner, Geronymakis & Partners Law Office

The Greek government has passed a series of historic new laws that have far-reaching implications for the operation of superyachts in Greek waters.

1. Requirements for commercial yachts in Greek waters

Regardless of flag, in order to operate in Greek waters yachts are required

to be certified by the competent tax authority, and be duly registered at the recently introduced Registry of Touristic Yachts and Small Vessels. In order to qualify for commercial status yachts have to complete at least one

charter agreement (partial chartering is not allowed). The duration of a single charter must be no less than eight hours, which is ascertained by the time of delivery and re-delivery. The `right' to charter is held by shipowners and operators, as well as shipbrokers, agents and tourist agencies (although the latter parties require written consent from the owner/operator).

It should be noted that a commercial pleasure yacht may be used by its owner or by the operator, if it is not executing a charter contract, without any restrictions provided that the sole purpose of such use is recreational.


2. Embarking and

disembarking in Greece

Charters that take place solely in Greek waters are permitted for both EU and non-EU-flagged yachts. Non­EU-flagged yachts may be chartered provided that they have a total LOA of more than 35m, their carrying capacity is greater than 12 passengers and the building material must be composite or steel.

3. Minimum number of charter days Commercially registered yachts must complete a minimum number of charter days within a 36-month period to retain their commercial status. Specifically, the minimum charter days are: 105 days, if they are bareboat chartered; 75 days when chartered with captain and crew; and 25 days for vessels classed as 'traditional yachts'. The number of days required is reduced by five per cent for five-year-old yachts, 10 per cent for 10-year-old yachts, 15 per cent for 15-year-old yachts and 20 per cent for 20-year-old yachts.

4. Abolition of the luxury tax

The luxury tax of 10 per cent imposed on the importation of yachts under article 17 of Law 3833/2010 has now been abolished.




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Eastern Mediterranean                                                                                                    brought to you by

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Malta

Alison Vassallo, senior associate, Fenech & Fenech Advocates

Malta's fiscal regime remains superyacht-friendly as the country continues to carve an identity for itself as a superyacht hub.

  1. Rules on importation

    Malta offers an efficient and reliable procedure for the importation of

    yachts intended for commercial use in Europe, in order to bring them into free circulation. In these instances it would be necessary for the yacht to physically call at a Maltese port in order to undergo the relevant VAT and customs procedures that lead to the release of the required import documentation.

  2. Charter rules for EU-flagged vessels The launch of the 'Guidelines for the VAT Treatment of Short-Term Yacht Hiring' by the Maltese authorities on 29 July 2013 sees a coupling of Malta's steadily increasing reputation as a yachting hub on a legislative front with the attractiveness it may offer as an alternative cruising ground in the Mediterranean. The guidelines are based on the principle of 'effective use and enjoyment' found under Article 59a of EC Directive 2006/112 whereby, subject to a number of conditions, the supply of the yacht to the charterer may be taxed on that portion of the charter deemed to be consumed within EU waters.


  1. Charter rules for

    non-EU-flagged vessels

    The chartering guidelines apply equally to EU and non-EU-flagged vessels

    and there are, in fact, no restrictions with regard to the commencement of chartering operations, either from Maltese waters or the high seas.

    The chartering guidelines are to be viewed within the strong package of tried and tested legal solutions that Maltese law offers owners of both private and commercial yachts. For private yachts these include a VAT leasing structure, outright VAT payment procedures for smaller yachts and temporary importation clearance.

    As far as commercial yachts are concerned, Malta offers streamlined VAT registration and importation procedures, an accessible commercial yacht code, corporate services and

    a legislative framework that includes financier protection, coupled with an attractive corporate tax regime.



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