PHOTO: SALVATORE VUONO/FREEDIGITALPHOTOS.NET
Italy isn’t the only country confusing yacht owners and their managers with its new approach to charging VAT on charter yachts. France has a new law that no longer exempts charter yachts from having to pay the duty.
As you may recall, over the summer, Force Blue was seized on allegations of tax evasion in relation to VAT. A handful of other yachts were stopped and arrested as well. Shortly after Force Blue was released, Moore Stephens, whose services include tax and accounting consultation, issued a thorough explanation of the situation. While Moore Stephens did not represent the yacht or her owner, it did wish to educate its clients and the yachting population at large about what was certainly a confusing situation, especially since other countries were possibly going to change their rules, too. Moore Stephens’ message read in part:
…the Italian authorities have since 2004 appeared to endorse the French approach which assimilates commercial yachts meeting specified criteria to the class of “merchant” ships and exempts them from VAT. This meant that a yacht holding a commercial registration certificate from any Flag State, having a permanent crew and operating in a bona fide commercial way was neither asked to have a VAT registration in Italy nor required to undergo any kind of customs import procedure. Like in France the VAT exemption appeared to apply to such yacht owners by default, both on the supplies they made with the yacht and the goods and services they received from others. …It all seemed so favorable and safe, so the sudden switch to militancy has shocked the industry somewhat.
Moore Stephens is now alerting clients and owners at large that, effective January 1, France now limits VAT exemption to vessels on the high seas. That last phrase is key. From May 2004 until last year, France waived VAT for any commercial vessel, including commercial yachts, that met three conditions:
* were registered as a commercial vessel with any flag state
* were tended to by a permanent crew
* were used for charter.
Therefore, yachts fitting the description, whether with the owner or charter guests aboard, commonly did not register for VAT or levy the cost on charters. Further, they could refuel and reprovision without taxation.
So why the change to only exempt vessels on the high seas? Because the European Commission began infringement proceedings against France early last year. As Moore Stephens explains in its new update, the EU argued that “French legislation in this area was not in line with wider European Union VAT law, as it unduly extended eligibility for exemption. The Commission cited in particular the absence of any stipulation in the relevant French law (as opposed to EU law) that ‘use for navigation on the high seas’ was a condition for the exemption of those vessels carrying passengers for reward or used for the purpose of commercial activities. The Commission therefore demanded France change its legislation so as to comply with EU law.”
Moore Stephens goes on to state, “tax-free commercial yachting…now looks set to be the main casualty of the change.” The firm plans further updates, as the new rules start to be applied.