In advance of the Mediterranean summer season Monoeci Management SAM has prepared an overview of the yachting developments over the last year which are likely to impact on those with yachting interests in this part of the world.
2012 WAS A YEAR OF CHANGES IN THE “VAT/TAX WORLD” FOR YACHTS. WHAT’S NEXT? …
Europe needs more Euros and Governments’ mantra is austerity.
This gloomy atmosphere coupled with the recent legislative changes in Italy and in France to the Commercial Exemption and the ECJ ruling “Bacino Charter Company” show that it might become increasingly difficult for yacht owners to continue to benefit from the VAT exemption. This will certainly affect the charter market.
FRENCH COMMERCIAL EXEMPTION (FCE)
In France, the VAT exemption provided for in Article 262-II of the French Tax Code is available to yachts which are commercially registered and commercially operated with a permanent crew. The chartering of yachts put at the disposal of individuals in French waters is VAT exempt so far. End 2010 France had to add as a fourth condition that Yachts had to navigate in the high seas but this condition is not applied in practice.
For several years the French government has backed the interests of its yachting industry arguing that applying VAT would strongly hurt the business. It now seems unlikely that that France will be able to escape applying VAT on charters, fuel and supplies. This might also affect the way beneficial owners are entitled to use their yachts. The exact percentage of the new tax is not known yet, even if we expect this to be 9.8%, and its implementation could happen as soon as June 2013.
As a matter of fact on 21 November 2012 and for the second time, the European Commission has formally asked France to take steps within two months to remove the French Commercial Exemption on Chartering Yachts from its tax legislation as it is not compliant with EU VAT rules, failing which the Commission will refer the matter to the European Court of Justice for legal action to be taken.
The Commission explained that Article 148 of the VAT Directive allows member states to offer a VAT exemption for certain transactions concerning vessels. However and in line with Bacino ECJ’s ruling, this exemption does not apply to luxury yachts used by individuals for recreational purposes.
Formal guidance is yet to be published. France would certainly have to comply with the commission notice but one should bet that France will try to be sympathetic towards the commercial charter industry and possibly propose a reduced VAT rate as Italy. France has made some proposals to the Commission which is expected to respond by the end of March.
To be followed…
ITALIAN VAT ON CHARTERS STARTING IN ITALY
By implementing Directives N43/E and N 49/E, Italy has changed its regulations as far as VAT on yacht charters is concerned in order to comply with Article 56 of the VAT Directive (Directive 2006/112/CE of 28/11/2006 as modified by Directive 2008/8/CE) and with Bacino ECJ’s ruling of 22/12/2010 in which the European Court of Justice determined that a VAT exemption may only be granted in circumstances where a vessel is chartered for use on the high seas, for the purposes of commercial, industrial or fishing activities, but not recreational purposes.
As a consequence VAT must now be applied on short term charter agreements (of less than 90 days) starting in Italy or cruising in Italian waters (when charters start outside EU waters), as VAT has to be paid in the place where the means of transport is effectively put at disposal of the customer.
A yacht chartered by a customer for leisure, carrying out no commercial activities, can no longer be considered as a VAT exempt transaction. This was formerly the position of EU Member States and yachting professionals until now. They tended to give a wide interpretation to art 148 of the VAT Directive (ex art 15 point 5 of the Sixth Directive no.77/388/CEE).
In order to be able to comply with this requirement and pay VAT in Italy, the yacht owning company will need to register for Vat in Italy or appoint a fiscal representative.
The standard VAT rate in Italy is 22%. According to Circulars and related rulings this VAT rate is reduced depending on the size of the vessel (based on a deemed use outside of EU waters, on the same principles as VAT applicable on Italian leasing schemes). The VAT rate applicable to charter yachts over 24m starting their charter in Italy and cruising in and outside of Italian waters is reduced to 6.6%. The full ordinary VAT rate of 22% would therefore apply to charters starting in Italian ports and cruising exclusively within Italian waters.
The different scenarios for a yacht over 24m (LOA) are as follows:
- Charter starts and finishes in Italy and remains within 12 miles of the Italian Coast, VAT at the full rate of 22% will apply.
- Charter starts and finishes in Italy but, at some point, cruises 12 miles offshore into non- Italian Territorial Waters, VAT at a reduced rate of 6.6% will apply.
- Charter starts in another EU state before entering Italian waters, the VAT applicable in that state will apply.
- Charter starts outside the EU (e.g. Montenegro, Turkey) and then enters Italian Waters, then VAT at the reduced rate of 6.6% will apply only to the portion of the charter taking place in Italy, providing it is demonstrable.
- Charter starts in an Italian port but then cruises to a non-EU state, VAT at the reduced rate of 6.6% will only apply to the portion of the charter taking place in Italian Waters.
- Charter starts in Italy but leaves Italian Waters within 6 hours, no VAT is due.
Captains should from now on pay particular attention when completing the log book so as to be able to provide clear evidence of the cruising routes with an indication of the actual time spent in international waters.
The question of the VAT applicable on the APA is still to be clarified as all professionals tend to have different positions and interpretations.
To avoid this reduced VAT rate applicable on Italian charters most of the yachts have been starting their cruise outside of Italy, and most of the time in France …but for how long will the French Commercial Exemption (FCE) last?
CASH ON BOARD YACHTS ITALY
The Italian Economy and Finance Ministry issued a circular (n. 033/2012) on the application of anti-money laundering regulations governing the carriage and transfer of cash on board vessels in Italian waters.
As of 21 June 2012, these regulations are applicable to all vessels, including both commercial and private yachts, while in Italian waters. The regulations:
Require the individual (captain, crew, and passengers) entering and exiting Italy by vessel with cash equal or greater than €10,000 to present a customs declaration to the relevant authorities at the entrance point or exit point of the country, depending if they are entering or exiting the country. The limit is per person. (Italian Law Decree No. 195/2008). The Law-Decree no. 16/2012 has recently amended the sanctioning system (art. 6 of Law-Decree no. 195/2008) providing for more severe sanctions for the violation of the obligation to file the customs declaration (sanctions: up to the 50% of the cash on board exceeding €10.000). In addition to the fine, the Law-Decree No. 195/2008 provides for the seizure by the Customs Office up to 50% of the cash on board exceeding the €10,000 threshold.
Prohibit cash transfers (with cash money, post office saving account book, bearer securities/stocks in Euro or foreign currency) when the value of the operation is greater than or equal to €1,000. This prohibition extends to lower payments where the €1,000 threshold is artificially split.
- Allow transactions (such as for the payment of crew salary/services/provisions) exceeding the €1,000 limit to be made but only by using traceable means (prepaid cards with owner’s name or through banks, the Italian Post Offices Corporation or Electronic Monetary Institutes). Receipts of all such money transfers should be kept to show authorities should there be a custom’s check.
The Italian Authorities are actively imposing fines for any violation to these requirements which amount can vary from €7,000 to €10,000.
Matignon announced this month that France might follow a similar path in order to fight against money laundering and the black economy.
BERTHING TAX / ITALY
The Italian Government was to re-introduce a tax known as “imposta di stazionamento” or 'berthing tax’, which was to be applied to yachts berthed in Italian ports and marinas as well as yachts cruising, anchored or docked within 12-miles of the Italian coast. It was due to come into effect as of 1st May 2012, was to apply to all vessels over 10 metres in length irrespective of flag and carried charges ranging from €5 to €703 per day depending on the vessel’s size. Sanctions for non-payment were potentially as high as 200-300% of the initial amount due.
Following an intense period of lobbying by the Italian Yachting Industry and Associations, the Italian Parliament approved in March 2012 Law No. 27/2012 amending the yacht berthing-tax and introducing a new tax on the ownership of yachts.
The amendments exempt all foreign owned yachts from paying the tax.
The new tax applies to yachts owned, chartered, leased, also on a finance lease scheme, by individuals/entities that are resident of Italy or having a permanent establishment in Italy (ie. foreign entities with a branch in Italy or performing activities in Italy) regardless of whether the yacht is flagged in Italy or overseas and regardless of whether it is kept in Italy or elsewhere. In addition, the amendments make the tax chargeable on an annual rather than on a daily rate reducing considerably the weight of tax requested.
What remains unclear is how the tax law would be enforced. It will be necessary to wait for clarification on a few aspects of the law, in particular how this tax will be applied to yachts under Italian leasing schemes and to foreign flagged vessels that have Italian citizens onboard. There is high probability though that a ‘guilty until proven innocent’ approach will be taken, meaning that captains will be expected to prove ownership of yachts (including names of charterers) flying a non-Italian flag, and will also be required to provide evidence of the payment of tax to either the Customs Office, marina management entities or to the refuelling station.
The Italian Revenue Office should issue a Circolare clarifying the procedures for the communication of the identification data of the beneficial owner(s) or Italians on board for the controlling activities to be carried out by the Revenue Office.
MATRICULATION TAX / SPAIN
Despite numerous rumours announcing the abolition of the Matriculation tax, the tax is still there!
The tax as it stands requires all pleasure yachts over 8m in length with a Spanish flag and, most contentiously, all yachts over 15m chartering in Spanish waters to pay a 12% matriculation tax. No charter can start and or end in Spain unless the yacht is under Spanish flag or the foreign flagged yacht is covered by a charter licence and the 12% matriculation tax paid.
In July 2012, a study and report commissioned by the Mediterranean Yacht Broker Association (MYBA), Asociación Nacional de Empresas Náuticas (ANEN), Asociación Española de Grandes Yates (AEGY) and the Asociaión de Empresas Náuticas de Balearaes (AENB) revealed the damaging knock-on effects of Spain’s tax system on its economy, with focus largely on the superyacht sector and its potential for economic growth. Among other matters the report highlighted that the tax on charters occasioned a loss to Spain of ca €600 million.
Professionals of the sector led in Spain by Patricia Bullock are lobbying Spain to “get rid of the 15m limit” and simply “say no” to matriculation tax on charter vessels.
Exemption of the tax is more unlikely for the moment due to the political and social climate in Spain, but a reduction (pro rata to charter period) is still possible and has been recommended by teh yachting professionals.
VAT at 21% would still apply in any event to all charters starting in Spanish waters.
Another issue which would need to be dealt with is how yachts are valued in order to calculate amount of the tax (12% of the yachts’ value for matriculation and 21% of its value for VAT).
Authorities are reportedly browsing brokers’ websites to calculate this value where prices are notoriously highly inflated and not necessarily a reflection of their true value.
Please contact us if you require assistance with registration or payment of these taxes in France, Monaco, Italy or Spain.
For further information contact Janet Xanthopoulos by e-mail: firstname.lastname@example.org
For more information on our yachting services please visit our website at www.monoeci.com
Monoeci Management SAM will be providing occasional news updates to the yachting industry throughout the year.