Following the 2013 ECJ ruling against France and the French Exemption for commercial yachts, the French Authorities have produced new regulations BOFIP 1205-15. These regulations set out the exact requirements for a charter yacht to maintain its VAT exempt status.
Each year the decision will be taken based on the previous year's charters. So, for example, the 2016 season will be based on charter activity in 2015.
Losing the Exempt status under the strict interpretation of the new regulations would result in:
1. Loss of VAT free supplies to the yacht
2. VAT becoming payable on the hull at 20% of the market value of the yacht. We understand that the French may decide to postpone this aspect, but it is very much out of the control of the owners and yacht managers.
In addition to the changes to Commercial Exemption, both the French and UK Authorities are becoming more focussed on whether yachts are genuinely involved in third party charters.
The French are looking at guest lists to see when the beneficial owner is on board and have issued a Statement of Commercial Activity which must be signed on behalf of each yacht. Failure to carry the statement or giving incorrect information could have serious implications.
The UK authorities are also becoming more active and have instructed Isle of Man Customs authorities to check that the charterer is not primarily associated with the beneficial owner, or any company chartering is not a company in which the beneficial owner has an interest.
Many charter yacht companies have an Isle of Man VAT registration as the principal jurisdiction for VAT, and the loss of registration there would have serious implications when trying to obtain or maintain VAT registration in other jurisdictions such as France, Italy, Greece and Spain.
With new VAT requirements and Flag State and MLC regulations, many owners are looking for other ways to mitigate the VAT on the yacht. Some owners are deciding to pay the tax on the value, but even this can cause problems.
If the client wants to reduce the tax liability there are really only three solutions:
1. For yachts under 40 metres (130 feet) the following solutions can be used where the tax is paid on the full value at reduced rates over the lease period:
a. Malta Leasing: minimum rate of 5.4% and minimum lease period of 1 year
b. Cyprus Leasing: minimum rate of 3.8% and minimum lease period of 3 months
2. For yachts over 40 metres the following solutions can be used:
a. Malta or Cyprus Leasing
b. The Monaco VAT Solution: VAT is paid at 10% on a rental payment based on the depreciation.
The Monaco Solution is the most efficient as it not only defers the tax but leaves options open for the client to revert to a fully commercial charter company, pay the tax in full on the book value, export the yacht or even transfer into a Malta or Cyprus Leasing structure. Dominion Marine is the only company able to offer all three solutions.
Dominion Marine has designed a Superyacht VAT Calculator app to help clients see the VAT payable through the Maltese Leasing system and the Monaco VAT Solution.