There has been an amendment to the Italian Budget Law for 2020 (Law no. 160 of 27 December 2019) for the rules regulating the application of Italian VAT on short term yacht charters (those less than 90 days), regulated by article 7 quarter, paragraph e) of the Italian VAT Code (Italian Presidential Decree no. 633/72).
Specifically, paragraph 725 of article 1 of the Budget Law only recognises ‘the delivery of the services’ of the short term lease or charter of yachts outside the European Union (with VAT exempted) if sailing outside the EU is adequately proved.
Therefore, the ‘lump sum VAT criteria’ related to the length of the yachts (ex. 6.6% VAT for the charter of yachts over 24 meters) will be no longer applicable, and the ordinary VAT rate of 22% will be applied unless it is proven that the yacht is sailing outside EU waters.
On 15 June 2020, the Italian Tax Authority (the Authority) issued the Provision n.234483 (the Provision) that clarifies how, and by what means, sailing outside the EU can be proved adequately. Below we provide you with a brief overview of the Provision.
Proof of sailing outside the European Union
The use of a yacht outside the European Union must be proved in paper or digital format. The lessee or another person in charge of the yacht, such as the captain, must exhibit:
The travel cartography.
Data and information extracted from systems of satellite navigation or transponder (e.g. such data may be provided through the Automatic Identification System if the vessel has one).
The navigation logbook kept on board by the captain, with records of data and facts relating to navigation (under Articles 169, 173 and 174 of the Italian Navigation Code).
The documentation (invoices, contracts, tax receipts) proving the mooring of the yacht at ports located outside of the European Union.
The documentation (invoices, contracts, tax receipts) proving purchases of goods and/or services (relating to the use outside the European Union of the yacht), from sellers established outside of the European Union.
The lease, charter, and other similar short-term contracts.
Pleasure boats equipped with satellite navigation systems
Data and information will be extracted from the satellite navigation systems in use, and should indicate, with precision and consistency, the sea routes of the vessel. Such data and information will be sufficient to prove sailing outside of the European Union, except in cases of fraud or abuse.
Pleasure boats without satellite navigation systems
For yachts that aren’t equipped with satellite navigation systems, proof of sailing outside the EU will be provided through the exhibition of the lease, charter, and other similar short-term contracts. Also, at least two of the following pieces of evidence must be shown:
The data obtained from paper/digital navigation logbooks.
Digital photographs (made by any device) of the vessel's position for each week of navigation and detected with a frequency of at least two for each week of sailing.
The documentation (invoices, contracts, tax payments receipts) proving the mooring of the yacht at ports located outside the European Union.
The documentation (invoices, contracts, tax payments receipts) proving purchases of goods and/or services (relating to the use outside the European Union of the yacht), from sellers established outside of the European Union.
Such data and information will be sufficient to prove sailing outside of the European Union except in cases of fraud or abuse.
The lessee and lessor of the yacht are obliged to keep the documentation proving the yacht is sailing outside the European Union until 31 December of the year following that which the VAT annual declaration was submitted. In the case of failure to submit a VAT return, documentation must be kept until 31 December of the seventh year after the VAT annual declaration should have been submitted. This documentation must be shown upon request by the tax authorities.
These rules apply to lease contracts, and other similar short-term contracts executed after the publication of the Provision (ie. after 15 June 2020).