New VAT Rules Impact Superyacht Charter Industry

Radical VAT Rules changes are set to upset this year’s charter season in Mediterranean 

The changes are the result of the European Commission’s action against the simplified VAT rules structures on short-term yacht charter adopted by countries such as Italy, France, Malta and Cyprus.

Yacht industry expert Carlo Benveduti, the CFO of the online yacht charter platform YOTHA, explains, “Until the end of 2019, both Italy and France formed their own interpretation of the general principles.”

Even though each of these countries applied different criteria for defining the rates, the two most relevant yacht charter areas in the West Med have been adopting a reduced VAT lump sum taxable base on charter contracts.

A more complicated approach.

While France applied a reduction of 50% of the taxable base of the charter contract by simply cruising into international waters, Italy adopted a more complicated approach.

Short-time services, such as yacht charters, are generally considered as carried out in Italy, unless the effective use takes place outside of the EU Community (i.e. international waters).

Over recent years, authorities introduced lump sum presumptive, criteria based, tax dependent on the type and size of the chartered vessel.

For example, the charter contract of a motor yacht of more than 24 metres was subjected to a rate of 30% of the standard VAT (i.e. 6.6%).

Now under the changes and in an effort to harmonize tax laws across Europe, the European Commission aims to abolish the VAT laws currently implemented in Italy, France, Malta and Cyprus.

Instead they will apply the general criteria contained in articles 56 and 59a of an EU VAT Rules Directive (2006/112/CE). The immediate outcome, of this means that both France and Italy have introduced national laws re-interpreting the previous VAT application.

In late January the French Tax Authorities published an Official Tax Bulletin (BOFIP BOI-TVA-CHAMP-20-50-30-20200129) outlining new rules affecting charter contracts signed after March 30th 2020.

VAT charged at the full 20% rate

There will no longer be a lump sum reduction, but rather VAT charged at the full 20% rate while the yacht is sailing in EU waters, and no VAT while in international or non-EU waters.

In other words, the new rule will be time-based and no longer distance based, with the time spent in EU waters fully subject to VAT. As it stands now, unless additional information is released, evidence of the time spent outside of EU waters should be retrieved from the data records of the automatic identification system (AIS) or any equivalent GPS-based navigation system on board.

Meanwhile in Italy, a similar approach has been introduced, requiring that the Italian VAT rate of 22% be applied to all Italian charters from April 1st 2020.

One of the most significant differences to the French approach is that the new VAT regulation in Italy will be applicable to all charter contracts, even those with signature and 1st instalment payments dated prior to April 1st.