The basic rule is if you are a European Union (EU) resident or you choose to operate your yacht commercially in the EU, or any combination of the two, you have to account for VAT on way or the other.
If you are building a superyacht in the EU, be cautious to avoid becoming involved in a tax-avoidant artificial exporting structure.
Can I avoid VAT on buying my superyacht?
If you are an EU resident, you may be able to recover any VAT you are charged if you are legitimately operating the superyacht commercially in the EU, or you may consider participating in a leasing structure.
Cyprus and Malta run broadly similar leasing schemes which can dramatically reduce the effective rate of VAT on the assumption that superyachts do not spend all their time inside the EU.
However, the European Commission has recently commenced infringement procedures against these lease schemes (along with a separate practice in Greece having similar effect), signaling that these schemes may not be long for this world (at the time of going to press, Cyprus had reportedly abandoned its scheme in the face of this criticism), and that owners considering these options should approach with caution. It should also be noted that both the German and UK tax authorities have openly criticised these schemes for several years, and so they pose a particular risk for owners living there. More generally, the industry’s tax practices are under increasing scrutiny (from governments and journalists alike) worldwide, and we are aware of yachts caught up in tax cases in several countries. Owners would be advised to approach any tax minimisation scheme with caution, and not to put short-term savings above long-term legal, financial and reputational risks. By way of one example, the UK government has recently introduced ‘Unexplained Wealth Orders’ - a means of using civil powers (and their lower standard of proof) to investigate and confiscate the perceived proceeds of crime, including tax evasion.
Is the VAT status of a superyacht preserved for life?
All sorts of events can compromise the VAT status of a superyacht even if it is VAT paid. A superyacht which has been declared to be for commercial use and has accounted for VAT, if at some point in the future it becomes clear that you are not pursuing legitimate commercial business or you are only chartering the superyacht infrequently, you may be asked to de-register as a commercial yacht. At this point you would become liable for VAT on the hull unless you permanently export the superyacht or become eligible for VAT relief as a non- resident. Also, an EU tax paid superyacht sold outside the EU will lose its VAT paid status if brought back into the EU by a new owner. The only certainty in tax and superyachts is that there is no certainty. Recently (prompted by a request from the European Commission to bring its VAT treatment of ships into line with EU law), Italy amended the meaning of ‘sailing on the high seas’ in regards to its commercial VAT exemption. For this to apply at least 70% of the total number of ‘voyages’ in a calendar year must be on the high seas (i.e. more than 12 nautical miles offshore), and activities such as sailing to a shipyard for repairs and maintenance do not count. Significantly, the applicability of the ‘high seas’ exemption is to be reassessed each calendar year.
Copyright: Clyde & Co.