The EU has established a VAT tax scheme that in general provides VAT liability for boats purchased in or formally imported into all EU waters. While these are EU guidelines, they are interpreted, administered and enforced by each member country’s taxing authority. Therefore, boat owners may often experience some difficulties and misunderstandings in various EU countries. Moreover, it is usually the local official who interprets and enforces these guidelines. To the extent each member country has a history of relatively local autonomy in civil matters, to the extent where the infrastructure of the taxing system is less centrally coordinated, computerized and audited, and/or to the extent the culture of the member country is more or less rigorous in administering such matters, the nature of implementing VAT guidelines will take various forms and interpretation. Over time, it’s reasonable to expect continued leveling in this variability but an absolute uniformity has not yet appeared up to the present time.

Two normal methods by which VAT is administered and enforced by customs officials are a) via the clearance procedures when cruising boats enter an EU country, and b) routine inspections of cruising boats once the boat is within its borders. Thus, VAT can in practice be less of an issue in countries that prefer NOT to emphasize clearance paperwork of privately owned yachts and/or who don’t emphasize routine inspections. Spain is a good example of this, as are the Scandinavia countries. Meanwhile, in countries with more vigorous clearance, port oversight and also active inspection programs such as France, VAT becomes a more relevant issue for the yacht owner.

EU vessels

A boat owned by EU resident individual or body corporate has the right to free movement throughout the EU, provided VAT has been paid on that vessel in one of the EU countries.

An EU national may establish residence outside the EU VAT zone, for example BVI or Gibraltar, and thereby avail himself of the temporary importation relief from VAT.

Although there is no legal time limit on the length of time a EU registered boat, which paid the VAT, can spend in any EU country, it appears that some countries occasionally enforce local regulations once the boat has been in that country for six months.

Although the new regulations came into force in 1993, considerable confusion still exists. This should improve once the VAT situation is cleared as there are still thousands of boats belonging to EU residents who, for some reason or other, have not paid VAT on their boats. In many cases these boats are based in another EU country than the one where the owner resides and therefore they are liable to VAT. The rules are very clear and a boat belonging to a EU citizen, or flying the flag of a EU country, must be VAT paid. This means that both in home waters and when sailing between any EU countries, such boats should carry evidence of VAT payment. This could be the original boat builder’s receipt or paid invoice, or some other original document showing clearly that VAT has been paid. Those who are exempt from this rule must have on board a document issued by customs or the relevant authority stating the reasons for such exemption.

Non-EU vessels

A VAT paid yacht will encounter no difficulties in EU waters provided the vessel is not chartered. Pleasure yachts built pre-1985 and in EU waters on 31st December 1992 are treated as VAT paid. Evidence that the yacht was in EU waters on this date may be required.

Temporary importation relief from VAT is available to yachts beneficially owned and used by non EU residents provided such non EU resident does not become ordinarily resident in the EU.

Boats owned by non-EU residents and registered outside the EU are entitled to tax free temporary importation into the EU for a total period of eighteen months. The EU Common Customs Tariff provides for relief from VAT liability for up to 18 months (Article 562(e) as referenced above) when the boat is owned by non-EU residents and where the boat will subsequently be removed from EU waters (Article 561). The permitted period, or temporary importation, applies to the entire EU area and therefore at the end of the period the boat must be sailed to a country outside the EU or VAT must be paid. The temporary importation period may be extended, at the discretion of local customs, for various bona fide reasons, such as if the boat is left unattended and unused, if the owner leaves the EU, or if the boat is left in the care of a boatyard for repair.

Those who wish to remain longer in any one EU country must deposit the ship’s papers with the local customs office, who will put the vessel under bond. The clock will then be stopped until the owner returns on board. During the period the vessel is in bond, the boat must not move from its berth, and the owner or crew are not allowed to sleep on board.

Non-EU boats remaining inside the EU for over the permitted period must be imported and VAT paid on the value of the boat. Anyone intending to do this would be well advised to import the boat into one of the EU countries with a lower VAT rate, such as Cyprus, Madeira or Malta.

There has been a harmonization of formalities concerning VAT in recent years, but there are still certain inconsistencies so the owners of boats from outside the EU should treat the matter with utmost caution and avoid being caught out. It must be stressed that the above 18-month VAT relief applies only where the boat is owned and sailed by a person not resident in the customs territory of the EU. The relief is invalidated if the boat is hired, sold or put at the disposal of a EU resident.

It is essential to ascertain on arrival in a new country the exact situation concerning VAT. As non-EU boats are required to contact immigration whenever crossing a border between EU countries, this may be the time to make such enquiries.

The legal provisions on temporary importation are found in: Articles 137 to 144 of the Customs Code (Council Regulation (EEC) N° 2913/92 of 12 October 1992 establishing the Community Customs) and in particular Articles 553 to 562 of the implementing provisions of the Customs Code (Commission Regulation (EEC) No 2454/93 of 2 July 1993).

Customs Procedures in the European Union

Departure from a EU port to another EU port: no formalities required. Arrival in a EU port directly from another EU port: no formalities for EU vessels and EU citizens. Immigration must be contacted if there are non-EU citizens aboard. Customs must be notified if there is anything to declare, such as firearms.

Departure from a EU port to a non-EU port: customs and immigration must be notified. Arrival in a EU port from a non-EU port: Q flag must be flown when entering 12-mile limit. Customs and immigration must be contacted on arrival.

Yachts must carry their original registration document, insurance policy and ship’s radio license. One member of the crew must have a radio operator’s certificate of competence. For EU boats, proof of VAT status is also required. It is also very useful to have a typed sheet containing the name of the boat, port of registry, and the crew list.

VAT Rates in the EU

Member States andAccession States Super ReducedRate Reduced Rate Standard Rate
Belgium
6
21
Czech Republic
5
19
Denmark
25
Germany
7
16
Estonia
5
18
Greece
4.5
9
19
Spain
4
7
16
France
2.1
5.5
19.6
Ireland
4.4
13.5
21
Italy
4
10
20
Cyprus
5 / 8
15
Latvia
5
18
Lithuania
5 / 9
18
Luxembourg
3
6
15
Hungary
5 / 15
20
Malta
5
18
Netherlands
6
19
Austria
10
20
Poland
3
7
22
Portugal
5 / 12
21
Slovenia
8.5
20
Slovak Republic
191
Finland
8 / 17
22
Sweden
6 / 12
25
United Kingdom
5
17.5

VAT Inspections and Record Keeping

The majority of the yachts that are used for charter have some form of ‘ships log’ on board the vessel. This will normally record where the yacht is on any given day, where it is sailing to and details of the number of people on board. This is a business record for VAT purposes and will routinely be requested when a VAT inspection is arranged. Administrators of the yacht charter companies are expected to have compared this ship’s log against the record of charters made, to ensure that all have been accounted for, and VAT declared. Obviously, as these vessels are being used commercially, theoretically there should be no ‘private use’, and apart from positioning the yacht for new charter parties or for routine maintenance all ‘sailing’ should be charged out and VAT accounted for.

Difficulties have been experienced on VAT inspections with administrators claiming yachts have not been successful in attracting charters because they have not been the ‘right type’ or ‘to the right standard’. Obviously, the provision of the ‘ship’s log’ will help support such claims (as the yacht should not have sailed anywhere). Customs will normally expect to see evidence that despite not attracting charters, the yacht has being actively marketed via advertising, placing with brokers etc. If the explanation for the non-chartering of the yacht is that it is for sale, Customs will expect to see evidence of its advertisement for sale.

VAT on Chartering in EU Waters

Chartering of a yacht in EU waters is treated as supply of services and is therefore a taxable supply for VAT purposes. If the owner is established in the EU member state the owner will be liable to account to the VAT authorities of the member state in which he is providing such services in respect of any charter hire made within or outside EU waters.

If the owner is not established or domiciled in EU member state no VAT will be payable on any charter hire.

A non EU flagged yacht brought into the EU by its non EU resident owner or such an owner’s charterer, who is also not established in the EU (EU resident or EU company) will be entitled to a temporary importation certificate and no VAT will be payable on the capital value of the yacht nor on the charter, provided no chartering activity commences within EU territory.

If the yacht is chartered to a non-EU resident by a non EU resident owner, then provided the charter commences and ends outside the EU, the charterer can bring the yacht into EU waters and obtain a temporary importation certificate for it.

The yacht must not commence or end a charter whilst in EU waters under a temporary importation certificate unless it is taken out of EU waters immediately.

It would therefore seem prudent for a non EU owner to register and own the vessel outside the EU, for example in BVI or Gibraltar, and provide such charter services from there. The entire service would therefore escape VAT.

The above applies to Spain and France however the situation in Italy would seem to be different in that the authority may wish to charge VAT for the time the vessel is chartered within Italian waters even though the charter has commenced and will end outside the EU.

Since there is no unified VAT regulations in EU countries at the present time, the legislation may be rather confusing and complicated, therefore it is advisable to contact VAT experts for further consultations.