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GUEST ARTICLE: Sink Or Swim - Don't Forget The VAT On Luxury Yachts

Matt Hinxman, Fieldfisher , Partner, 29 March 2016

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Owners of superyachts who haven't got their value added tax affairs in order could run aground, warns an expert on the sector.

As far as high and ultra high net worth persons are concerned, part of the point of having all that money is to be able to spend it on the finer, or more ostentatious, things of life. And for some of them this means yachts and aircraft. The process of running a yacht, such as where to register it, is not a straightforward matter, however. Within the broad wealth management industry, there are experts able to offer advice. One such individual is Matt Hinxman, finance partner at Fieldfisher, a European law firm. He writes about the specific issue of Europe’s value added tax regime. The views expressed are those of the author; the editors of this news service invite readers to respond.

You've purchased your dream yacht. You've stocked up on food, invited your nearest and dearest, and they're all ready and waiting for you when you arrive at the jetty of your favourite European port. 

But your yacht is missing. It's not been stolen – it's been seized by the authorities who suspect you of non-payment of VAT.

Putting aside the obvious embarrassment of having no back-up plan and the looks your loved ones are giving to you, you would no doubt be cursing yourself for not having your affairs in order. European Union VAT regulations have a bad reputation, unsurprisingly given their complexities, but the basics for superyachts are anything but - which means there's no excuse really for buyers and their advisors being ignorant of their responsibilities. 

All privately-owned yachts owned by EU residents within the EU or flying an EU flag are generally required to be VAT-paid – with some exceptions – and any yacht cruising in the area’s waters, for more than six months in any calendar year, regardless of ownership, is liable to pay VAT at the appropriate time. If it takes place within EU territorial waters then a sale and purchase is likely to attract VAT liability too.

There are a few pitfalls which catch many a yacht owner out and which help boost the coffers of the authorities. Firstly, a yacht on which VAT has been paid does not always retain its VAT-paid status – for example, if it is exported out of the EU for a prolonged period that status may well be lost. Secondly, a sale and purchase within EU waters can attract liability for VAT, regardless of ownership status, and thirdly – and forget this at your peril – if the ultimate users of a yacht are European nationals then VAT liability may arise: irrespective of whether the yacht was purchased outside of the EU, and/or is legally owned by a non-EU person.

Even simply changing the flag state, as part of a refit of the yacht or a general refresh, could have implications for VAT.
 
Non-EU nationals are now able to take advantage of the European Union's temporary importation regime, which enables them, unsurprisingly, to temporarily import yachts, on which VAT has not been paid, into the EU, provided that they stay within the EU's waters for no longer than 18 months at a time. This regime is quite well known of and good captains will of course know how manage these regulations to ensure they, and the yacht, don't overstay their welcome.

However, there are issues that can still arise even when a yacht has been imported in the proper manner. For example, if the owner were to become an EU resident during the period of the yacht's temporary importation; or if the yacht is inadvertently put at the exclusive disposal of an EU national - whether by formal agreement or otherwise - would create a requirement for VAT payment. 

The task for VAT collection remains with individual member states, and not the EU itself. It is of course very difficult for member states to apply the rules consistently across the entire European community – varying rates of VAT, the presence of local taxes bot have an impact, as does the fact that general appetite for rule enforcement varies among the EU's member states. Consider the widespread pressure - particularly in the south of the continent - on tax avoidance, and the issue becomes an even more pertinent one.

In this world nothing can be said to be certain, except death and taxes. So, when purchasing that new superyacht and planning for a getaway with friends and family, don't forget the VAT.

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