IN169 - VAT Advantages Available Through the Use of an Isle of Man Structure for the Ownership of a Yacht

A yacht that is owned by a company registered for Value Added Tax (VAT) in the Isle of Man can claim back the VAT on the purchase or importation of the yacht, provided that the yacht will be used to make taxable supplies on a commercial basis.

In addition the commercial leasing or chartering of the yacht will attract a zero rate of tax as the corporate rate of tax in the Isle of Man is zero.

Customs and Excise in the Isle of Man will only register a yacht charter business for VAT where it is clearly established on a commercial basis. The business must seek to make a return on its investment and Customs and Excise require evidence that the yacht is being made available and actively marketed for charter to persons other than the beneficial owner. The administration and management of the yacht owning company must also take place in the Isle of Man.

Purchase of the Yacht

The main advantage in using an Isle of Man structure is that VAT can be paid and then reclaimed on the purchase of the yacht, with no actual movement of monies taking place. It is also not necessary for the yacht to sail to the Isle of Man or the United Kingdom (UK).

Importation into the EU

If the yacht is to be imported into the European Union (EU) it is necessary for the importation to be made through a jurisdiction that facilitates the Onward Supply Relief Procedure. The jurisdiction of Malta facilitates this procedure and is easily accessible.

Onward Supply Relief is an exemption from VAT on the importation of goods made into an EU country from outside the EU. The importation has to be made by a taxable person registered for VAT in Malta. It is therefore necessary to appoint an agent or importer in Malta to act as broker or representative. Dixcart has an office in Malta and can help organise this.

The agent in Malta will, in effect, import the yacht, release it into free circulation in Malta and subsequently dispatch or transport it to a taxable person in another member state as an inter-community supply.

Documentary evidence is needed to show that the yacht has been transported or dispatched to another EU member state. Evidence, such as an invoice for a marina berth in Malta and a copy of the log book, is acceptable. The agent will also require a bank guarantee, repayable on completion, which is usually 10% of the VAT payable (dependent on the value of the yacht).

The Isle of Man company will declare the sale and purchase on its VAT return and will be issued with a VAT Paid Certificate for the yacht. This certificate must be returned to Customs and Excise in the Isle of Man when the yacht is sold.

The procedure normally takes a few days. The Isle of Man company will then own the yacht and it can sail directly to its EU destination to commence chartering, without having to sail to the Isle of Man or the UK.

Importation from an EU Supplier

If the yacht is purchased from an EU supplier, the VAT treatment will depend on where the yacht is at the time of the sale, where the customer is resident and where the supplier is resident. It may be possible to arrange an inter-community supply whereby the supplier will zero rate the sale, and the Isle of Man company will declare both the sale and purchase on its VAT return. No VAT is then payable and a VAT Paid Certificate can be obtained.

The Supplies of the Yacht and VAT

Bare Boat Yacht Charter

A bare boat yacht charter is where the yacht is supplied without a crew, for example under a lease agreement. If a bare boat charter is supplied by an Isle of Man VAT registered company, the supply will be subject to the standard rate of VAT in the Isle of Man at 17.5% (the same as the UK VAT rate).

Charter

If the yacht can carry ten or more passengers, including crew, it may be possible to classify the supply of the yacht for VAT purposes as ‘passenger transport’.

Supplies of ‘passenger transport’ made in the Isle of Man or the UK are charged at a zero rate of VAT. Under Isle of Man rules the provision of chartering services, will therefore be zero rated in all situations.

In all other EU jurisdictions (excluding the IOM or UK), the supply of ‘passenger transport’ will be subject to VAT. Depending on the jurisdiction, this may be applied where the service is carried out or alternatively where the supplier is located.

Summary

The use of an Isle of Man structure for the ownership of a yacht offers the advantage that VAT can effectively be recovered on the purchase of the yacht and, in the correct circumstances, no VAT need be charged on supplies made. In addition the commercial leasing or chartering of the yacht will attract a zero rate of corporate tax.

Additional Information

If you require any additional information on this topic please contact Simon Kelly or Bruce Watterson at the Dixcart office in the Isle of Man, or contact us.