The Dixcart Group has a number of strategically placed offices that, in the right circumstances, can provide a number of tax benefits when compared to other European Union (EU) locations. A good example of this is the VAT advantages available for the importation and chartering of yachts.
The days of a single solution for the treatment of VAT on yacht holding structures no longer exist. Individuals need to consider their personal requirements and use an appropriate structure to meet their specific needs.
EU VAT exposure and the consequent compliance requirements to meet VAT obligations are undoubtedly a relevant issue for an owner of a yacht sailing within EU waters. It is no surprise that yacht owners consider the impact of VAT on the purchase and operation of a yacht when choosing its place of registry and the corporate structures that need to be established.
This article provides a brief overview of the advantages available through the jurisdictions of: Madeira, Malta and the Isle of Man.
Madeira is part of Portugal and has full membership of the EU. This enables yacht purchasers to fully comply with EU legislation.
The International Shipping Register of Madeira (MAR) is internationally recognised as a credible and competitive option in comparison to other shipping registers. MAR maintains the high quality and safety standards of an EU register. MAR is not regarded by the International Transport Workers’ Federation (ITF) as a flag of convenience and is included in the Paris Memorandum of Understanding (MOU) White List.
As MAR is an EU Register it allows full access to navigation in EU waters without any types of restriction for either commercial or private yachts. In addition, its EU standing has the advantage of providing substance to the VAT status of yachts registered in Madeira that operate within EU waters.
Advantages Applicable to the Importation of a Yacht
There are a number of EU VAT rules relating to the importation of second hand yachts. Portuguese VAT is applied to the lower acquisition price. This is due to the fact that these rules allow for devaluation suffered by the yacht (deemed market value). This can lead to a significant reduction in VAT.
Advantages Applicable to Commercial Yachts
Yachts commercially registered in MAR that are (i) used for navigation on the high seas and (ii) engaged in commercial/charter activities, benefit from a number of VAT exemptions:
- the acquisition price of the yacht;
- repair, modification and maintenance operations of the yacht;
- fuel and oil supply;
- the supply of goods for their provisioning; and
- the supply of equipment to be incorporated therein.
It is important to emphasise that these exemptions are subject to the absolute condition that the yachts are being operated commercially on a regular basis. It is therefore vital that when a yacht is used by the owner, a charter agreement is in place, showing the payment of a charter fee in line with market rates. It is also important that the use of the yacht by the owner is not excessive, or the tax authorities may question the commercial status of the yacht.
In addition to the tax benefits mentioned above, the following operational advantages are available to commercial yachts registered in MAR:
- There are no citizenship requirements for the crew.
- The crew is exempt from personal income taxes.
- The crew benefit from a flexible social security regime. Crew members are not obliged to contribute to the Portuguese social security regime, provided that an alternative pension scheme is guaranteed.
Advantages Available to Yacht Owning Companies
The Madeira International Business Centre (MIBC), with its advantageous tax regime, provides a unique location for the establishment of yacht owning companies.
The MIBC offers a highly competitive package of tax benefits. Its reduced direct taxation, with effective corporate income tax rates ranging from 4% to 5% until 2020, combined with an exemption from withholding tax (providing the shareholders are resident in an EU jurisdiction) on payments of dividends, interest and royalties to non-residents of Portugal, makes it an attractive location for yacht operating companies.
Madeira companies also benefit from automatic VAT registration on incorporation and are instantly provided with a VAT registration number. This makes it easier for such companies to take advantage of the various benefits available.
Madeira yacht owning companies are exempt from the initial yacht registration fee and receive a 20% reduction in the annual yacht registration fee.
Withholding taxes on dividends can be eliminated by routing the investment in the Madeira company through an EU holding company such as Malta.
MALTA – LEASING ARRANGEMENT
Malta’s desirable geographic location, with close proximity to mainland Europe and well equipped ports, has helped contribute to a substantial growth in the Maltese yachting industry.
On 24 November 2005 the Maltese VAT Authority published guidelines for pleasure vessel VAT leasing arrangements between a lessor (a Malta company) and the lessee (a user of a pleasure craft).
In a typical VAT leasing arrangement a Maltese company purchases a yacht from a European Union (EU) supplier, which, due to EU VAT laws, has a zero VAT impact. The Maltese company then registers the yacht under the Maltese flag and leases the yacht to the user, with the user having an option to purchase the yacht at the end of the lease.
The guidance issued by the Maltese VAT Authority indicates that it is difficult to calculate the amount of leasing income that is subject to VAT (the standard rate in Malta is 18%). VAT is only charged when the supply of the service is in EU territorial waters and it is relatively difficult to track the movement of pleasure craft.
The guidance issued by the VAT Department established a “deemed usage” of pleasure craft in EU territorial waters and therefore the effective rate of VAT to be charged on the leasing income by the lessor. These rates vary depending on the size of the vessel involved.
VAT Rates Issued by the Malta VAT Department
|Type of Craft||% of Lease Subject to VAT||Effective VAT Rate|
- Sailing boat or motor boat over 24 metres in length
|- Sailing boat between 20.01 and 24 metres in length
- Motor boat between 16.01 and 24 metres in length
|- Sailing boat between 10.01 and 20 metres in length
- Motor boat between 12.01 and 16 metres in length
- Sailing boat up to 10 metres in length
Prior approval can be gained in writing from the Commissioner of VAT in Malta, who will consider the rate of VAT to be charged and the appropriate value of the vessel.
THE ISLE OF MAN – COMMERCIAL CHARTER
A yacht that is owned by a company registered for VAT in the Isle of Man may claim back the VAT on the purchase or importation of a yacht, provided that the yacht in question will be used to provide commercial charter services. Charter income will be subject to corporation tax at a rate of 0% in the Isle of Man.
Customs and Excise in the Isle of Man will only register yacht charter businesses for VAT that are clearly established on a commercial basis. The business must seek to make a return on its investment. Customs and Excise also require evidence that a yacht is being made available, and actively marketed for charter, by individuals in addition to the beneficial owner. The administration and management of a yacht owning entity must take place in the Isle of Man.
Purchase of a Yacht
A key advantage in the use of an Isle of Man structure is that VAT can be accounted for and then reclaimed on the purchase of a yacht, with no actual movement of monies taking place. It is also necessary for the yacht to sail to the Isle of Man or to the United Kingdom (UK).
Different procedures are recommended depending on whether a yacht is purchased while outside the EU and requires importation into the EU, or is purchased in the EU from a supplier established in the EU.
The Supplies of a Yacht and VAT
If a yacht can carry ten or more passengers including crew, it may be possible to classify the supply of a 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. The provision of chartering services in other EU member states may be subject to local VAT regulations where the charter takes place.
Isle of Man Ship Registry
The Isle of Man Ship Registry is internationally recognised and consistently ranks in the top tier of the Paris Port State Control and Flag State rankings. This, together with its entitlement to sail under the British Red Ensign, makes the Isle of Man a prestige location for high end commercially chartered yachts.
Through our network of international offices, Dixcart can offer solutions for individuals based on their specific requirements. These solutions range from private yachts held for a purely personal use through to fully commercial charter operations.
Madeira, Malta and the Isle of Man are jurisdictions to consider for the tax efficient importation and chartering of yachts within the EU, with each jurisdiction offering its own advantages dependent upon a particular client’s needs.
In order to discuss the specific advantages of each jurisdiction in more detail please contact your usual Dixcart contact, or alternatively please speak directly to our yacht and shipping experts at one of the following offices:
Dixcart Management (Madeira) Lda
Contact: Gisela Martins
Tel: +351 291 225019
Dixcart Management Malta Limited
Contact: Sean Dowden
Tel: +356 2248 4000
Dixcart Management (IOM) Limited
Contact: Simon Kelly
Tel: +44 (0)1624 649250