Picture the scene: you've purchased your dream yacht, had it delivered to your favourite European port, stocked up on your favourite food and invited your closest friends for an intimate cocktail reception and candlelit dinner. Quite delightful. Now imagine, upon arriving at the jetty, your guests discover the yacht has been seized by a heavily armed financial police squad and temporarily impounded due to your suspected non-payment of VAT. This could, in my view, quite possibly, spoil the evening. Of course a complete nightmare, but these things do happen.
EU VAT regulations are complex, but the basics for private yachts are easy: 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 EU waters for more than six months in any calendar year (regardless of ownership) is liable to pay VAT at the appropriate time. A sale and purchase if it takes place within EU territorial waters is likely to attract VAT liability.
There are a number of common pitfalls that can lead to unexpected VAT liabilities in this context; the first is to forget that a VAT paid yacht does not always retain its VAT paid status (i.e. if it is exported out of the EU for a prolonged period); the second is to forget that regardless of ownership status, a sale and purchase within EU territorial waters can attract VAT liability; and the third is to forget that even if the yacht is purchased outside of EU territorial waters and legally owned by a non-EU person, if the ultimate beneficial owners/users of the yacht are European nationals, a similar VAT liability may arise. There have also been cases of owners unilaterally changing flag state after purchase as part of a general refresh/refit to a more 'prestigious' EU flag, failing to take into account that this in itself has VAT implications.
Fortunately, for non EU nationals the EU operates a now quite well known temporary importation ("TI") regime, allowing for the convenient importation into the EU for private non-VAT paid yachts, provided that they remain in the EU for no longer than 18 months at any time. All good captains know how to manage these regulations and ensure that a yacht does not 'overstay' its welcome (the time period, for which the yacht must leave the EU, is not defined...). That said, issues can still arise with a yacht that has been quite properly imported under the TI regime, e.g. in cases where the owner becomes EU resident during such import period or where the owner inadvertently puts the yacht at the exclusive disposal of an EU national (whether formally or otherwise).
The EU itself does not collect the VAT for these purposes. This task remains with individual member states. Of course, it goes without saying that it is almost impossible for member states to apply the rules consistently across the entire EU community, VAT rates vary, local taxes can sometimes apply and enforcement of the rules varies considerably. Factor in right now the Community wide pressure, particularly upon certain southern European states, to crack down on possible tax avoidance and the issue becomes even more pertinent.
We can be sure of two things in life, death and taxes, and therefore the one thing to remember when it comes to purchasing and operating your yacht, is that VAT really does matter.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
