As a yacht broker, at least one waking hour in every day is spent talking about, worrying about, doing detective work about or taking advice on – VAT…..The VAT treatment of yachts within the EU is a very big subject made bigger by the fact that although a directive exists that sheds some light on the what makes a yacht VAT paid or exempt, or not for that matter, and what this means for her owner; basically, there is no central authority and no single set of rules. Everything is open to interpretation and depending on the Customs Officials, nation state, accountant or expert, the answer may well differ.
Each member state in the EU administers things differently, so navigating through the morass of available information to try to discover whether a yacht is in free circulation in the EU is a frustrating job, and often there is no clear, 100% answer. Yacht owners and buyers are keen to avoid grey areas but I am afraid that the treatment of VAT in the EU of which today the UK is still part, is just that and there is often no silver bullet or comprehensive answer. Very often owners and buyers need to form a judgement about what is available in terms of paperwork and the accepted rules, and live with the resultant greys.
People often ask if this situation can’t be normalised and made easier. This is unlikely to happen as member states of the EU do not have a common policy and to set one up would be expensive and this is really not on the must have list for such a small group of tax payers. Hard pressed customs offices in all member states are responsible for immigration, security on all borders and collecting customs revenues and amongst these important jobs, the fate of a few wealthy yachtsman worried about the VAT status of their yachts is simply not a priority. This is particularly the case when VAT should have been paid at point of sale and so the majority of yachts should be in free circulation. When resources allow, it is a simple matter to catch up with the problem and collect VAT where appropriate on yachts that have not accounted for it. Not having clear rules can mean that there is always a possibility that a yacht owner pays VAT on his yacht twice which is hardly a vote loser and also adds to the Revenue coffers at a time when all Authorities are hungry for revenue.
Many of the non-EU nationals who cruise the Mediterranean and elsewhere in the EU like to own VAT paid yachts. The value of being able to spend as much time as they like wherever they like in the EU is not lost on them, for this comes withoutthe disadvantage of having to renew their temporary importation licence every 18 months.
At the moment, whilst not in the Schengen area, entering the UK is just like entering any other EU member state and when arriving from another EU state you do not have to alert Customs or fly a Q flag or bother with any of the processes associated with arriving in a new country. This is because the borders are open so you are simply moving through the EU which is a vast, single area.
If you are an EU national, in order to use any yacht that you own in the EU, she must account for VAT. In some areas these rules are particularly strictly applied and some member states do not sanction non-EU yachts having guests or family aboard who are resident in the EU, and this can even apply to the nationality of the crew. When cruising in EU waters, as an EU national (or non-EU for that matter) you may be challenged by the Authorities and you will need to provide a VAT receipt from the Builder, hopefully in original or from a Customs authority showing payment. Alternatively the yacht needs to have been in service pre 1985 and to have satisfactory proof that she was in the EU on midnight of the 31st December 1992, as of course the open market came into existence in January 1993. This exclusion is now relatively rare because of the march of time.
Yachts can also be imported back into the EU when returning EU nationals bring them in as goods and chattels. In this case, in the same way as furniture and the like, provided they remain in this owner’s hands for 12 months, they are exempt and can be sold as such.
Aside from that, there are yachts owned by companies who have legitimately paid their VAT and reclaimed it, and who account for the VAT in the normal way on sale to the next owner.
Of course the other thing of which you must be aware is the history of the yacht since the VAT was accounted for. If she has since changed hands outside the EU, not paid VAT on services performed in the EU or has reclaimed VAT at any point, she becomes VAT liable again.
If you are a non-EU national you can cruise in the EU for up to 18 months without payment of VAT. After that you need to leave the EU and prove that you have done so, after which you can return for a new temporary importation period of 18 months. As mentioned earlier some non EU owners prefer to have a VAT paid yacht as the need to leave for Gibraltar, Morocco or some other port during a cruising season or maybe outside the season, adds a little stress and hassle that is not welcome, as you have a yacht for fun and relaxation.
As the negotiations of Brexit twist and turn, we wonder what this will mean for yachts and VAT. For sure in Europe the same opaque and rather unsatisfactory VAT position will lumber on with different member states having slightly different rules but the general idea will remain the same. A good example of this is Portugal, which insists on a T2L Customs document to prove payment of VAT. This is not available to most yachts as it is only issued when a customs agent has handled payment of the VAT. Of course now we know, Customs agents are able to issue T2L forms to yachts bound for Portuguese waters if the VAT paid status is satisfactory. This is just one example of a range of different attitudes and local rules. What has become apparent to us, is that if the yacht is arrested in Europe it is the local Customs official that will call it and what he, or she, says will go.
There are many situations such as that relating to lease purchase arrangements beloved of the French and Italians but not accepted in some other member states as proof of VAT payment, and many other little anomalies which we need to work around.
So all these wrinkles, rules, customs and the rest of it will remain and as a large proportion of our business is carried out in Europe, it will be situation normal, and our detective work will continue.
However, in the smaller market of the UK, we are now told that we are leaving the Customs Union, so what will this mean for a bunch of yacht brokers trying to establish VAT status in the UK after 2020 – or we suspect a little while after that?
The possibilities are intriguing and it will be interesting to see how the situation plays out. What it will not mean is that the UK authorities will forgive the payment of VAT – nice though this would be.
For those “overseas” (outside EU single market) manufacturers supplying to Europe, presumably the supply will be zero rated to an EU country of supply. Interestingly, a UK national would probably be able to then use his yacht whether new or ex-VAT and brought to the EU for 18 months without payment of VAT. If this is the case we will see a lot more UK yachts remaining in the Mediterranean and other EU seas rather than hurtling across the Atlantic to the Caribbean immediately on purchase. We also expect to see more motor yachts in the Mediterranean where the weather is more reliable if indeed there is a 20% price advantage……
For the UK yacht owner, if the above proves true, presumably when returning to the UK they will need to pay VAT on entry?. If this is the case, it is very hard to imagine anyone with a blue water cruising yacht or larger motor yacht bothering to return to the UK or coming in for a refit when a saving of 20% beckons across the English Channel. Yikes, that may not be good for refit yards in the UK unless they can come in on an IPR (Inward Processing Relief) ticket, as do all VAT free yachts at present and then leave post refit. On the other hand, refit-boatyard UK suddenly becomes destination refit for all EU yachts if they can use IPR and save 20%.
Of course we don’t know if this is what will happen but it is logical to assume that the UK yachtsman will be treated like the Norwegian, American or Swiss. The only reason not to do this would be a revenue grab by the EU. As there is no coordinated VAT collection policy in the EU, and as the UK would not be participating, this would be seriously less than cricket.
So, in summary, the refitting of yachts in the UK for EU yachts should also be an ex VAT affair, giving our UK yachting industry a welcome shot in the arm because of the price advantage and attracting both EU yachts and non EU yachts to an area with fewer rules and more importantly, without officials asking for money….!
As the Brexit negotiations stumble on, we are pretty sure that the VAT treatment of yachts is not at the forefront of the agenda for Mrs May, Mr Davis and Dr Fox …….We are also sure that there are many twists and turns for many parts of our economy before things are finally sorted out.
The UK yachting industry is about the same size as the UK ice cream industry. If you consider the UK weather and consider the occasions on which you might like to eat ice cream in our damp and chilly islands, then you have some idea of the size of the yachting industry.
However, and despite the odd hiccoughs (Oyster), our UK marine industry is diverse and nimble, supplying anything from the mighty Sunseeker to Princess and Rustler yachts, down to small cottage industry companies that build a yacht or two every year. Our yachting service industry punches above its weight with names like Camper & Nicholson, Burgess and the like based in London, with networks of offices across the world. Even minnow Berthon is a very English company, with a shipyard where boats have been built since Roman times and with an apprentice programme employing around 30 young people at any one time, learning a skilled trade in our yard. With our offices in France and the USA now core to what the Sales Division does (only 35% of our business is now UK based), nonetheless, HQ is in the UK and will remain that way.
Whatever you think of Brexit, it is coming, and it is our hope that a coordinated policy can be found for the VAT treatment of yachts once the UK is out of Europe, and that this needs to be along the lines of the Norwegian model rather than some solution which takes all the worst bits of the European VAT muddle and makes it worse. With a simple, business friendly solution, the industry and the people that work in it can thrive and grow – who knows, the UK ice cream industry may have to look to its laurels!