VAT & TAX GUIDELINES

2014

Prepared by:

Yachting Partners International (YPI) Charter & Financial Teams Update: 8 October 2014

Yachting, as a business and a pastime, is presently undergoing some particularly important fiscal change with expert opinion remaining divided as to the most accurate interpretation of many of the upcoming amends. To help guide our clients and colleagues, Yachting Partners International (YPI) has compiled this brief guideline for charter yachts on the VAT requirements as they stand today. This Guide is based on all the information and advice our Charter Managers and Financial Department has been able to ascertain to date. However we stress that YPI is not a fiscal advisor and the situation continues to evolve. We continue to monitor the on-going situation closely and strongly recommend clients and colleagues take independent fiscal advice to cover their specific individual case.

For more information contact: Annemarie Gathercole on: +377 99 99 99 97 or email: [email protected]

OVERVIEW The overall MYBA Agreement principle is that, unless otherwise agreed, VAT is for the charterers account. This principle is detailed in Clause 8 of the MYBA Charter agreement. The ways in which VAT is applied, however, and at what rates, varies from territory to territory.

FRANCE VAT applies to yacht charters starting in France with effect from 15 July, 2013. This announcement was formally made on the 25 June 2013, by the French Direction de la Législation Fiscale (DLF) through an official bulletin. Until then commercially operated yachts could be imported into France at a zero rate of VAT and their subsequent charter activities originating in French ports were VAT exempt. Reportedly French and EU Authorities are still discussing how to define 'for international travel' and 'high seas', which will undoubtedly be a long and drawn out process. In the meantime, the French have continued interpreting Article 262 as it stands and carried on with zero rating the supply of goods, fuel and services to commercial charter yachts. It is likely that this will change in 2015. 

Monaco has followed the fiscal rules of France for VAT since both Monaco and France make up the same VAT Territory.

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All charters commencing in French waters are subject to French VAT rate at 20%, although it is possible to benefit from a 50% reduction in the rate, 10% instead of 20%. In France currently, reductions in VAT are made for certain industries. Therefore the full rate (20%) is applied to half (50%) of the charter if the vessel enters international waters (12 nm offshore) during the charter, with a bona fide itinerary, and proof of such. This can be proved using AIS plotting and the captain’s log. The former duty-free supply of fuel for yachts used under the French Commercial Exemption regime was revoked by the new legal provisions of 30 December 2013. However, the Administrative Instruction which interpreted the previous law is still in place and the French Customs administration is unable to enforce the new provisions for the time being. We were advised no modifications would be made to the Instruction until the end of the 2014 summer chartering season. At the time of writing, duty-free supply of fuel for yachts used under a commercial charter contract continues.

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The French Government recognises the date of signing of the MYBA contract as the Tax Point date, and the point of embarkation at the start of the charter as the Tax Point geographically.

It is becoming increasingly important that owning companies with commercially registered yachts actually charter their vessels in a real and economic fashion with demonstrable charters. Even though a structure may be legally compliant, the Tax Office can always deem a structure to be an “abuse of rights.” For example: if there is only vague proof of commercial charter activity and there is over-aggressive planning just to reclaim VAT on provisioning and fuel, the Tax Office may, in future, deem a chartering structure to be an abuse of rights and levy VAT. We predict that accounting for APA will become very important. APA spent needs to be accounted for with real VAT-able invoices. Any amount which is not accounted for properly and not returned to the owner may become VAT-able.

For more information contact: Annemarie Gathercole on: +377 99 99 99 97 or email: [email protected]

VAT REQUIREMENTS FOR YACHTS CHARTERING IN FRANCE If they have not already done so, a yacht’s owning/parent company chartering from France should, as soon as possible, initiate and complete the formalities for obtaining a French N° of intra-community VAT. Vessels starting their charter in France will need to be VAT registered in France, and if starting in Monaco, they must also be VAT registered in Monaco.

ITALY 

For a yacht departing from an Italian port, with an itinerary which includes sailing both in Italian waters (within 12 nm of the coast) and EU waters (exceeding 12 nm from the coast), a reduced effective rate of 6.6 % is to be applied on the charter fees, delivery fee, APA expenses, including the fuel used during the charter (30% of the Full Rate of VAT which presently stands at 22%).

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For a yacht departing from an Italian port, with an itinerary exclusively in Italian territorial waters (sailing within 12 nm of the coast) the Full Rate of VAT is to be applied to the charter fee, delivery fee, APA expenses, including the fuel used during the charter.

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In principle VAT is due in the source country as per EU regulations at the point of departure.

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In order to charter in Italian waters and therefore pay the Italian IVA, the yacht must be VAT registered in Italy.

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The Italian Tax Date point of a charter is at the date of embarkation.

VAT REQUIREMENTS FOR YACHTS CHARTERING IN ITALY 

EC-owned vessels will need an Italian VAT number if they start a charter in Italian waters.

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In order to obtain the VAT registration vessels must be imported into the EU.

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Non EC-owned vessels will need both an Italian fiscal representative and an Italian VAT number if they start a charter in Italian waters.

Note: Getting an Italian VAT number can take, at best, between 2 – 3 weeks, assuming all documents are in order, so all applications should be filed as soon as possible.

MONTENEGRO 

At present VAT is not applied to charters starting in Montenegro.

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In order to obtain a Vignette/Cruising Permit, the owning or managing company of each yacht must issue a ‘Letter of Appointment’ or ‘Power of Attorney’ stating that the captain has full authority over the vessel and crew for which he is in command. This letter, or POA, has to be NOTARIZED, and any Notary will be accepted. The salient point is that the POA must be Notarized. NO APOSTILE is necessary.

For more information contact: Annemarie Gathercole on: +377 99 99 99 97 or email: [email protected]

GREECE 

Greek Flag yachts pay VAT on charters - the rate of VAT varies depending on the size of the yacht.

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At present Foreign Flag vessels must embark or disembark their guests outside of Greece.

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No VAT is applied to charters on Foreign Flag vessels – this should change in 2015 but as yet we have no confirmation of the rate of VAT to be applied.

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Although new legislation has been passed regarding EU-flagged commercial yachts chartering in Greek waters, it has not yet been implemented. The reason for this is that ALL yachts, Private and Commercial, are to be listed on a central electronic registry which will monitor the cruising tax (Private registry will be 10 Euros per metre per month or 100 Euros per metre per year and half this amount for Commercial yachts when engaged in a commercial activity) as well listing the charter agreements and VAT payments on charters. At the time of writing this electronic register is not yet operational.

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One consequence of this new legislation is that passenger embarkation and disembarkation will be allowed in Greece for the first time, meaning the charter can commence and terminate in Greece.

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A Greek VAT number will be required.

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No VAT will be applied on fuel provided the conditions for taking duty-free fuel are met. It has not yet been clarified whether VAT will be due on APA.

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For the moment there are many grey areas in this new legislation which we hope will come to light in the next few months, until then we can only surmise what will be required.

TURKEY 

At present no VAT is applied to charters on Foreign Flag vessels. There are, however, new regulations for non-Turkish Flag yachts starting or finishing their charter in Turkey. If guests embark outside of Turkey (i.e. Greece), and then cruise to Turkey, there is no change in the usual ‘Clear-In’ procedures. On the other hand, for those wishing to embark directly in Turkey to charter in Turkish waters, the yacht is obliged to ‘Clear-Out’ of the country immediately and visit one port outside of Turkey (i.e. Rhodes), and then return to Turkey ‘Clearing-In’ to a port different from the one they ‘Cleared-Out’ of. Each and every time a commercial yacht ‘ClearsIn’ to Turkey, a fee of 30.00 USD per metre will be charged (calculated as the registered LOA x 30.00 USD).

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All yachts, regardless of pleasure/commercial status will be able to take on Duty-Free fuel in Turkey. The only condition being that upon completion of bunkering operations, the yacht must ‘Clear-Out’ of Turkish waters.

For more information contact: Annemarie Gathercole on: +377 99 99 99 97 or email: [email protected]

SPAIN 

Until 2014 only yachts imported into Spain, having paid the Matriculation Tax could legally charter in Spain. However, if all the guests embarked and disembarked outside Spain and only cruised in Spanish waters, then this was acceptable to the Spanish authorities. This only applied provided none of the guests were Spanish, Spanish Resident or owned property in Spain. This is still the case for yachts which do not have a Spanish Cruising license.

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For EU flagged yachts chartering in Spain, VAT at 21% is charged on the charter fee for charters starting on the Spanish mainland. The yacht must register with the Spanish Government in the sector for charter activity. A Charter License is also required to start a charter in the Balearics. In addition, in the Balearics, the law obliges all yachts with the Matriculation Tax exemption to be “effectively and exclusively” engaged in charter. However, with regards to non-Spanish EU flagged yachts, this ‘exclusivity’ only concerns Spanish territory. For instance, a Malta-flagged yacht must be effectively and exclusively engaged in charter in Spain but not in the rest of the world.

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In addition, the Ultimate Beneficial Owner and any related parties may now charter in Spain provided they are not Spanish resident nor do they own an ‘establishment’ in Spain. ‘Establishment’ does not imply a “permanent establishment” rather any “economic connection” with Spain. In this case advice must be sought on a case-by-case basis.

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In order to obtain a Yacht License - A Spanish fiscal representative can apply for the Matriculation Tax exemption, register the yacht in the charter activity sector, apply for the Balearic License, and handle all the issues regarding Spanish VAT compliance. There is a distinction to be made between mainland Spain and the Balearics: in order to start a charter in Balearics (regardless of the Spanish region where the yacht is lying) a yacht must have a license issued by the Maritime Authority. This is not a requirement for the Spanish mainland.

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Non-EU flagged yachts can now start and end a charter in Spanish waters by applying for a Spanish Cruising license and these will be granted on a case-by-case basis. However, as in the past, EU and non-EU commercial yachts with a charter contract from an EU country on board may still enter into Spanish waters although they may not embark or disembark guests in Spain (mainland or the Balearics).

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If a yacht is commercially registered (or a passenger vessel), bunkering is duty free on the mainland. VAT at 21% is charged on fuel in the Balearics.

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APA in Spain is subject to VAT.

ALBANIA At the current time, Albania does not have legislation specifically addressing chartered yachts that come to the country. There are therefore no regulations regarding ‘Pick up’ and ‘Drop off’.

For more information contact: Annemarie Gathercole on: +377 99 99 99 97 or email: [email protected]

CROATIA The EU ruling concerning the application of VAT on charter fees was implemented in Croatia by means of a directive published in issue no. 99 of the Official Gazette of the Republic of Croatia. The directive came into effect in 2014 and is the first step towards regulating the Croatian charter industry in line with EU Law. Who can charter in Croatia? Below is a summary of the most important points:   

VAT on charters starting in Croatia is set at 13%. Croatian and EU-registered commercial yachts may charter in Croatia. Non-EU commercial yachts with registered length over 40m may perform ‘cabotage’ operations and start charters in Croatia.

This means that all non-EU commercial yachts with overall length of 40 metres (registered length) or more can charter in Croatia alongside EU and Croatian commercially registered yachts. What are the compliances? Compliances differ depending on whether the yacht is EU/Croatian flagged or non-EU flagged. Croatian/EU commercially registered yachts:  No limit of size  No charter licence required Non-EU commercially registered yachts must:  Be over 40 metres (registered length)  Apply for a charter licence  Yachts with registered length under 40 metres are not allowed to start charters in Croatia but can cruise with guests on board and disembark guests in Croatia. The Croatian charter license is valid for one year from the date of Government Approval (not the date of application). The application process can take up to three months. The number of licenses for 2014 is limited to 152. The licenses are granted on “first come - first served” basis and applications must be made through Croatian maritime agents.

Owning Company compliances Before starting charter activities in Croatia, EU and non-EU owning companies must: 

Appoint a fiscal representative to collect and account for VAT on charter all activities performed in Croatia.

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Apply for a Croatian VAT registration number and Personal Identification Number (OIB) from the Tax Administration.

APA in Croatia is not subject to VAT at present. VAT is due on fuel: both commercially registered and Private yachts must pay duty on fuel. For the moment VAT is not pro-rated on a pro-diem basis with regards to those days spent in Croatian waters if the yacht starts or starts and finishes a charter outside Croatia.

For more information contact: Annemarie Gathercole on: +377 99 99 99 97 or email: [email protected]

Documents required for charter licence application: 1. Certificate of Registry 2. Report from the most recent technical inspection (within last 12 months) with the place, date & volume plus the results of the inspection and the name of the entity which conducted the inspection clearly displayed. 3. Certificate of Class issued by Certified Classification Association 4. International Tonnage Certificate 5. International Load Line Certificate 6. International Ship Safety Radio Certificate 7. International Oil Pollution Prevention Certificate 8. Engine International Air Pollution Prevention Certificate (for each main or auxiliary engine with power exceeding 130 kW) 9. International Anti-fouling System Certificate 10. International Sewage Pollution Prevention Certificate 11. International Ship Safety Construction Certificate 12. International Ship Safety Equipment Certificate 13. Safety Management Certificate 14. International Ship Security Certificate

PLEASE NOTE: Whilst it is not officially necessary to have either a Certificate of ‘cabotage’ or Licence, it is highly advisable for yachts to apply for the charter licence. This will save any confusion in the case of the yacht having to change their program or ports during a charter.

VISAS IN CROATIA The Croatian authorities announced that as of July 1st, 2013 the classic visa regime of the EU will now apply for citizens of Russia and Turkey, as well as all citizens of those countries that need a visa for entering the EU member countries. This means all alien holders of valid Schengen documents (as of July 1st) do not require an additional (Croatian) visa for entry and short term stays in Croatia. In past years, a visa waiver was granted for Russian citizens in the summer months to make entering the country easier. This is no longer the case and only valid Schengen documents will be accepted. Russian citizens who do not have valid Schengen documents, now have to submit an application at the Croatian Embassy in Moscow, or at an Accredited Tourist Agency/Visa Centre in Russia. Due to the importance of the Russian tourism market, Croatian authorities have indicated that they will process Russian visa requests quickly (generally no longer than 5 days). Multiple-entry visas can also be issued. Negotiations are underway to also speed up the process for Ukrainian and Turkish visitors as well.

For more information contact: Annemarie Gathercole on: +377 99 99 99 97 or email: [email protected]

Highlights of some other tax changes relevant to charter… BAHAMAS YPI has been advised that Bahamas Tax is scheduled to increase from 4% to 7.5% in 2015. We will follow developments on this and report once dates are announced.

TAHITI YPI has been advised that the tax in Tahiti is to be reduced from 12% to 5% effective immediately.

NEW ZEALAND The New Zealand customs officials are currently making a few changes to the registration system for internationally flagged vessels coming in for charter. Therefore the amount of Tax applied to charters in New Zealand is still under review. We will follow developments on this and report once dates are announced.

DISCLAIMER This document is intended as a general guide only and does not constitute as being legal or tax advice. The application of the advice in this document to specific situations will depend on the particular circumstances involved. Accordingly, we recommend that readers seek appropriate professional advice by consulting an Attorney, Chartered Tax advisor or Chartered Accountant regarding any particular problems they encounter. This information should not be relied upon as a substitute for such advice. Although we have made considerable efforts to be thorough in the construction of these pages, we offer no assurance that the information posted here is timely, accurate, complete or applicable to any particular set of facts. Its application to specific situations will depend on the particular circumstances involved. While all reasonable attempts have been made to ensure that the information contained herein is accurate, YPI SAM, YPI Group companies and its legal owners accept no responsibility for any errors or omissions it may contain whether caused by negligence or otherwise, or for any losses, however caused, sustained by any person or entity that relies upon it.

For more information contact: Annemarie Gathercole on: +377 99 99 99 97 or email: [email protected]