VAT Implications in the European Union

If you wish to use a private yacht within European Union (EU) waters you must be aware of the various Value Added Tax (VAT) implications. In principle, all yachts owned or used by EU residents must have their VAT paid before they may enter EU waters. An exemption is possible only for yachts that are owned by non-EU residents and used temporarily in EU waters by a non EU resident (for example a company incorporated outside the EU or an individual who normally lives outside the EU).

Important points to be considered for determining whether or not VAT is payable are the place of purchase of the yacht, where the yacht will be used, who is the beneficial owner of the yacht, whether the yacht will be chartered out to third parties, and whether the yacht will be used by EU residents.

International Ship Registries works closely together with VAT specialists to provide advice and facilities for the mitigation, deferment or even possible avoidance of VAT on private yachts as well as commercial vessels. Our VAT specialists will be glad to assist you in deciding whether you need to pay VAT on your newly purchased vessel. We are also be able to explain to you the various possibilities that may be available to mitigate, defer or avoid the payment of VAT. Furthermore, the application of VAT rules is far from uniform between different EU member states and it is highly advisable to take professional advice before a yacht is purchased or used by a EU resident.

Through several carefully researched and structured programmes, qualifying European Union residents may be able save the VAT upon acquisition of their yachts maintained and navigated in EU waters. There are a number of such schemes available to reduce or completely avoid payment of VAT. These include registration of the yacht as a commercial vessel and various charter arrangements.

In general, however, only in relatively few cases will it actually be advisable to consider such schemes, namely in the case of genuine charter arrangements. VAT rates throughout the EU vary substantially (from 13% in Madeira/Portugal to more than 20% in most other EU countries). It may therefore be advantageous to pay VAT in a country with a lower rate of VAT, and in some countries there are cash flow advantages due to the way VAT is levied. As an example, if an Isle of Man company acquires a vessel for the purpose of chartering the vessel, the yacht need not sail to the Isle of Man and VAT due on acquisition will not need to be paid up, the payment and repayment being made on an accounting basis only.