A (very) tricky question about EU VAT

[jjorio]

Hello all,

I'm posting this question after days of phone calls and reading ... so quite desperatly looking for any help or previous experience !

Here I go, I'm about to buy a boat in the Carribean :
- She has a Dutch flag from previous owner
- Always stayed in the Carribean since 1992
- No VAT paid
- Boat is located in Martinique FWI, where the transaction is going to take place
- The future owner is a UK ltd company (I own the company)
- The boat is going to be part I registered, coded (cat2) and used as a commercial vessel
- Charter will take place in the Carribean 6 months a year, and in the Azores and Balears 4 months a year
- I'm french resident

My questions are :
- As long as the boat stays in the Carribean, do I have to pay VAT (knowing that the owner is a UK business) ?
- If I do sail her to EU, to do some charter, will I have to pay any VAT upon arrival ?

Thank you !
Jaad

 

[Filgood]

Can you not set up an offshore company for the boat? Cayman or so?

Given that you're a french resident , if you haven been in the uk less than 7 years you can claim non domicile, so the income the charter generates is tax tree...as long as you keep the income out of the uk.

 

[chinita]

In response to your second question.

I am not an expert but, some time ago, I was investigating buying a new US built yacht through their UK agent.

The agent told me that I could 'delay' paying VAT if I designated the boat as a charter yacht once delivered in the UK.

I rather baulked at this until he explained that I would only need to 'charter' it infrequently and on my terms - to friends or relatives as an example.

He went on to say that I could not be held responsible if my 'charter business' was unsuccessful.

I didn't go ahead with it but, whilst undergoing a voluntary VAT inspection for my business, I just happened to mention this to the inspector. She concurred with the information I had been given.

 

[Portofino]

Q1 charter set up correctly - no vat
Q2 temp importation cert - no vat ( abide by the provisos )

 

[Sybarite]

Hello all,

I'm posting this question after days of phone calls and reading ... so quite desperatly looking for any help or previous experience !

Here I go, I'm about to buy a boat in the Carribean :
- She has a Dutch flag from previous owner
- Always stayed in the Carribean since 1992
- No VAT paid
- Boat is located in Martinique FWI, where the transaction is going to take place
- The future owner is a UK ltd company (I own the company)
- The boat is going to be part I registered, coded (cat2) and used as a commercial vessel
- Charter will take place in the Carribean 6 months a year, and in the Azores and Balears 4 months a year
- I'm french resident

My questions are :
- As long as the boat stays in the Carribean, do I have to pay VAT (knowing that the owner is a UK business) ?
- If I do sail her to EU, to do some charter, will I have to pay any VAT upon arrival ?

Thank you !
Jaad

As a French resident you pay French tax (en principe) and so I do not see any particular need for a UK company. You should look at the possibilities of setting up a "quirat" the shipping equivalent of an SNC which has tax transparency. This means that any losses on a charter activity can be offset against your other income - and depreciation will always generate a loss.

I'm a bit out of touch now but there used to be a way of assimilating a charter business to the hotel industry whre special provisions applied. It involved though having paid crew.

Here is a thread on a French forum which might give you some more info. The general message was: don't underestimate the admin hassle.

http://www.hisse-et-oh.com/forums/f...si-navigation-puis-vente-hors-ue#reply_731625

 

[Tranona]

No you don't have to pay VAT if you keep the boat outside the EU.

As you intend chartering in the EU you would not be able to import the boat under the temporary importation scheme because that only applies to pleasure boats owned by non EU residents and specifically excludes any commercial use such as chartering.

However, it must be possible to operate in the way you suggest because many non EU boats do operate as charter boats in EU waters.

Think you need to take specialist advice so that you structure your ownership and way of operating that enables you to avoid paying VAT. You may, however have to meet other regulatory requirements in the states where you intend operating. Suggest you talk to the big charter management agencies in the Med and seek their advice.

 

[jjorio]

Hi all,
Thank you for your replies.
I've already set up a UK company, at least for the boat ownership, as this will let me register the boat in UK. Why ? because I'm holding Yachmaster Ocean STCW certificate, and cannot skipper a SY under a french flag (I'm a french national and resident), it is not an accepted professionnal title

I've already considered a BVI flag, but as I asked the baleares government (this is where I would like to operate in EU), no non-EU flag allowed to charter there. Quite straightforward.
So I need a UK flag to keep the possibility to charter both sides of the ocean.

Sybarite, there are some points in your reply that I didn't get. What special provisions could be made ?

So my conclusions are :
- Keep my UK company for ownership (just received the survey and everything is fine !)
- Maybe run the chartering business with french (Martinique) company as this is tax advantageaous
- Charter in the Carribean and do not pay EU VAT
- If I have enough chartered weeks sold in the Med, sail to the Azores, pay VAT, fill chartering autorization form the Balearic Gov (as this is where I would like to operate), and pay taxes on the business, probably in UK and Balears

Thanks again,
Jaad

 

[Sybarite]

Hi all,
Thank you for your replies.
I've already set up a UK company, at least for the boat ownership, as this will let me register the boat in UK. Why ? because I'm holding Yachmaster Ocean STCW certificate, and cannot skipper a SY under a french flag (I'm a french national and resident), it is not an accepted professionnal title

I've already considered a BVI flag, but as I asked the baleares government (this is where I would like to operate in EU), no non-EU flag allowed to charter there. Quite straightforward.
So I need a UK flag to keep the possibility to charter both sides of the ocean.

Sybarite, there are some points in your reply that I didn't get. What special provisions could be made ?

So my conclusions are :
- Keep my UK company for ownership (just received the survey and everything is fine !)
- Maybe run the chartering business with french (Martinique) company as this is tax advantageaous
- Charter in the Carribean and do not pay EU VAT
- If I have enough chartered weeks sold in the Med, sail to the Azores, pay VAT, fill chartering autorization form the Balearic Gov (as this is where I would like to operate), and pay taxes on the business, probably in UK and Balears

Thanks again,
Jaad

As I said I haven't dealt with this sort of thing for some time and things may have changed (I'm retired) but new businesses could get a tax break (Art 44 sexies of the Code Général des Impôts) on a reducing basis over 5 years. But this was limited to BIC (bénéfices industriels et commerciaux) which did not cover a straight charter. However if hotel-like services were offered on the boat, then the charter could be assimilated to an hotel activity which would then be classed as BIC.

"Exonération d'impôt sur les bénéfices des entreprises nouvelles créant une activité industrielle, commerciale, artisanale ou libérale (sous certaines conditions), dans une zone d'aide à finalité régionale (AFR).
Exonération à 100 % pendant les 2 premières années.
Puis, abattement de 75 %, 50 %, 25 % pour les 3 périodes de 12 mois suivantes.
Le montant de l'aide est plafonné.
Art. 44 sexies du CGI"

You would need to get up to date advice on this. The DOMTOM used to be considered as AFR but you would need to see if this is still the case.

 

[Tranona]

- Charter in the Carribean and do not pay EU VAT
- If I have enough chartered weeks sold in the Med, sail to the Azores, pay VAT, fill chartering autorization form the Balearic Gov (as this is where I would like to operate), and pay taxes on the business, probably in UK and Balears

Thanks again,
Jaad

Strictly speaking, if you are importing the boat into the EU then it will need a CE mark which means complying with the RCD. It is unlikely that your boat will comply without significant expenditure. Suggest you talk to CE Proof who specialise in CE marking.

State of registration and liability for VAT are normally unconnected.

 

[dt4134]

A couple of other things you need to consider if operating the boat through a UK company.

1) MCA Coding of the boat for charter. A figure of £10K is often bandied about as the extra cost of getting a new RCD compliant boat up to the coding standard.

2) Income tax liability of you as a director of a company making personal use of an asset of the company. I don't know if the UK are tougher on this than the French but it is something that they do seem to focus on.

 

[Sailfree]

This means that any losses on a charter activity can be offset against your other income - and depreciation will always generate a loss.

I bow to your knowledge of the French system.

For those based in the UK and reporting income & business tax to the UK some clarification may be useful.

If its a UK company reporting under UK rules you cannot include depreciation if it is an asset for hire only if it is a service eg skippered charters. By the time the UK inland revenue proved this point to my accountant it cost me £10,000. The reality is that many do their tax returns wrongly and the IR cannot investigate everyone.

Again for UK tax to offset losses against other income it must be a genuine attempt to run a profit making business - yes some years may be tough but not every year. If you make losses every year it is a hobby that gives you pleasure not a business and the IR will disallow all losses and go back 7yrs and reclaim all tax relief claimed and require interest.

Now many will shout that I know a guy etc etc. What I have stated above is the correct way the IR look at charter business and boat ownership but in the UK the government have turned all of us into tax collectors for them and they rely on honesty. Now the intent is to stop people running F1 cars as a company car and boats only used by the company/owner for pleasure as a charter business. Many do it, others state that the boat is for company use team building etc, some qualify a Instructors and only invoice their friends for a couple of courses per year. A number get away with it for a while. If you get away with it then it demonstrates how many bigger fish the IR have to concentrate first!

 

[Sybarite]

I bow to your knowledge of the French system.

For those based in the UK and reporting income & business tax to the UK some clarification may be useful.

If its a UK company reporting under UK rules you cannot include depreciation if it is an asset for hire only if it is a service eg skippered charters. By the time the UK inland revenue proved this point to my accountant it cost me £10,000. The reality is that many do their tax returns wrongly and the IR cannot investigate everyone.

Again for UK tax to offset losses against other income it must be a genuine attempt to run a profit making business - yes some years may be tough but not every year. If you make losses every year it is a hobby that gives you pleasure not a business and the IR will disallow all losses and go back 7yrs and reclaim all tax relief claimed and require interest.

Now many will shout that I know a guy etc etc. What I have stated above is the correct way the IR look at charter business and boat ownership but in the UK the government have turned all of us into tax collectors for them and they rely on honesty. Now the intent is to stop people running F1 cars as a company car and boats only used by the company/owner for pleasure as a charter business. Many do it, others state that the boat is for company use team building etc, some qualify a Instructors and only invoice their friends for a couple of courses per year. A number get away with it for a while. If you get away with it then it demonstrates how many bigger fish the IR have to concentrate first!

In France, a director would either have to pay charter rental for own use on an arm's length basis, or it would have to declared as a taxable benefit in kind, the principle of which should be laid out in his contract. Which will also attract employer's contribution to social security. To use the boat otherwise would be considered an "abus de biens sociaux" ie misuse of company assets = stealing from the company.

 

[Sailfree]

In France, a director would either have to pay charter rental for own use on an arm's length basis, or it would have to declared as a taxable benefit in kind, the principle of which should be laid out in his contract. Which will also attract employer's contribution to social security. To use the boat otherwise would be considered an "abus de biens sociaux" ie misuse of company assets = stealing from the company.

Yes but France has a government that does everything to support its boat building industry and just want to "limit" abuses.

The UK takes the line I indicated in my earlier post. Whether a company or individual if you don't invoice yourself for personal use you get taxed for a benefit in kind.

My accountant used to have a sailing school and other charter boat owners as customers and he advises that many have had tax inspection "enquiries.

 

[Seven Spades]

As the boat is outside the EU whoever sells you the boat will not charge you any VAT as it is a VAT exempt transaction. However if you enter the EU you will have to pay the AVT on entry. If the boat is coded you will be able to claim VAT relief on some or all of the VAT depending upon your private/commercial use.