Croatia EU Accession VAT - Information Pool

[BrianH]

Excellent news for owners of older boats. Do you know any more sources of this info?

No more than the quotation of Karl-Heinz Beständig, who is extremely well-informed and himself has reported on his contact with the Croatian finance ministry.

I don't have a personal interest, my boat is from well before VAT introduction and thus "deemed VAT paid".

 

[Deleted User YDKXO]

Very true, but would you do that to an expensive asset and effectively destroy it's resale value? Anything younger than 8 years and CE marked should have a builders certificate issued by the original builder, these can be requested from the original builder as they retain records (it's always a good idea to request one for any boat you intend to purchase, just to check that it is genuine). With a fake HIN, the original builder will be unable to supply a copy of the certificate, and for production boats, determining the model year without the HIN is relatively easy, low volume production boats are even easier.

If some unscrupulous person had a £2m boat in Croatia they would be due to pay close to £0.5m in VAT. Thats an awful lot of money to find for some people in these straitened times. There are a lot of non EU boat owners (ie E Europeans) in Croatia who I can imagine will be very unwilling to part with that kind of cash for no good reason. I'm not saying I would do this but I could imagine that some people might be tempted to fake documentation for their boat to avoid Croatian VAT and then when they wanted to sell the boat, move it out of the EU to somewhere like Montenegro or Turkey, return the boat and its documentation to its original condition and sell it as non VAT paid.
Yes, if an investigation took place and the builder was willing to cooperate and they still had the requisite documentation, they would be unable to confirm the correct HIN no but I'm guessing that unscrupulous person would not simply make up a HIN no but use one from a previous model of the same boat, a bit like car cloning operates in the UK. And I'm also guessing that if that unscrupulous person went to all this trouble, he'd make sure the surveyor was onside too.
All I'm saying is that by bringing in an arbritrary cut off date of 8yrs, it opens the system to manipulation.

 

[BrianH]

There are a lot of non EU boat owners (ie E Europeans) in Croatia who I can imagine will be very unwilling to part with that kind of cash for no good reason.

It all depends how long the non-EU owner with a non-EU registered boat has been in Croatia. If the boat is laid up or the owner leaves the country, which most of them do, then the EU code provides for relief from VAT liability for up to 24 months.

Having said that, from my experience of Croatian authorities, I wouldn't like to argue with them trying to claim such an extension.

 

[Baggywrinkle]

If some unscrupulous person had a £2m boat in Croatia they would be due to pay close to £0.5m in VAT. Thats an awful lot of money to find for some people in these straitened times. There are a lot of non EU boat owners (ie E Europeans) in Croatia who I can imagine will be very unwilling to part with that kind of cash for no good reason. I'm not saying I would do this but I could imagine that some people might be tempted to fake documentation for their boat to avoid Croatian VAT and then when they wanted to sell the boat, move it out of the EU to somewhere like Montenegro or Turkey, return the boat and its documentation to its original condition and sell it as non VAT paid.
Yes, if an investigation took place and the builder was willing to cooperate and they still had the requisite documentation, they would be unable to confirm the correct HIN no but I'm guessing that unscrupulous person would not simply make up a HIN no but use one from a previous model of the same boat, a bit like car cloning operates in the UK. And I'm also guessing that if that unscrupulous person went to all this trouble, he'd make sure the surveyor was onside too.
All I'm saying is that by bringing in an arbritrary cut off date of 8yrs, it opens the system to manipulation.

Would it not be cheaper to adopt a flag of convenience like Delaware than fake the boats papers, grind out the HIN and risk prosecution and a drop in resale value?

Over lunch I got to thinking about the 8 year cut-off and I think this may be the logic behind it.

Croatia is full of charter companies who every year dispose of hundreds of ex-charter boats in order to renew their fleets. These boats are around 8 years old and are very attractive to Europeans due to their VAT free status, so the price is competitive making the boats easy to shift.

Now everyone knows Croatia will join the EU on 01.07.2013 and their VAT rate is 23%. The goverment has said there will be no consessions on the rate for yachts. This makes the current crop of ex-charter boats that are for sale somewhat less attractive to foreign buyers. I would imagine the charter companies have lobied for this 8 year rule to enable them to continue to renew their fleets and to keep the ex-charter boats attractively priced. After all an ex-charter boat that remains in Croatia will do their marine industry a favour in the long run.

 

[Tranona]

That might only apply to existing boats. Greece had a similar policy pre 2002 where charter companies sold their retiring boats free of VAT with a certificate from the tax people that they were "VAT paid". The EU challenged this and the rules were changed so now VAT is due when the boat comes off the charter register. It gets a bit complicated for boats that are actually already privately owned under charter management schemes. If, like mine it was bought under a part payment scheme, VAT is based on the original contract price (in my case 48% or full cost when new) or at a written down value of 50% original cost - this is after 6 seasons, the normal life of charter registration. You can, of course get a new charter licence and roll over the VAT liability. However, I am not sure what the basis for VAT is in that case when the boat is eventually retired. If the charter company is the beneficial owner as well as manager then i understand VAT is paid on the sale price as in any other sale by a VAT registered business.

 

[Baggywrinkle]

I've been doing some more digging, the charter companies in Croaita don't seem very clued up on this 8 year rule for older boats so I now have a new theory if anyone would like to give their considered opinion ....

Firstly every state that has joined the EU has had this sort of concession. Boats in service in a new member state more than X years before the accession date have been let off ... true for Austria, Slovenia, Greece etc...

My theory is that somewhere in the tax law of every country is a rule that says a state can only go back X years to collect unpaid tax. (I think it is 7 in Germany) and this is tied to the length of time you are required to keep tax records. The act of importing the boat is the taxable event so .... if a country joins the EU rather than the boat travelling into the EU then the question is when was the boat imported into the country?

In Croatia, a newer boat (younger than 8 years) can't possibly have entered Croatia before the 8 year deadline so will be taxed. An older boat will have to prove it was in Croatia on or before 01.07.2005 so that the taxable event (import) falls outside the 8 year tax collection deadline. Does this sound plausible?

I seem to remember something about boats having to prove where they were on or before a given date to be deemed VAT paid in the rest of the EU ......

 

[BrianH]

I seem to remember something about boats having to prove where they were on or before a given date to be deemed VAT paid in the rest of the EU ......

It does indeed sound plausible to this non-expert in taxation matters.

Your theory is supported by your point above where, for the UK, a boat built/imported before 1st January 1985 must also be able to prove (not always easy) that it was in the EU on the 31st December 1992.

 

[Deleted User YDKXO]

My theory is that somewhere in the tax law of every country is a rule that says a state can only go back X years to collect unpaid tax. (I think it is 7 in Germany) and this is tied to the length of time you are required to keep tax records. The act of importing the boat is the taxable event so .... if a country joins the EU rather than the boat travelling into the EU then the question is when was the boat imported into the country?

Yeah but the taxable event will be created when Croatia joins the EU not some date 8yrs previously so I don't see the logic. Yes there is a time limit in most countries for collection of taxes but just as a point of order at least in the UK, HMRC can go back further if they find an error in that period

In Croatia, a newer boat (younger than 8 years) can't possibly have entered Croatia before the 8 year deadline so will be taxed. An older boat will have to prove it was in Croatia on or before 01.07.2005 so that the taxable event (import) falls outside the 8 year tax collection deadline. Does this sound plausible?

Its possible but as above I dont see the logic. Anyway just because a boat can prove it was in Croatia before 01.07.05, it doesn't prove that it has been there in the intervening years. IMHO, if the 8yr limit is indeed true it will be because of the difficulty in valuing older boats. For example there is a cut off date in the UK beyond which boats are deemed VAT paid (1985? can't remember). Probably also there is a desire to ensure that the tax impacts the wealthy rather than the less wealthy in the same way as Italy's new boat tax is discounted for older boats.

 

[RupertW]

In Croatia, a newer boat (younger than 8 years) can't possibly have entered Croatia before the 8 year deadline so will be taxed. An older boat will have to prove it was in Croatia on or before 01.07.2005 so that the taxable event (import) falls outside the 8 year tax collection deadline. Does this sound plausible?

I seem to remember something about boats having to prove where they were on or before a given date to be deemed VAT paid in the rest of the EU ......

Any ex-charter boat may have been in Croatia since it was first delivered after building but almost all would have not had Croatian VAT paid, and would have been exported out of Croatia when they were sold out of charter, even if they were then immediately imported back in again as foreign flagged privately owned boats with no VAT paid anywhere.

Exporting out and importing back in again seems to be done without having to even untie the boat from it's berth

So by that logic their date of entry is the date they were sold, which means at least 8 years out of charter. Must admit I'm still confused.

 

[Tranona]

If the objective is income optimisation they will decide on a cut off date that will maximise the amount of tax they get with minimum effort this is a one-off exercise. However there will no doubt be lobbying from interested parties like charter companies seeking to minimise the impact on them, so the date might not have any logic at all. They may well look at precedents in other accession countries as well.

One thing is for sure, individuals will have no say in the matter

 

[Baggywrinkle]

Yeah but the taxable event will be created when Croatia joins the EU not some date 8yrs previously so I don't see the logic.

The way I see it, when Croatia joins the EU, the status of all the assets in Croatia with regard to tax status must be alligned with the EU.

For Croatian citizens this is easy, VAT paid in Croatia counts so no impact.
For companies with VAT exempt business assets - no impact they remain the same.

The problem comes for individuals who have used the fact that Croatia is outside the EU to purchase or place assets in Croatia as EU citizens without paying VAT. (This was also true when the EU was formed for individuals with assets in foreign countries).

When Croatia joins the EU what should be done with these assets?

The rule for importing boats is that when they enter an EU port and are owned by an EU citizen then they are liable for VAT at the rate applicable in the port of entry if they can't prove it has already been paid.

In Croatia however the boat hasn't moved. No yellow flag, no customs visit. The Goverment has chosen to change the tax rules for these individuals by joining the EU. The arrival at the port of entry happened in the past, the boat is already imported to Croatia. The original date of the boats arrival in Croatia was the date of import, which at the time was perfectly legal with no VAT paid and no errors.

As a goverment can't back date a tax demand beyond X years then the tax is deemed to be paid if you can prove your boat was in commision in the country before this cut off date.

At least that is my logic ... gives me an uneasy feeling about the export/import process for ex-charter boats though as I feel this might reset the clock.

 

[Baggywrinkle]

If the objective is income optimisation they will decide on a cut off date that will maximise the amount of tax they get with minimum effort this is a one-off exercise. However there will no doubt be lobbying from interested parties like charter companies seeking to minimise the impact on them, so the date might not have any logic at all. They may well look at precedents in other accession countries as well.

One thing is for sure, individuals will have no say in the matter

I agree, they will want to maximise income, that's why there's no concessionary rate and they're trying to put VAT up to 25%. They also however have to remain legal and can't over-reach and break EU rules in terms of taxation.

But you're right, whatever happens will happen and we'll have no say in the matter.

 

[Baggywrinkle]

Anyway just because a boat can prove it was in Croatia before 01.07.05, it doesn't prove that it has been there in the intervening years.

I agree but this is where the laws of diminishing returns come in, at what point is it no longer economically viable to chase owners of old and less valuable boats. Hence the current rule that you must only prove your boat was in the EU before a set date for the boat to be deemed VAT paid (or VAT exempt), regardless of where it has been in the meantime.

 

[BrianH]

So the Croatian referendum passed with a two-thirds majority (see here), predictable for a country that is in an even worse economic state than a majority of the members of the club they want to join and from which they will, almost certainly, be a net recipient of funds.

Time for all you VAT-eligible boat owners to be reviewing your contingency plans.

 

[Deleted User YDKXO]

So the Croatian referendum passed with a two-thirds majority (see here), predictable for a country that is in an even worse economic state than a majority of the members of the club they want to join and from which they will, almost certainly, be a net recipient of funds.

By all accounts, Croatia had already borrowed significant amounts of money secured against receipt of future EU funds so they almost had to join. By all accounts, that shiny new motorway (which is excellent) running down the spine of the country was financed in this way. Yup, time to think about contingency plans

 

[Maritimus]

Yacht import in Croatia with 1.7 custom dues and 5% VAT is in force

Anyone interested in maintaining a thread to pool information on potential VAT (PDV) charge on Foreign Flagged yachts based in Croatia? Croatia may join the EU in 2011 or 2012 and non EU VAT paid yachts will require to become VAT paid if they are to remain in Croatian waters (or alternatively flee down the coast en masse to Montenegro, Albania or Turkey!).

So far I have not been able to find out the intentions of the Croatian Government. HMRC have stated that individual accession countries can create their own rulings on this. Croatian VAT is currently 23%.

On EU accession in 2003 Cyprus and Malta set special "deemed VAT paid" rates of 0% and 5% respectively, for "boats in Residence" prior to EU accession date. (Malta extended this rate beyond this?). Are there any national organizations who can lobby the Croatian Government for similiar concession for the numerous boatowners who have supported Croatian Marine Tourism for many years (forlorn hope)?

No doubt affected boat owners of various nationalities will be able to add to this blog over the next coming months when more information comes to hand.

Since 01.01.2013 yacht import in Croatia is possible with 1.7 % custom dues and 5% VAT from boat actual value. This is atractive package and the chiepest at the moment in EU countries. Croatia will enter in EU on 01.07.2013 and all boats under Croatian flag will have status - EU VAT PAID! More details and eventually quote for your yacht you will find on our website www.maritimuus-consultant.hr