Hello from a newbie and advice on German Flag, VAT purchase

[Medex]

Hello All, firstly I just wanted to say hi and thank you for the knowledge gained so far. I have looked through the forum and just wanted to check a couple of points as it is a first UK yacht purchase.

I am considering purchasing a used yacht a few years old currently lying in Italy on a German Flag. VAT was paid in Malta and when I viewed the boat there was a Maltese certificate declaring VAT had been paid by the company which purchased it. The yacht ownership was changed to the individual owners and registered with a German flag a year or so later. Owner was the owner of the company that purchased it.

To me this all seems straight forward but I am no expert so wondered if at this point there is anything that I am missing or stands out that I should check prior to moving ahead? There is no broker involved in this deal so I need to do a lot of homework myself but which I dont mind.

Secondly can anyone recommend a good solicitor in the UK I can consider discussing these issues with. If it all pans out my plan was to engage legals on the purchase, register on small ships in the UK and leave it somewhere in the Med depending on the winds

thanks for any advice.

 

[Tranona]

Strictly speaking the German company, if it was VAT registered, should have accounted for VAT when it sold the boat to a private owner as that may well have been what is considered a "chargeable event". However, without having full details of the transaction it is difficult to say for certainty. The important rule is that sales between private individuals in the EU are not subject to VAT, so your purchase from the current owner will not be subject to VAT. However, there may still be a residual liability, if there was any irregularity when the ownership transferred from the company to the private person. This would would not be your liability, but the company's, and it would be the responsibility of the state where the transaction took place, and it is possible that the liability could be attached to the boat, by the authorities in that state.

You don't say how old the boat is, or when the VAT was paid in Malta. If the boat is pre 1986 then it may well be in the category of "deemed VAT paid" depending on where in the EU it was located at the time. VAT in Malta has a chequered history as they offered to some a discounted rate when they entered the EU and it is not clear how acceptable this is to other states.

Registration is largely irrelevant from the VAT point of view as VAT liability always depends on the state where the transaction took place, which should be where the boat is located at the time. The ownership trail through the Bills of Sale is the key to identifying past transactions.

As to getting advice, you first need to gather together every bit of paper related to the boat, and suggest if you are a member you contact the RYA for initial advice. Not really necessary to use a solicitor, nor are many experts in this area. Your best bet is to use an experienced broker to do the due diligence on your behalf and manage the transaction. If you are interested I can suggest one. Registration on the SSR is easy and does not need any formalities, but you must be UK resident, but the current owner will need to remove it from the German register. You can then keep the boat in most of the EU without any problems.

Hope this helps.

 

[GeorgeLlewellin]

I would suggest that you be very careful about this purchase. Overseas purchases are seldom straight forward and your situation is complex. It may all be OK but Caveat Emptor (buyer beware).

I am a retired yacht broker, who specialised in VAT free boats, when I lived in Guernsey, however I sold my brokerage business 25 years ago, and the law has changed since then.

A good many years ago I had a case of a British subject wanting to sell his boat that had been purchased from a British company that he was MD of. All the documents appeared to be in order, but I queried things further when I realised the current owner had signed the Bill of Sale when he purchased from the company. I then found out that the company had gone into liquidation at about the same time as the boat was sold. You can see where this is leading.

Your proposed purchase is probably all above board, but check it all out.

If you are an RYA member then you could ask them for advice.
You could also ask a recognised broker who deals with overseas sales to act as your agent, brokers don’t only act as vendors agents.
Or you could see a specialist solicitor, that will probably cost more.

But don’t agree to anything or sign anything until you have had advice.

Ask the owner to email copies of appropriate documents so that you will have them to hand.

Good luck, Goerge

 

[Medex]

Thanks both for your advice. Just to clarify a couple of points if this adds anything. The boat is 2011 so recent. The company that purchased the boat was set up as a vehicle to purchase the boat in Malta and reduce the VAT liability - so it was paid in 2011.

Regarding agents - I know selling boats agents will take say 10%. I didnt know much agents act on the purchase side - can anyone shed light on expected costs or how costs are normally calculated in this instance?

Lastly - If a UK company was to purchase a yacht from an individual in the EU. Does anyone know what happens with VAT when the company sells the yacht again. As the company wont be able to claim VAT back - my thoughts are that there will be no VAT liabilty when selling a couple of years later but I cant find info on this. Any advice on this appreciated.

 

[Tranona]

Brokers would be delighted if they earned 10%! 5-6% is nearer the mark in the UK for full service, although higher in some other countries where the process may be more complex or business practices less free. For execution only think you will get a fixed fee depending on the complexity, but it will be substantially less than full service.

On the face of it, there is no advantage in owning through a company unless you want to operate it commercially. In this case you need to take specialist advice in the state in which you wish to operate.

Back to the VAT. If the transaction takes place in Malta then you need to get clarification from the Maltese authorities that there is no further VAT liability. That is the vendors responsibility, not yours as he has to sign a Bill of Sale saying that the boat is free of all encumbrances. One would hope that if he has gone to all the trouble to take advantage of the low Maltese VAT rate he has made sure he has done the job properly so that he is free to sell.

 

[25931]

The first thing to bear in mind re solicitors is that the purchase will not be within UK jurisdiction so the advice to contact the RYA is sound.

 

[Norman_E]

I won't comment on the VAT aspect but my boat was German registered when I bought it. The seller arranged for it to be taken off the German register, and I have a certificate proving that it was de-registered in Germany. I then registered the boat on the Small Ships Register and I think that I had to produce the German certificate.

EDIT. I just looked at the certificate. It is headed Amtsgericht Hamburg, and confirms in both German and English that the German registration has been deleted, and that "The vessel is free from registered encumbrances and rights." That looks important to me.

 

[Medex]

Thanks for the info Norman_E. I was going to ask how best to check for registered encumbrances and it appears that this is done when the boat is de-registered from the German flag. Can anyone else confirm this or is there an easier way to check for this with german registered boats? This one is on ADAC and carries the internantional boat slip (Internationaler Bootsschein).

 

[Tranona]

Thanks for the info Norman_E. I was going to ask how best to check for registered encumbrances and it appears that this is done when the boat is de-registered from the German flag. Can anyone else confirm this or is there an easier way to check for this with german registered boats? This one is on ADAC and carries the internantional boat slip (Internationaler Bootsschein).

The registry will be able to tell you. Not sure the ADAC registry has the facility to register charges against boats as I think it is a bit like the SSR rather than the Part 1 register. Checking for registered charges would be a normal part of due diligence when considering buying a boat.

 

[Fendant]

If the boat is from 2011 and VST has been paid at purchase ( and documented by the sellers company invoice ) you should be fine with this side of the equation. The hairy other part is to have evidence that the boat is free from any registered rights. You have to ensure that the seller confirms that. There was a case ein Hamburg where suddenly a divorced wife showed up and claimed the boat being her property. If you have this in the dereg papers you shhould be fine.

 

[BrianH]

The registry will be able to tell you. Not sure the ADAC registry has the facility to register charges against boats as I think it is a bit like the SSR rather than the Part 1 register. Checking for registered charges would be a normal part of due diligence when considering buying a boat.

You are right in that ADAC, the German Automobile club, together with the DSV (German sailing association) issue a yacht registration - Internationaler Bootsschein (IBS) - analogous to the SSR (especially when the RYA administered it) and, similarly, is no legal ownership document, nor are mortgages against it recorded. For that, similar to the MCA Part I registration, the official International Ship Register (ISR) with the Transport Ministry is necessary ... but few recreational boats are so registered.

 

[Medex]

You are right in that ADAC, the German Automobile club, together with the DSV (German sailing association) issue a yacht registration - Internationaler Bootsschein (IBS) - analogous to the SSR (especially when the RYA administered it) and, similarly, is no legal ownership document, nor are mortgages against it recorded. For that, similar to the MCA Part I registration, the official International Ship Register (ISR) with the Transport Ministry is necessary ... but few recreational boats are so registered.

On that basis - I expect it would be very dificult to do due diligence on boats that are registerd on the the ADAC (or SSR for that matter). What practical steps could a dealer or lawyer do from this point onwards to make checks?

 

[Tranona]

On that basis - I expect it would be very dificult to do due diligence on boats that are registerd on the the ADAC (or SSR for that matter). What practical steps could a dealer or lawyer do from this point onwards to make checks?

There is no total fool proof way, although most financial institutions who have a charge over a boat will have a mechanism for ensuring it is not sold without their agreement, typically by keeping the title papers, or insisting on a registered charge as in some countries an unregistered charge is impossible to enforce and in others the courts tend not to recognise unregistered charges. The possibility always exists of undeclared interests of others, but by their very nature it is difficult to establish if they exist. The vendor does, though have to declare that he has good title and transfers it free of any encumbrance which means in theory you have recourse to him if another claimant appears after you have bought the boat. You know the person you are dealing with and the background of the boat, so to an extent it is a matter of judgement as to whether you think there might be an issue.

 

[lpdsn]

It's the VAT payable when the boat was sold by the company set up to buy the boat to the company's owner that is the important thing. That's the key invoice that you need to make sure you see before the purchase. Beware that in such circumstances the tax authorities could question whether the price on which VAT was charged was genuine. That should be the previous owners problem if not, but it could be a nuisance.

 

[PuffTheMagicDragon]

One other thing. When I bought my present boat she had to be de-registered by the Italian authorities because I wanted a Maltese ensign. Before the Malta Maritime Authority would give approval for inclusion on the Malta Registry of Shipping, the vendor had to make a formal written declaration that, in the interval following Italian de-registration, the boat had not been registered again under another flag; you might wish to check if this also applies to UK registration.