VAT Cyprus

[Nautical]

Am I behind the times or is this common knowledge?

.........CYPRUS NEW VAT YACHT SCHEME
On 13 March 2012, the Cyprus VAT Authorities published guidelines clarifying the VAT treatment of Yacht Leasing Schemes, effectively introducing the most attractive VAT yacht regime in Europe. As a result, VAT can potentially be reduced to as low as 3.4% of the initial value of the pleasure yacht, less than the 5.4% currently obtainable in Malta.

Under the VAT on Yacht Leasing Regulations of March 13 2012, only a percentage of the lease value should be subject to Cyprus's standard VAT rate of 17%. Depending on the size of the yacht concerned, the effective rate of VAT will vary between 3.4% to 10.2% of the lease value. The variation is by reference to length, type of yacht (motor or sailing) and the yacht percentage of use within EU territorial waters.

The assumptions of the new guidelines with regards to size of the vessel versus percentage of time spent in EU waters are as follows:

Motor yachts:

1)
With length up to 8 meters, yachts are deemed to spend 60% of time in the EU waters, giving an effective rate of VAT of 10.2 % (60% of 17%).
2) With length 8.01 to 14 meters, yachts are deemed to spend 50% of time in the EU waters, giving an effective rate of VAT of 8.5 % (50% of 17%).
3) With length 14.01 to 24 meters, yachts are deemed to spend 30% of time in the EU waters, giving an effective rate of VAT of 5.1 % (30% of 17%).
4) With length over 24 meters, yachts are deemed to spend 20% of time in the EU waters, giving an effective rate of VAT of 3.4 % (20% of 17%).
Sailing yachts:

1) With length up to 10 meters, yachts are deemed to spend 60% of time in the EU waters, giving an effective rate of VAT of 10.2 % (60% of 17%).
2) With length 10.01 to 20 meters, yachts are deemed to spend 50% of time in the EU waters, giving an effective rate of VAT of 8.5 % (50% of 17%).
3) With length 20.01 to 24 meters, yachts are deemed to spend 30% of time in the EU waters, giving an effective rate of VAT of 5.1 % (30% of 17%).
4) With length over 24 meters, yachts are deemed to spend 20% of time in the EU waters, giving an effective rate of VAT of 3.4 % (20% of 17%).
For yachts licensed for use only within Cyprus waters, the effective VAT rate will remain at 17%.

Important conditions regarding the Financial Leasing Agreement are as follows:

- The yacht must arrive in Cyprus within one month of the date of inception of the lease agreement. Any postponement to the above can be granted only by the Cyprus VAT Commissioner. The delay in any case cannot exceed the lease period whereby the right of purchase can be exercised.
- The lease agreement shall be between a Cyprus resident company and any person/company, irrespective of their nationality/domicile. It should be noted that full anonymity and confidentiality can be preserved through corporate structures.
- Initial lease fee should be at least 40% of the value of the yacht.
- Lease payments should be payable on a monthly basis, along with the applicable VAT based on the rates described above.
- The lease period cannot exceed 48 months (compared to 36 months in Malta).
- The yacht may be purchased outright by the lessee at the end of the lease period. The final payment should not be less than 5% of the initial value of the yacht. Such final payment is subject to VAT at the standard rate of 17%.
- A yacht valuation certificate should be submitted along with the leasing agreement and application for approval to the Cyprus Commissioner to confirm the effective VAT rate in each case. Every application for yacht leasing is considered separately on a case-by-case basis and requires separate written approval by the Cyprus VAT Commissioner.
- The purchase will be confirmed by the VAT Department in the form of a certificate, stating total VAT liability.
- The profit from the lease derived by the lessor should not be less than 10% of the initial value of the yacht.

 

[jfm]

Common knowledge. But use it at your peril. If you think any rational buyer will pay you a full VAT-paid price for your used yacht just becuase it has some paperwork* issued by Cyprus, think again. you might well be right, but it's not a sure thing

*Paperwork that the country where your boat is parked may argue is contrary to EU VAT rules and therefore the money paid to Cyrus might be called "VAT" but isn't. So they give you another VAT bill and lend you a padlock and chain. There really is more to this than just getting a Cyprus VAT-paid certificate...

Edit: Obviously the 3.4% isn't a correct description. The true tax cost if you add up the elements in your post is 5.25%, plus legal fees plus negative spread on having to borrow money from a bank when you are long on cash so the real cost is more like 7%. Which is still a bit less than Malta of course, but if wishing to use this type of scheme i would use Malta every time even if nominally 2% more expensive

 

[Powersalt]

There you go again JFM you ruin our dreams of beating the VAT man

 

[Deleted User YDKXO]

Common knowledge. But use it at your peril.

What's the credibility difference between Cyprus and Malta then?

 

[jfm]

What's the credibility difference between Cyprus and Malta then?

OK so I have for sale, oh i dunno, a Princess 60-something, or a Nordhavn, or whatever. 2 years old, mint, perfect history, ticks all your boxes, we get along fine, the asking prices for these boats is about £625-650k VAT and I'm happy to accept £600k and you're chuffed with the deal. The boat is VAT paid; I'm the first owner. In principle, it's a done deal and you are about to sign

Then at 11th hour you find out that when i said "VAT paid" what i meant was it went through the above Cyprus scheme and I only paid 5% approx VAT, and the paperwork you will get from me consists of all the usual title malarkey plus a "certificate of VAT paid issued by Cyprus govt"

Bear in mind (a) you are gonna sail it around Med for 3 seasosn in/out EU (Croatia, Spain etc) and (b) you wanna sell it for max residual in 3 years time

Think about honest answers to these questions:
1. Will you hesitate?
2. Will you price chip me?
3. Then suddenly you find an identical perfect boat for sale, close by, equally mint, properly VAT paid in UK with a proper UK VAT paid invoice from Princess in swanwick or whatever, and owner will take £620k but not a penny less. The seller of first boat will not budge from the £600k price. Which boat do you buy?

There's no tax law in this question - it's all about the perception of value to a smart knowledgeable buyer. (Well, there is a whiff of tax law in my suggestion that when a boat sails in spain (say) claiming to be "VAT paid" the spanish are entitled to consider whether it really is VAT paid or whether some little island government has bent the rules and created purported VAT taxes but there is an argument these are not EU compliant)

I have no hesitation in my answers:
1. yes
2 yes
3. I'll have the UK VAT paid boat

 

[jfm]

There you go again JFM you ruin our dreams of beating the VAT man

You are so narrow minded, man!

 

[Nautical]

Thanks J, much as I thought although I think Malta probably has a better rep than Cyprus, I know quite a few UK yachts are going through Malta, several coming direct out of the yards on a freighter to Malta.

Take your point though re re-sale albeit I think if the pricing is right it must be tempting when you get to bigger numbers say on 80'+ , one could be looking at $1/4m in the difference assuming the seller prices to allow for the lesser VAT.

 

[MapisM]

I have no hesitation in my answers:
1. yes
2 yes
3. I'll have the UK VAT paid boat

+1, but as I understand it this isn't what Deleted User asked.
You seemed to suggest in your previous post that the above could apply also to Malta vs. Cyprus, and I'm as skeptic as Deleted User that there's a meaningful difference.
Now, UK (or I, F, etc.) vs. Cyprus, that's another story of course.

 

[MapisM]

assuming the seller prices to allow for the lesser VAT.

I'm not sure to see what you mean, T?

 

[jfm]

Tricky to quantify. If you say that a fully (no tax avoidance scheme) VAT paid boat with UK, Italy, Spain, Fr etc VAT paid has credibility of 100 then I persoanlly would score Malta 70 and Cyprus 30. No massive logic there - just gut feel

So if a boat is worth 100 ex VAT and 120 VAT paid, I would pay 114 and 106 for the malta and Cyprus boats respectively AOTBE

Why? Because you have to discount the 20% premium for
(a) smell test failure when you come to sell boat
(b) risk of say Spain or UK announcing that it considers the schemes abusive and not in conformity with EU law, and from the moment of that annoncement your Malta/Cyprus boat is worth less. (Fr and IT are unlikely to make such announcement for obvious reasons)
(c) even if perfectly legal and never challenged, these schemes, at a macro level, reduce the extra value of vat-paid status for obvious economic reasons. Thus, all VAT-paid boats cease to be worth 20% premium and tend to be worth somewhere between 6% and 20% premium
(d) Risk that the implementor of the scheme didn't do it right and the certificate gets withdrawn or something. As used buyer you have zero control or opportunity to diligence whether the scheme was done correclty

Just my $0.02

 

[Deleted User YDKXO]

There's no tax law in this question - it's all about the perception of value to a smart knowledgeable buyer. (Well, there is a whiff of tax law in my suggestion that when a boat sails in spain (say) claiming to be "VAT paid" the spanish are entitled to consider whether it really is VAT paid or whether some little island government has bent the rules and created purported VAT taxes but there is an argument these are not EU compliant)

I wouldn't argue with that but it's the difference between the Malta scheme and the Cyprus scheme that I'm trying to understand. Both are remote islands sticking out of the S Med and both offer reduced VAT schemes based on leasing arrangements. The Malta scheme seems to be widely used and accepted, yet the Cyprus scheme seems to lack credibility. Why the difference?

 

[Imperial One]

Good question Deleted User.
Malta is in EU
Cyprus is in EU
France is in EU (Lombard will not accept proof of Vat paid if a French boat's been near a finance scheme for example)
UK is in EU.............

 

[Deleted User YDKXO]

Good question Deleted User.
Malta is in EU
Cyprus is in EU
France is in EU (Lombard will not accept proof of Vat paid if a French boat's been near a finance scheme for example)
UK is in EU.............

You must get involved in VAT mitigation schemes, Imperial One? What do you think? I've got no particular axe to grind one way or another. I just might have to visit one of these island when Croatia joins the EU so I'm interested in why you'd choose one over the other

 

[Nautical]

I'm not sure to see what you mean, T?

I meant if one is say UK full VAT paid at 2,250,000 euro and the other is Malta VAT paid but asking 250,000 Euro less because the VAT paid was a lesser amount, assuming both boats were equal in quality and condition, the Malta VAT vessel has to look somewhat attractive, also assuming you are happy with a Malta VAT paid issue of course.

 

[Portofino]

Hang on a minute , they are all EU members , but have different vat rates ,and subject to variation eg ours was 17.5 % now 20% .Each domain can and does have the right to change.
Therefore following JFM,s logic ( I,am being brave here ) if you turn up in a member state having " proof" of VAT paid @ x% say 5% from the domain you purchased the vessel . The new domain who levels Y% say 20 % , according to this can "claim" the difference of 15% ?
Geographic size is surely irrelevant? Think Monaco , CI, isle of Man , ( ok outside of EU) , but their Tax laws and any Double taxation treaties are valid.
Vat paid cert is just that ,It varies because the rate varies , hence the ecomonic attraction of states ( tin pot islands) to bring buisness in.
I have been "done " 3-4 times in the SoF by officialdom , not once have they asked to see Doc,s relating to Vat status,. Boat flys the Red Ensign , only asked for Reg Doc,s Insurance ,permitdu Mer , and wheres your home port( are your bilges full of drugs from N Africa? ) ,ans- La Nap .Never been "done " in Italy or elsewhere .D
We do have the original sales invoice from SS but nobody's interested .
One wonders - next time tempting to go purchase VAT NOT paid in the SoF and and simply motor off and park it up in the mooring ?..Wait and See!!
Do Georgetown reg boats really saunter out of the EU every 23 months and then re- temporary import ? Anyone in PV checking up?.
We are off on the boat tomorrow for week , we will be the one most likely being "done" again in the Lerins or Villefranche , where they lurk .

 

[Nick_H]

Hang on a minute , they are all EU members , but have different vat rates ,and subject to variation eg ours was 17.5 % now 20% .Each domain can and does have the right to change.
Therefore following JFM,s logic ( I,am being brave here ) if you turn up in a member state having " proof" of VAT paid @ x% say 5% from the domain you purchased the vessel . The new domain who levels Y% say 20 % , according to this can "claim" the difference of 15% ?

The point is you're not paying any state's normal rate of VAT, you're paying a reduced rate on the basis that boats are moveable and may spend some of their time cruising outside the EU. Rather than assess the percentage time spent in and out of the EU for each boat, the state's have applied average percentages for different types and sizes of boats. Malta and Cyprus can "argue" that boats purchased there spend a lot of time outside the EU because they're geographically located on the edge of the EU, so they can offer more attractive VAT rates.

The reality of course is that none of the states operating leasing schemes give a fig about how much time boats spend outside the EU, they've just realised they can apply a tax on boats being bought and sold across Europe by undercutting the other states VAT rates. In other words, better to have 5% of a lot, than 20% of nothing. The state's financial services businesses also gain, hence the reason why the Cyprus rules say you must use a Cypriot mgt co, and the operator must make 10% profit, which of course the state then taxes.

I guess at the moment these schemes are under the radar of states like the UK, Germany, Spain etc. that are losing out on tax revenue as a result, because the overall amounts are still small, and challenging them means going head to head with France and Italy, who first offered them, and there's bigger fish to fry with those countries.

If only Malta and Cyprus offered them, I doubt many other states would recognise their VAT paid certificates as being valid.

 

[MapisM]

France and Italy, who first offered them

Just for the records, it's actually France who had the brilliant idea of stealing VAT to other Countries.
Italy was practically forced to follow, after having subsidised F for years.

 

[Imperial One]

Sorry for slow reply - been busy checking lines in the breezes!
I would not favour any one Island over another Mike. As for VAT mitigation schemes - I am not a fan and have seen them be investigated by C&E in Holland and Germany. If it were me I would pay the VAT, in full wherever I could pay the least percentage, be it in Cyprus, Malta or Holland and rest easy knowing I have a fully EU VAT paid boat.
Many people used to buy a new boat in the UK on a Sail Away Invoice, go to Spain and pay the VAT there at a lower rate. Perfectly legal. Then when the boat came back to UK, or wherever, it was deemed as EU VAT Paid.

If my memory serves me well and I have interpreted the VAT regs correctly, if the owner of any vessel pays VAT in an EU country, then according to EU laws, the boat has to be deemed VAT paid.
HMRC may argue differently depending on actual circumstances and paperwork available to prove payment, one can never tell.
But as long as the EU exists and governs our every waking moment then I cannot see why any EU members vat certificate/invoice is not acceptable.

All we need now is for the EU to fall apart (Watch this space Stavros) and this thread may all be a waste of time anyway.

 

[westernman]

Do Georgetown reg boats really saunter out of the EU every 23 months and then re- temporary import ? Anyone in PV checking up?.

The French authorities seem to keep pretty good tabs on movements of yachts.

So it would not surprise me at all if they do check up that those Georgetown boats really have been outside the EU.

We are asked very often on VHF for our registration number, port of departure and destination.