Isle of Man is still open for business
Chris Allix, founder and director of Dominion Marine updated us with the VAT situation for yachts:
"The UK and Isle of Man Customs and Revenue Brief 20/11 adopted the European Court ruling of the Facet Cases (C-36/08 and C539/06) - the only jurisdictions to have done so as far as I know. This Brief states that all goods (not services) purchased through the intra community system must actually be shipped to the country where the tax is reclaimed. The intra community system requires for the invoice to contain the VAT number of both supplier and purchaser. The supplier declares the value of the goods excluding VAT and the purchaser declares the value of the goods plus VAT in the input and output boxes, thus effectively paying and reclaiming the tax. The UK has previously adopted the ‘fallback provision’, allowing the VAT to be reclaimed without the goods physically coming to the UK, for logistical reasons. Following the Facet case, the UK and Isle of Man both ruled that the ‘fallback provision’ can only be used as a final consideration in cases where it is legally or physically impossible for the goods to be transported to their jurisdictions. Economic considerations will no longer be allowed. Goods purchased by a Manx VAT registered company can be shipped either to the Isle of Man or to the UK as under the reciprocal VAT Agreement they count as the same jurisdiction.
The 20/11 Brief does not affect services and the Isle of Man VAT Office has ruled where the parts are fitted by the supplier, this is considered to be a supply of services provided the invoice reflects both the parts and fitting. The same is true for refits.
In France, if goods are supplied to a commercially active charter yacht, the invoice should be issued under Article 262 of the French Tax Codes (zero rated), thus negating the need to include VAT. This is treated as outside scope as the tax has been handled in France albeit at zero rate. This zero rating is currently under review by the EU Authorities and has been referred to the European Courts by the EU Commissioners.
As a result of the 20/11 Brief, it would seem that some people working in the yachting industry think that the Isle of Man is no longer a good jurisdiction for yacht owning structures, and are moving their business to Malta and other jurisdictions. Of course, we should always look at all the different options and jurisdictions to determine which is best for our clients, but I believe this move is rather hasty.
The 20/11 Brief has made no difference to pleasure yacht structures. However, for VAT purposes, it is the client’s place of residence not their citizenship that is important. A client is considered an EU resident even if their time is spent between several EU Countries.
Temporary Admission: this is still only available to pleasure vessels that are solely used by the Ultimate Beneficial Owner (UBO) and his/her immediate family, and must comply with the following:
a. Non EU Flag
b. Non EU registered owner
c. Non EU user/UBO
VAT paid yachts: if the client (whether EU resident or not) is buying a VAT paid yacht or will pay the VAT on the yacht, it is still best to use a holding company (limited liability), incorporated in an EU VAT jurisdiction. If the yacht is bought through a non EU company or in the name of a non EU individual and taken outside EU waters for a long period, there is a greater risk of EU authorities claiming that the yacht has been exported. As a consequence, the yacht could lose its VAT paid status. Whilst this is currently a theoretical risk, I do believe it is not unlikely, especially with the current economic climate.
VAT mitigation: EU residents who wish to mitigate the VAT on the purchase of a pleasure yacht can only achieve this at present with a bank lease purchase through Malta, France or Italy. Malta is currently the most common jurisdiction due to its flexible structure. Dominion Marine is able to assist clients with these structures.
The 20/11 Brief only applies to UK or Manx VAT registered companies. An essential element of VAT registrations is that commercial yachts must show they are being chartered to third parties (UK Customs and Revenue Brief 56/09 and Isle of Man Customs and Excise Practice Note dated 26th April 2010) and have to be a commercially registered vessel, if under the Red Ensign.
There have been rumours circulating that if a Manx VAT registered company purchases a yacht, it must come to the Isle of Man. This is not in fact true. It is only the case if it is purchased using an intra-community invoice and even then it can choose to visit the UK instead. If the yacht is built in northern Europe, calling into a UK port should not be a problem.
If the yacht is built in a yard in the Mediterranean, Malta is the most convenient solution for VAT purposes at the moment, although the holding company does not have to be incorporated there. This is because all companies incorporated in an EU jurisdiction have the right to be VAT registered in any other EU jurisdiction.
Whilst jurisdictions such as Malta have certain advantages at present, due to not adopting the Facet ruling in the short term, we should take into consideration that yacht ownership is usually for 3 to 5 years. If the EU Commissioners determine that the Facet ruling must be adopted throughout the EU region, Dominion Marine will be looking to VAT register charter companies in all the countries in which they ply their trade. I believe that we should be planning this as a long term solution for our clients. There is no doubt that an Isle of Man company is still beneficial for charter yacht owners. It should be remembered that the Isle of Man has a zero rate of Corporation Tax and does not rely on tax concessions, allowing the tax to be reclaimed where the client is not tax resident."