Commercial Yacht Chartering
If a yacht is chartered in EU waters it will be treated as suppliers services and is therefore subject to VAT.
If the yacht’s owner (whether that be an individual or company) is resident in an EU member state then the owner will be liable to account to the VAT authorities of the state from which it is being chartered. (Place of supply).
If the owner (individual or company) is not resident or domiciled in the EU then VAT will not be payable on charter hire.
HMRC Guidance on Chartering Practices
In August 2009 her Majesty’s Revenue and Customs (HMRC) issued Customs Brief 56/09. This brief set out guidance on possible indicators of abusive chartering practices. Examples were identified as;
· The main user of a pleasure craft is the ultimate owner of the chartering or leasing entity.
· The main user of a pleasure craft funded the purchase of the vessel (directly or indirectly).
· The person who funded the purchase of a pleasure craft (directly or indirectly) uses the vessel for prolonged periods in the peak chartering season.
· The chartering of a pleasure craft to third parties would not, alone, be of sufficient continuity and substance to comprise an economic activity.
· The chartering or leasing entity shows significant ongoing losses in its financial statements.
· Charter fees or lease instalments due from the main user of a pleasure craft are paper transactions only (for example being offset against loans).
· Charter fees or lease instalments are below open market value.
The terms of a lease differ significantly from normal commercial practice (for example, the duration of the lease is unusually long).
Clarity and Certainty
In February 2010 The Isle of Man Yacht Forum met with HMRC and IoM Customs and Excise (IoMCE) in order to clarify the Brief.
HMRC clarified that provided clear evidence exists of earnestly pursued chartering to third parties which meets the business test and the criteria for economic activity (described within section 2 of the guidance), then there is a legitimate right to recover input tax on the business asset(s), subject to the usual rules for input tax recovery. Therefore, provided those conditions are met; no uncertainty should be created if a yacht is also used by the person who is the funder or ultimate owner of the chartering entity.
An IoMCE spokesperson stated: "The message to the industry is simple; examine the third party chartering activity. If this stands up as an economic activity earnestly pursued and can be so evidenced then Customs will not seek to apply the abuse principle. What cannot be tolerated is sole use of a yacht by the person who is the funder or ultimate owner of the chartering entity".
Speaking on behalf of the Forum Chairman, and Vantage Director, Robert Tobin said: “This outcome of this meeting is clarity and certainty for all those involved in the business of owning and chartering commercially managed yachts. The work done by the Yacht Forum has resulted in positive news for the whole industry, not just for the Isle of Man.
“The excellent cooperation and support of HMRC and IoMCE is further proof of the value of conducting chartering businesses in a well regulated, responsible and progressive business environment such as the Isle of Man. The meetings provided an ideal opportunity to illustrate the positive economic benefit to the UK the yachting industry provides and garner the recognition it deserves”.
Practice Note
On 26 April 2010, Isle of Man Customs and Excise introduced a Practice Note for the use of the Isle of Man Yacht Management Industry. This has been jointly agreed by Isle of Man Customs and Excise and HM Revenue and Customs and seeks to provide a framework for the VAT treatment of yacht leasing and chartering structures.
The aim is to provide a clear framework for the VAT treatment of unacceptable (abusive) yacht leasing and chartering structures.
Vantage has considerable experience in the formation and management of appropriate corporate structures for charter companies.