EU challenges Italy and Cyprus for their VAT rules on chartering

The European Union is a frequent host of yachting events and holiday destinations for yacht sailing in Mediterranean waters. Italy and Malta have both introduced tax breaks aimed at attracting this yachting industry. Such breaks are now being challenged by the European Commission on the grounds of a possible breach of EU VAT rules.

Italy allows pleasure yachts to benefit from the exemption on excise duties on fuel even if such yachts are used for personal purposes. The EU only allows this exemption when the vessel is used for a commercial purpose.

Cyprus and Italy make use of use and enjoyment rules to reduce the taxable base of VAT on yacht leasing. According to these rules, the larger the boat is, the less the lease is estimated to take place in EU waters. Such rules can be combined with a depreciation strategy via shell companies ultimately owned by the same person. This strategy would lead to a sales price that escapes VAT on the majority of the boat value.  The EU Commission had already initiated actions against Malta for a similar regime, you can read more about it in this article.

The initiatives of the European Union were published in a press release last 25 July 2019. These initiatives consist on the following actions:

• Referring Italy to the ECJ for abusive use of the excise duty exemption in the yachting industry
• Issue reasoned opinions to Italy and Cyprus about their current use and enjoyment rules on the place of supply of yacht leasing services.

Both Italy and Cyprus are expected to update their legislation to avoid further actions from the European Commission. Chartering companies in the yachting industry should follow up on these changes close to ensure that the right amount of VAT is paid at the end of the reporting period, avoiding penalties and questions from the tax authorities.

VAT resources for yacht chartering companies

Marosa is specialized on advice, VAT compliance and VAT recovery for chartering companies in the yachting industry. We handle VAT registrations and VAT returns in Italy, France, Spain, Croatia, Cyprus and Malta. This work is done from our centre of excellence for all countries in scope.

We have a dedicated team of VAT specialists in the boat chartering industry. Please give us a call or send us a message to get a free consultation on your VAT questions in this industry.