Spanish matriculation tax and VAT on chartering
Spanish matriculation tax is an additional indirect tax obligation on boats purchased or used in Spain.
14 May, 2020
Spanish VAT on chartering. Matriculation tax
Spanish matriculation tax is an additional indirect tax obligation on boats purchased or used in Spain. It is foreseen only for private individuals or businesses not using the boat for commercial purposes. This tax is important for foreign chartering companies because of a high tax rate of 12% and the lack of certainty on the position of the authorities about foreign businesses operating in Spain.
Matriculation tax is regulated outside the Spanish VAT law. Spain has a special indirect tax on sales of certain means of transport. Matriculation tax covers the first matriculation of vessel and recreational ships new or used, that have more than eight meters of length in the vessel registry.
The tax base of the matriculation tax is determined according to whether the vessel is new or used. In case of new vessels, the taxable base will be equal to the amount due on the acquisition of the vessel. In case of used, the taxable base will be the market value at the moment of paying the tax. The tax rate is generally 12%.
Exemption on Spanish Matriculation Tax
The exemption scenarios in the matriculation tax are included in article 66 of the Matriculation tax law. According to this article, the vessels that are wholly and exclusively used for chartering business activities will be exempt from the matriculation tax in Spain.
Self-supply of chartering services is not considered as business activities for the purposes of the matriculation tax exemption. Also, where the same client receives chartering services for more than 3 months within 12-month period, these services will also not be considered when applying the exemption.
The definition of self-supply is included in Article 79 of the VAT law. In the field of hiring recreational vessels, it is understood that there is self-supply when the client is a relative, couple, or other close family member. This self-supply requirement only applies to Spanish resident individuals and businesses established in Spain.
Matriculation tax for non-established companies
According to the matriculation tax, vessels must be subject to matriculation tax in Spain when they are used in Spanish territory by individuals or entities that are resident in Spain, or own establishments located in Spain.
In this respect, a vessel is not subject to matriculation tax in Spain if it is used by non-established businesses, or by individuals who do not own an establishment in Spain (see binding ruling COSG-2011-044-DMji).
Definition of "establishment" for matriculation tax
The law does not have a definition of establishment for matriculation tax purposes. Because of this lack of legal provision, the concept must be determined according to interpretation of tax rules and case by case decisions of the Spanish tax authorities.
In this sense, according to Binding ruling V1722-14, the place form where all or part of an economic activity is performed will be considered permanent establishment. This ruling provides some light over what is in our out of this definition:
“(…) a dock in Spanish territory, in which a vessel property of a non-established person in Spain, is not considered permanent establishment since it is not considered a fixed place from where economic activity is performed”.
Also, Binding ruling V1722-14 adds that the mere navigation on Spanish waters, directed by professional captain resident in Spain, linked by a contract to the non-resident entity owner of the vessel will not create an establishment in Spain.
Nonetheless, the Spanish tax authorities on certain occasions such as the Binding ruling V 1850-14, interpreted that an establishment exists where chartering activities are regularly carried out in Spain.
In our experience, the definition of establishment for matriculation tax purposes is not made sufficiently clear by the legislation or the available biding rulings. There can be ambiguous or even contradicting circumstances in which the tax authorities hold a different position form its common practice.
VAT registration on chartering activities
There are specific rules on the lease of vessels that often require a VAT registration, fiscal representation, and other formalities to be met. Penalties will apply if these rules are not regarded. Tax and customs authorities may even seize the boat with the passengers onboard!
As a general rule, a foreign business carrying out a boat charter activity must register for VAT in each country where the customer accesses the boat for the first time. For example, if you charter a yacht for a period of one week and the customer accesses the boat in Mallorca, you should get a Spanish VAT number and account for Spanish VAT on the entire value of the invoice to that customer. However, if the customer accesses the boat in Nice, France, you should get a French VAT number and charge French VAT on the value of the invoice (in some instances, you will not charge the standard French VAT rate).
Specific rules apply for charter licenses for periods over 3 months. Also, in case the client accessing the boat is a business customer, a detailed review must be made to decide if domestic reverse charge applies.
A VAT registration is only the first obligation of a long list of compliance requirements. Non-EU companies must appoint a fiscal representative, VAT returns must be submitted, correct invoices must be issued and local VAT and tax requirements should be regarded (Eg. matriculation tax in Spain, use and enjoyment in France, etc).
VAT on refits. Do it right to get it back.
Refits are part of a yacht’s lifecycle. The costs incurred in restoration and repairs are significant and often include an additional 20 to 22% of VAT, depending on the country where the refits are made. If you are incurring these costs as a business and such costs are entirely linked to your business activity, you can recover that VAT in most cases.
Several refit suppliers charge VAT on their invoices by default. This means that no analysis is made on the VAT treatment of these services. Unfortunately, a wrong VAT treatment will make VAT non-recoverable.
To decide whether VAT should be charged on refit invoices, we should first look at the supplier and client's country of establishment. If both parties are established in the same country, VAT would be normally charged on these refit services. However, if the supplier is established in one country, for example Spain, and the client is established in a different country such as Germany, we should determine if these refits involve a supply of goods or a supply of services in order to decide if VAT must be charged.
A detailed analysis is required to define the refit services as supplies of goods or services. In case they are defined as goods, VAT would be charged. If these are services, VAT would normally not apply on the invoice provided the rest of the conditions are met. This distinction is the cornerstone of VAT treatment on refits, so we recommend contacting Marosa to ensure that your refit services are properly invoiced from a tax perspective.
From our experience, holding a valid invoice is another important requirement that is often overlooked by the person receiving the service. In order to recover VAT, the client must ensure that the invoice received is complete and correctly issued. In other words, it is the client who is responsible to hold a valid invoice in order to recover VAT. For example, as a client, you must provide your VAT number to the refit supplier and make sure that it is included on the invoice issued for their service.
Spanish matriculation tax. A sailing nightmare
Spanish Matriculation tax is a rara avis in the European tax landscape of the yacht chartering industry. This is a 12% tax on the full value of the boat, hence the large risk when evaluating this tax obligation.
The main problem with Spanish matriculation tax is the lack of consistency of Spanish tax authorities over the definition of the persons required to pay the tax.
As a general rule, there are two possible exemptions from Spanish matriculation tax: a) Boat owners who use the boat entirely and exclusively for the purposes of a business; and b) Non-established companies in Spain.
How to get back Spanish VAT back. 8th Directive or VAT returns?
The uncertainty about the definition of establishment for matriculation tax purposes and the conditions to define "entirely and exclusively for the purposes of the business" make this tax obligation a nightmare for most yacht owners in Spain.
Getting a reimbursement on Spanish VAT is so problematic that businesses often give up trying to claim their refunds. Costs on mooring docks, refits or fuel are sometimes 21% more expensive for foreign businesses. But these problems arise from wrong advice on Spanish VAT rules.
The first step is to ensure that you hold a valid invoice that has been correctly issued. From our experience, some Spanish suppliers may charge VAT incorrectly. Also incorrect or incomplete details may be included on the invoice (eg. the client's VAT number is not stated despite the obligation to do so in all invoices). As a client, you should check with Marosa or your local VAT specialist to make sure that these requirements are met. Do this before the invoice is issued to avoid long discussions with the supplier.
Once you hold a valid invoice, it is paramount that you make your application via the correct procedure. If you are an EU business and did not have to register for Spanish VAT (see our earlier issue on VAT on chartering activities), you should apply using the mechanism of Directive 2008/09/EC (so called "8th Directive"). If you are required to register in Spain, for example, because you had chartering activities in the country, you should claim your VAT back via your VAT return.
From our experience, the first questions of the Spanish authorities about your refund will focus on the procedure used in your application (8th Directive or VAT return). It is very important to understand and choose the right procedure to avoid these refunds being rejected on the first review.
Timing is also important. If you had chartering activities in the country, you can claim VAT back on all invoices received since the start of your activities (with a limit of four years). If you did not have activities, your refund application must be submitted before September 30th of the following year. We see an opportunity on all businesses who have Spanish VAT unclaimed from the past, as we may be able to recover all VAT from last four years.
- Vessels used in Spain that are over 8 meters in length, by individuals or businesses established in Spain must pay matriculation tax at 12% on the value of the vessel.
- Chartering companies using the vessel wholly and entirely for commercial activities are exempt from matriculation tax on such vessel.
- Spanish matriculation tax does not apply to businesses or individuals who do not have an establishment in Spain.
- In the event that chartering activities are done regularly, there is a possibility that the tax authorities consider that there is an establishment in Spain from which all or part of the activity is carried out, and in consequence, this means the vessels is subject to matriculation tax in Spain. Foreign companies must evaluate the possibility of asking for the exemption from matriculation tax even if they consider their business as non-established in Spain.
How can we help you?
We are specialists in indirect taxes in Spain and all other European countries. Together with our local partner Marine Consultants, we provided a holistic service for your chartering activity in Spain.
We will evaluate your expected activity in Spain to determine if you are subject to Spanish matriculation tax. We will also handle your VAT registration and all related VAT obligations in Spain, Italy or France.