Spanish use and enjoyment rules will not apply to charters in Melilla, Ceuta, or Canary Islands
The Spanish tax authorities recently announced that use and enjoyment rules will not apply to chartering activities in Melilla, Ceuta, or the Canary Islands to avoid double-taxation.
Spanish use and enjoyment rules not applicable in Melilla, Ceuta, and the Canary Islands for charters
The tax authorities in Spain announced a change in VAT treatment for charters in Ceuta, the Canary Islands, and Melilla. As from 2021, Spanish use and enjoyment rules will no longer apply in this sector. This will avoid those carrying out chartering activity in these territories to be double-taxed. Other countries also applied changes in chartering rules, such as France and Italy.
What is use and enjoyment?
Use and enjoyment rules deviate the deemed place of supply for services. Under the general rule, B2B services are taxed in the customer’s country, while B2C services are taxed in the supplier’s country.
Use and enjoyment is an exception to this rule, and certain services are applicable. Countries can implement positive use and enjoyment, making the place of supply where the service is effectively used and enjoyed. On the contrary, countries who have negative enjoyment rules make the supply of the service in the country where the supplier is established.
Spain’s use and enjoyment rules
Spain has introduced negative enjoyment rules, which means that if an applicable service is rendered by a Spanish company to a customer in another location, the place of supply of the transaction is Spain.
How will this change affect chartering activity?
Originally, when a charter set off from Melilla, Ceuta or the Canary Islands and travelled into Spanish waters, the use and enjoyment rule mentioned above would come into effect. This meant that there was a risk for double taxation, as the charter would be subject to Spanish VAT as soon as it entered Spanish waters. This proved to be an issue, as chartering activity would incur both Spanish VAT for the amount of time it was traveling in Spanish waters, as well as the local Tax on Production, Services and Imports (IPSI) tax.
As from the passing of this new legislation, Spanish use and enjoyment will not apply to vessels that depart from Ceuta, Melilla, or the Canary Islands. Instead, the activity will only be subject to the IPSI tax mentioned above.
Not sure which rate you should apply to your chartering activity or have any questions regarding the new change? Speak with a tax representative today and discuss how we can help you.