VAT on French yacht charters will change in 2021

Upcoming changes on VAT treatment of French yacht charters in 2021

A bulletin announced by the French Tax Authorities declared upcoming changes to VAT treatment on chartering activity for contracts signed after 1 November 2020. Previously, France allowed a lump-sum reduction policy of 50% on the taxable base as long as the boat spent part of the charter in non-EU waters. With accordance to the new law, this reduction will no longer apply.Instead, businesses involved in chartering will charge the standard French VAT rate of 20% while the vessel is located in EU waters. When the yacht moves into non-EU territory, no VAT will be applied and evidence will be needed to prove the services carried out in non-EU waters.Taxpayers are required to keep adequate evidence of the distance covered outside EU waters. This evidence may be challenged by the tax authorities in the course of a tax inspection. However, where the boat has sufficient means according to the SOLAS convention, such means would not be challenged by the French authorities.Similar changes can be seen in Italy, with the Italian Tax Authorities adopting a comparable stance on the VAT treatment to be applied on chartering activity. It is expected that the tax authorities in Malta and Cyprus will soon follow suit in order to make the tax laws within Europe more uniform.