What is the VAT applicable on transport contracts?
Transport contracts are sometimes used as an alternative to charter contracts by yacht brokers and managers in France due to their tax advantages:
- A contract with a VAT rate of 10% (French reduced rate) if the transport service takes place 100% within the territorial waters of France.
- A special VAT rate of 2.1% applies to transport services carried out in Corsica.
- VAT exemption – 0% – when navigation occurs outside French territorial waters – requires proof of the stopover.
It is important to mention that a Transport Contract cannot be applicable when the service is provided on the quay (e.g., for events such as MIPIM in Cannes, GP Monaco, etc.) since there is no actual transportation of passengers involved.
Transport contracts under the control of tax authorities
Please note that the French Tax Authorities started to closely monitor operations declared under transport contracts. Recent audits have led to the reclassification of some of these transport contracts as ”MYBA” charter contracts, resulting in VAT recalls and penalties.
To avoid potential issues, ensure that all aspects of the contract are in strict compliance with the legal requirements.
Conditions to be met for transport contracts
A transport contract specifies a pre-defined itinerary.
The vessel must remain under the control of the service provider. The doctrine dictates that “the service provider permanently ensures the navigation and operation of the vessel.”
As we are starting the 2024 season, we would like to draw your attention to the following points:
- Careful Drafting of Contracts: These contracts must be meticulously drafted to avoid any ambiguities that could lead to reclassification.
- Strict Adherence to Navigation Conditions: The navigation conditions outlined in the contract must be followed precisely.
- Addenda Regulations: Addenda should not alter navigation conditions solely to meet client demands. They should only be established in cases of force majeure and at the initiative of the Captains.
It is important to remember these transport contracts should not be used solely to reduce your clients’ tax burdens. In some cases, charter contracts may better suit clients, who seem hesitant to accept the limitations of transportation contracts.
If you have any questions or concerns, please feel free to contact us.
