VAT & Customs compliance guide for commercial vessels in the Mediterranean
Sailing a commercial vessel can present some advantages for a yacht in the Mediterranean, especially from a VAT point of view. Please note: the conditions vary according to the country you sail in and customs obligations vary according to the vessel’s flag or origin.
In this guide for brokers, yacht managers and captains, we present the main rules that apply according to the country where the yacht sails, and the commercial vessel’s flag or country of origin.
Community definition (VAT directive n° 2006/112/EC):
“A commercial vessel carries goods or people and sails the high seas.”
A simple definition, but which varies according to the doctrines of the Member States of the European Union in which commercial yachts sail, while the conditions for the fitting out of avessel for commercial purposes depend on the country that grants it the flag. Owning a yacht for commercial purposes can have certain advantages from a VAT point of view. But here again, the conditions vary from country to country.
In practice, if a vessel’s owner wishes to take advantage of these benefits, the first step is to verify that both the commercial yacht’s flag country and the country in which it sails have signed and ratified the Law of the Sea convention (Montego Bay Convention). The doctrines of each member state of the European Union are, for their part, more complex to understand.
VAT/customs definitions & schemes for commercial vessels according to the country where the yacht sails
VAT and commerical vessels in France: the 7 conditions for VAT exemption
Condition n°1: to be registered on the commercial registry
All vessels (yachts/vessels) entering French territorial waters must be commercially registered (examples of registration: commercial yacht, commercial vessel, passenger vessel etc.). To do this, the country issuing the vessel’s register must have signed and ratified the Law of the Sea convention, otherwise known as the “Montego Bay Convention” . However, the conditions for registration, for example safety conditions, remain specific to the issuing country. This means they cannot be contested by the French authorities.
Condition n°2: to operate exclusively as a commercial vessel
In France, a commercial vessel can only sail under commercial contract in progress. The only exception: a vessel can also sail if it has an authorization from the customs authorities. This authorization is granted for different reasons: positioning in a new port or in a shipyard for refit, repair or maintenance, sea trials, a photoshoot or migration from the Mediterranean to the Caribbean.
No private use is permitted. This means the beneficial owners of the commercial vessel can only use it themselves for a fee and under market conditions (with a contract, payment, etc.).
Condition n°3: to have a permanent crew on the vessel
This condition is fulfilled as soon as at least one person – registered on the crew list who has the required skills to sail the yacht – is permanently assigned to its service, even when at the quay.
Condition n°4: the length of the vessel has to be at least 15 meters
The length greater than or equal to 15 meters shall be measured from the extreme forward and aft points of the yacht’s permanent structure. Attachments that are removable cannot be taken into account.
Condition n°5: 70% of sailing must be outside French territorial waters
How to calculate the sailing ratio of a commercial vessel? By counting the number of trips the yacht makes.
What is a trip?
For a commercial vessel, a trip implies a commercially contracted movement between two fixed locations (mooring or anchorage) with the embarkation of a new passenger or the final disembarkation of a passenger. Please note, at least 70% of trips must be made outside French territorial waters.
Condition n°6: to have more dynamic than static charters
Over a calendar year, the company must carry out more dynamic than static charters.
Condition #7: no pleasure registry while in French waters
While in France, it is forbidden for commercial vessels to operate under pleasure registry. If this should happen, the vessel would never be able to claim the VAT exemption again.
- VAT exemption applies to the vessel purchase, but also to its purchases: refit, repair, maintenance, equipments, etc.
- If the 7 conditions for exemption are met during the current year (year N), the commercial vessel will be eligible for a VAT exemption for the year N+1. The operator must sign a self-certificate and show it to their suppliers.
- A new commercial vessel (e.g. a yacht with a new owner or a vessel arriving for the first time in the Mediterranean) can benefit from a VAT exemption from the first calendar year of operation. In this scenario, the operator must sign a provisional self-certificate and show it to their suppliers.
However, if at the end of this first year, one or more of these 7 conditions have not been fulfilled, the commercial vessel will have to regularize all the VAT excluded invoices. In some cases, co will also have to adjust the VAT on the purchase of the vessel.
We’ll help you secure your VAT exemption and answer your regulatory questions.
VAT and commercial vessels in Italy
In Italy, a yacht has to comply with three conditions related to commercial ownership, commercial activity and sailing on the high seas to benefit from a VAT exemption (Italian Commercial Exemption). An exemption that will apply to the vessel, but also to its purchases: refit, repair, equipment goods… - By complying with these conditions during the year, the vessel will benefit from a VAT exemption for the year N+1.
- A new vessel – or new owner – can benefit from this exemption from the first calendar year of operating the vessel.
If at the end of the first year the yacht does not meet the three conditions, it will Unpaid VAT has to be paid.
VAT exemption for commercial vessels in Italy: conditions to be met
Condition n°1: To be registered on the commercial registry
In Italy, the yacht must be commercially registered. Examples of registrations: commercial yacht, commercial vessel, passenger vessel.
Condition n°2: to operate exclusively as a commercial vessel
To benefit from the VAT exemption (VAT), a yacht sailing in Italy must be operated solely for commercial purposes as the exemption applies to all vessels entered in the international register. However, to be included, the yacht must be used for commercial purposes. Yachts used for sports or pleasure purposes are therefore excluded from the international register and cannot benefit from aVAT exemption.
Please note: the Codice della Nautica da Diporto provides a list of the cases of commercial use that entitle you to a VAT exemption with a pleasure yacht:
- Charter or leasing,
- Professional training,
- Activities carried out by diving centers using the yacht as a diving base.
Condition n°3: To have a permanent crew
This condition is fulfilled as soon as at least one person – registered on the crew list who has the required skills to sail the yacht – is permanently assigned to its service, even when at the quay.
Condition n°4: Sailing on the high seas
According to the ELMEKA judgment by the EU Court of Justice, a condition of use is required to benefit from the VAT exemption: the yacht must be “used for navigation on the high seas“ either in the context of transporting passengers for remuneration or in the context of commercial, industrial or fishing activities. The following are not eligible: vessels used for rescue or assistance at sea, or vessels engaged in coastal fishing.
What exactly is meant by the high seas?
According to Article 3 of the 1982 Montego Bay Convention, the “high seas means the area beyond 12 nautical miles from the baselines established in accordance with the convention.
In addition, a yacht can only meet the condition of “sailing on the high seas” if it performed more than 70% of its navigation on the high seas in the previous year. This will have to be proved by a variety of documents in case of control:
- the logbook (logbook);
- maps;
- GPS reports (AIS data);
- contracts (contracts);
- invoices.
Please note
The sailing calculation is based on the navigation between two ports where the embarkation and disembarkation of goods or people take place.
If a yacht does not meet the 70% condition, it will not be able to benefit from the ICE (Italian Commercial Exemption) from the 1st January of the following year, unless it was under construction or had not yet made a sea trip. In the latter two cases, the yacht will be able to benefit from the VAT exemption subject to:
- Completing a statement of intent that the yacht will be used on the high seas;
- then meeting the 70% condition;
- providing the supplier with documents proving a posteriori that it meets the 70% condition.
Additional requirements for VAT exemption in Italy
- Pleasure yachts assigned for commercial use must have a certificate from a public registry stating ” Commercial Yacht” or “Commercial Vessel/ Yacht in commercial use”.
- When VAT exemption is claimed for the purchase of a pleasure yacht, the seller must request a certificate from the “Company register”. This certificate must attest that the buyer’s activity is in the commercial maritime sector and not for private use.
Please note: A pleasure yacht, assigned for commercial use, but used for private purposes, is subject to penalties.
VAT and commercial vessels in Spain
Spain does not have a statute allowing commercial yachts to benefit from a VAT exemption. A yacht registered in a non EU country and whose owner is also established in a bnon EU country will however be able to benefit from VAT-free repairs with the implementation of the inward processing scheme..
What about yachts for rent in Spain?
As with all Member States, to be chartered and trade as a commercial yacht, a vessel must be commercially registered and must have a certificate of compliance. Another obligation specific to Spain is that commercial vessels must pay a specific tax called “Matriculation Tax” in order to be marketed.
VAT and commercial vessels in Croatia
Croatia has not provided a statute allowing commercial yachts to benefit from a VAT exemption. A yacht registered in a non EU country and whose owner is also established in a non EU country will, however, be able to benefit from VAT-free repairs with the implementation of the inward processing scheme.
What about yachts for rent in Croatia?
As with all Member States, in order to be leased and trade as a commercial yacht, a vessel must be registered and must have a certificate of compliance.
Differing VAT & Customs obligations depending on the commercial vessel’s flag or country of origin.
Your client's merchant vessel has a European Union flag (EU flag)
By flying the EU flag or originating from the EU a commercial vessel has no customs obligations.). It can be freely rented and circulated in community waters.
Your client's commercial vessel has a non-EU flag or is from a non EU country
A commercial yacht flying the flag of a non european country and/or originating from a non european country must be imported into the European Union before commercial operations can be carried out.
In most Member States, importing a vessel is subject to authorization by the customs authorities. However, this may vary depending on the situation and history of each vessel.
For example, it ispossible to import a commercial vessel exempt from VATto France. In practice, the aim is to import a vessel so that it can, as far as customs is concerned, sail freely in Community waters. But be careful: to leave Community waters, the vessel will have to be exported. Import and export is carried out with a customs document – theSAD, and the captain must keep it on board in case of possible checks.
