VAT IN ITALY FOR THE YACHTING BUSINESS · charters, it may be useful to point out that the recent...

VAT IN ITALY FORTHE YACHTING BUSINESS

VAT IN ITALY FOR THE YACHTING BUSINESS

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CONTENT

1. IN WHICH CASES SHALL VAT ON THE ACQUISITION OR CHARTERING OF YACHT BE DECLARED IN ITALY? 4

2. PAYMENT OF VAT ON CHARTER OF A YACHT 5

3. HOW TO PAY VAT ON CHARTER FEES 7

4. WHAT IS THE GENERAL PRACTICE OF THE PROFESSIONALS OF THE YACHTING INDUSTRY? 8

5. WHAT SHOULD THE OWNING ENTITY DO TO PREVENT CLAIMS IN THE CASE OF INSPECTIONS ON BOARD OR DISPUTES WITH THE TAXADMIMISTRATION 8

6.HOW TO DECLARE VAT AND HOW TO CLAIM IT BACK ON THE EXPENSES 9

7. IN THE CASE CHARTERS OF YACHTS ARE DONE BY A YACHT BROKER, HOW SHALL THE OWNING ENTITY SECURE THE PAYMENT OF VAT ON THECHARTER BY THE BROKER? 11

8. WHICH ARE THE OBLIGATIONS IN RELATION TO ! IMPOSTA DI STAZIONAMENTO "? 11


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Acquire a yacht is a wonderful decisionbecause it is the realization of a dream. Thispurchase is an investment and should not betaken in a hurry.In addition to tax and financial shipowner’ssituation, the technical and administrative ofthe yacht, tax elements must be known andunderstood.To understand clearly, Magellan Management& Consulting SA has decided to offer itsexpertise in conjunction with recognizedexperts in publishing articles on importanttopics.

Arnaud Bezzina


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1. IN WHICH CASES SHALL VAT ON THE ACQUISITIONOR CHARTERING OF YACHT BE DECLARED IN ITALY?

1.1. Payment of VAT on the acqui!sitionof a yacht in Italy

The buyer of a non commercially registered yachtbuilt in Italy shall pay VAT in Italy at the rate of 21%unless the buyer acquires the yacht on a leasingscheme pursuant to the Italian legislation.

The ordinary rate of 21% applies in both the case thebuyer is an individual or a company that does not per-form as its principal activity the management andchartering of a yacht. In this latter case, in order tobenefit from the VAT Exemption afforded by Italianlaw, the yacht shall be commercially registered.

Article 8-bis of the Italian Presidential Decree No.633/1972 (hereinafter the “Italian VAT Legislation)sets forth the VAT Exemption for yachts that:

a) sail in the “High Seas”: this implies that these mustbe commercial yachts registered with an Interna-tional Registry (for your information, Italy has anInternational Registry kept by RINA).

b) are used for commercial purposes: This implies theexistence of the requirement of the so called “com-mercialità” that means that the prevailing activityof the owning entity shall be of commercial nature(management and chartering of a commercialyacht to third parties). The requirement of the“commercialità” is checked by the Italian authori-ties during inspections and must be proven in thecase of tax disputes. The requirement of the “com-mercialità” must subsist at all times and not justfor a limited or occasional period of time. An ow-ning company is considered having being establi-shed for commercial purposes when, inter alia:• the articles of incorporation of the company

state the commercial purposes (exercise of com-mercial charter), which shall be provided transla-ted in Italian language if required by the Italiantax authorities;

• indication of the commercial purpose of the com-pany: i) in the Registry of Ships under Construc-tion, if it is a new built; ii) in the National Registryof enrollment of the yacht; iii)on the yacht’s navi-gation license and in the Certificate of navigationin the High Seas.

In essence, at the time of the acquisition of the yacht,whether it is a new built or not, the entity that pur-chases it must be a company that genuinely performsa commercial activity and such activity shall be pro-ven in the case of inspections on board and/or dis-putes with the tax authorities. With regards to therequirement of the yacht being used for genuine com-mercial purposes, in case of the private use of theyacht by the beneficial owner, the Circolare Interpre-tativa 43/E issued by the Agenzia delle Entrate inOctober 2011 (hereinafter “Circular Letter 43/E”)clarifies that in order to not lose the exemption rele-vant for VAT purposes: 1. the charter activity should be carried out mainly in

favour of a third party unrelated to the owning en-tity’s structure; this should be the case of the ma-jority of the charters fees paid and of the days ofcharter;

2. the “majority of the time” requirement of the char-ter to the third parties should be related to thecurrent year and to the previous two-year period(if the owning entity was in existence). Evidence ofthe charter’s cruises shall be kept by the owningentity and submitted to the Italian authoritiesupon request;

3. the amount of the charter fees should be equal toat least the present market value, especially in thecase it is the beneficial owner, or persons affilia-ted to him/her, chartering the yacht;

4. the yacht shall be assigned to an independent bro-ker for charter or leasing to third parties at marketvalue;

5. evidence of the negotiations carried out with char-terers shall be provided to prove that the yachtwas genuinely put for charter.


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2. PAYMENT OF VAT ON CHARTER OF A YACHT

Prior to entering into the details of VAT application tocharters, it may be useful to point out that the recentinterpretation on the application of VAT on charters,as clarified by the Circular Letter 43/E, shall be seen in the framework of the so-called VAT Package of 2010 that sets out, inter alia,the rules on the application of VAT on yacht’s char-ters.

For the purposes of this memorandum, short termhires (or charters) of a yacht shall have a duration notexceeding 90 days. Also, reference shall be made toArticle 7-quarter of the Italian VAT legislation, thatstates as follows: “…. Are considered as performedwithin the territory of the State: […] the supply of ser-vices […] (including) short term hire of means of trans-portation when these are made available to the usein the territory of the State and provided that theyare used within the territory of the European Com-munity. The same supply of services are consideredas performed within the territory of the State whenthe means of transportation are made available to theuser outside of the territory of the European Commu-nity and are used within the territory of the State”.

As such for the purposes of the application of VAT oncharters, two essential elements shall be taken intoconsideration that are: a) the port of embarkation (ie.the place where the charterer takes possession ofthe yacht); b) the territorial waters where the cruisetakes place.

VAT is to be applied and then paid to the Italian TaxAuthorities (Agenzia delle Entrate) pursuant to therates set forth in the Circular Letter 43/E that makesfurther reference to Circolare No. 49/E of 2002 (seetable below).

Circular Letter 43/E clarifies that charter fees aresubject to Italian VAT when the cruise starts: - in the Italian territory and the commercially regis-

tered yacht is used within EU maritime territorialwaters (irrespective of the owner’s nationality andflag)

- outside the EU territory and the commercially re-gistered yacht (irrespective of the owner’s nationa-lity and flag) is used within Italian maritimeterritorial waters (only on charter fees related tocruise time in Italian waters)

Circular Letter 43/E further clarifies that charterfees are not subject to Italian VAT when the cruisestarts:

- in Italian territorial waters and the commercially re-gistered yacht, (irrespective of the owner’s nationa-lity and flag) is used outside EU maritime territorialwaters (as defined in the Montego Bay Convention,ie. 12 miles from the coast);

- in a EU country that is not Italy- outside the EU territory and the commercially re-

gistered yacht is not used within Italian maritimeterritorial waters

In the case the charter fees are subject to Italian VAT,the owning entity shall be registered for VAT in Italy(or appoint a tax representative if the owning entity isnot based in a EU member state) and account for therelevant VAT rate accordingly on the total charter fees(charter fees + Advance Provisioning Allowance or“APA”). The charter fee generally covers only the hireof the yacht and crew, all other expenses are in addi-tion to the charter fee.

The APA is usually 30% of the charter fee (some-times 35%). The APA covers the cost of fuel, food,wines and liquors, dockage, communications, etc.Any APA not used will be returned to the charterer atend of the charter. It is common practice at the timeof the execution of the charter agreement, that thecharterer and the owning entity, through the broker,sign an ad hoc statement or contract that regulatesthe application of VAT on APA. You should be awarethat the practice, although it is far from being consi-dered the safest choice, is to have a side letter signedin addition to and with reference to the charter agree-ment that regulates the application of VAT on fuel orother items that are included in the APA and on whatshall be pair or reimbursed to the charterer. We wouldbe happy to provide you with a draft of a side letter.

The Italian Revenue Office stated that a reduced VATrate shall apply to charter fees provided that the portof embarkation is in Italy and that the cruise takesplace in EU territorial waters (Italy and other EU wa-ters).

The reduced VAT rates are: i) set forth in Circolare No.49/E of 2002, which sets forth the reduced VATrates for the acquisition of yachts under a financialleasing scheme (Leasing Italiano); and ii) based onyacht’s technical specifications and ability to sail ininternational waters.


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Rate Reduction Rate Applicable Over 24m LOA 30% 6,3%From 16,01m to 24m LOA 40% 8,4%From 12,01m to 16m LOA 50% 10,5%From 7,51m to 12m LOA 60% 12,6%Up to 7.50m LOA 90% 18,9%

For further clarification, the following scenarios as-sume a yacht over 24m and short-term charter andare as follows:

1. Charter commences in Italian Port - Cruising areaEU waters sailing within and outside 12NM – Is Ita-lian VAT chargeable on charter fee and APA and if soat what rate at what rate?

If the vessel is made available in Italy and the chartertakes place effectively in Italian territorial waters andin the waters of other EU member states, the charterfees, including APA, are subject to Italian VAT and itis possible to apply the reduced VAT rate on the basisof the length of the vessel (ie. 6,3%).

2. Charter commences in Italian Port - Cruising areaexclusively within Italian waters - Is Italian VAT char-geable on charter fee and APA and if so at what rateat what rate?

The charter fees and APA shall be subject to ItalianVAT at the ordinary rate of 21%.

3. Charter commences in another EU port (not Italy)- Cruising in EU waters including Italian waters - Isthere an Italian VAT liability and if so at what rate andon what element of the charter?

The charter fees should not be subject to VAT in Italybut in the country where the vessel is made availableto the client.

4. Charter commences in Italy - Cruising immediatelyto non EU waters and remaining in non EU water (egCroatia) - Is there an Italian TVA liability and if so atwhat rate and on what element of the charter?

The charter fees shall not be subject to VAT in Italynor in other EU member state.

5. Charter commences in non EU port – Cruising inItalian waters within and outside 12NM – Is there anItalian VAT liability and if so at what rate?

The charter fees are subject to VAT in Italy and, in ouropinion, the applicable rate is 21%.

When the port of embarkation is in Italy and the cruise takesplace in EU waters (Italy and other EU waters), the followingreduced VAT rates apply: Length of yacht

The current VAT rate in Italy, to be applied also on charter fees, is of 21%


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In order to be able to pay the VAT on charters, de-pending on whether the owning entity is based in theEU or outside of the EU, two different proceduresapply:

3.1. The direct identification of VAT fornon!residents in Italy "residents in otherEU member states#

For owning entities established in other EU memberstates, including for example, the Isle of Man and ingeneral those European countries that are part ofthe European free customs zone, can apply for thedirect identification relevant for VAT purposes inItaly in order to obtain the Italian VAT registrationnumber (partita IVA) and to issue invoices with Ita-lian VAT. Generally, the timing for the assignment of the Ita-lian VAT number to non Italian companies is of ap-proximately 20 days from the date of the filing ofthe formal application. The reason for such a consi-derable delay is due to the fact that only one officeof the Agenzia delle Entrate processes all applica-tions coming from non Italian companies.

In order to be able to file the application for the VATnumber, the following is a list of the documents thatare generally required:

1. an updated and original certificate (having the of-ficial stamp of the Tax Authority issuing the certifi-cate and the signature of the competent officer ofthe same Authority) issued by the Tax Authority ofthe home country where the owning entity has its re-gistered office stating that the owning entity is re-gistered for VAT purposes (also in case thecompetent foreign Tax Authority issues only certifi-cates which may be acquired through the internet,these documents must be stamped and signed inoriginal by the issuing Tax Authority); 2. an updated and original certificate (having the of-ficial stamp of the Tax Authority issuing the certifi-cate and the signature of the competent officer ofthe same Authority) issued by the Chamber of Com-merce of the home country where the owning entityhas its registered office; in case the of the owningentity is a company, the certificate must specify thelegal representatives duly authorized to sign and acton behalf of the company; 3. a translation, duly undersigned, of the certifi-cates 1 and 2 above and a photocopy of a documentwhich identifies the translator; 4. a photocopy of a document which identifies theperson making the declarations or of the director ofthe owning entity who signed the application for di-rect identification (ANR/3 form);

5. a self-certification, signed by the director of theowning entity, specifying the ordinary activity and/orany other activity effectively carried out in the coun-try of establishment of the owning entity and the ac-tivity that is intended to be carried out further todirect registration under the terms of Article 35 terof the Italian VAT legislation. This certificate mustinclude the reasons for the request of direct regis-tration and the subjects involved in the activity to becarried out in Italy; 6. the filled in and signed AN/3 form as provided bythe Italian Tax Agency.

Furthermore, the certificate must include informa-tion stating that the non-resident subject has not apermanent establishment located in the Italian ter-ritory.

3.2. Need to appoint the tax representa-tive for non-European based owning en-tities

Non EU based owning entities cannot apply for thedirect identification process to obtain an Italian VATposition. In order to do so and to be able to issue in-voices with the Italian VAT number, the non-EUbased entities shall appoint a tax representative inItaly (essentially, an individual resident of Italy) whowill be liable towards the Italian tax authorities forthe performance of all obligations provided by lawfor the owning entities. Generally, the role and func-tion of tax representative is performed by accoun-tants, tax advisors or lawyers who are specialized intax issues and, given the specific nature of the char-ters, should have an extensive knowledge of tax is-sues concerning the yachting industry.

The tax representative, who is jointly liable with theowning entity for the payment of VAT and other taxdue in Italy, is generally involved also with the invoi-cing of the charters’ operations, keeping the VAT re-cords, performing VAT payments, filing VAT returnsand INTRASTAT statements. In order to limit his/herliability vis à vis the Italian tax authorities, it may bepossible that the tax representative requests somesort of security (insurance bond, bank guarantee orcash) in order to be protected in the case the owningentity does not perform the payment due to the Ita-lian tax administration.

The appointment of a tax representative is generallymade by way of a proxy or resolution of the owningentity.

3. HOW TO PAY VAT ON CHARTER FEES


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4. WHAT IS THE GENERAL PRACTICE OF THEPROFESSIONALS OF THE YACHTING INDUSTRY?

The current practice of international brokers involvedwith the charter of yachts with LOA in excess of 24meter is to apply the Italian VAT at the reduced ratesin the circumstances indicated above. There has beensome initial reluctance in applying the full VAT rate or,

in certain cases, even the reduced rates but, in theend, for what it is in my knowledge, most of the largebrokers have adopted a common approach that iscomplying with the interpretation and clarification ofthe Circular Letter 43/E.

5. WHAT SHOULD THE OWNING ENTITY DO TOPREVENT CLAIMS IN THE CASE OF INSPECTIONSON BOARD OR DISPUTES WITH THE TAXADMIMISTRATION

The captain of a yacht shall carefully keep the logbookof the yacht. The lookbook is a record of operationaldata relating to a ship (under Italian navigation code,a vessel whose overall length exceeds 24 meters is aship) such as weather conditions, times of routineevents and significant incidents, crew complement orwhat ports were docked at and when. The logbook,which can be also in electronic format, is essential totraditional navigation, and must be filled in at leastdaily.

The captain of a yacht is required by international ma-ritime conventions and national legislation to keep ac-curate records of the cruise. As such, in the case ofinspections on board carried out by Italian Cost Guardor by Guardia di Finanza, the captain of the yacht shallimmediately provide evidence of the cruise and of theroute taken with indication of the actual time spent ininternational waters. This should be sufficient evi-dence to prove the correctness of the application ofthe reduced rate or of the non application of VAT onthe invoice.


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At the outset, it is worth to specify that the VAT num-ber obtained in Italy through the direct identification(see paragraph I.iii.1) can be used only to comply withthe requirements of the VAT legislation concerningthe charter fees when these are subject to Italian VATand therefore to issue invoices with the Italian VATnumber as well as to pay the VAT to the Italian Tax Au-thorities. As such, for the purchase of goods and ser-vices required for the charter activities, the owningentity directly identified in Italy for VAT purposesshall notify its suppliers the VAT number of the coun-try of origin (ie. the owning entity shall issue an in-voice with the VAT number of the place where it isestablished - Luxemburg, Isle of Man etc) and shallreceive from the Italian suppliers of goods and ser-vices invoices without the application of Italian VATin compliance with the general principle of non appli-cation of VAT in B2B transactions for subjects resi-dent in the UE area.

Needless to say, this shall be always considered on acase by case basis with respect to the purchase ofany service or good. In any case, the general rule isthat for the purchase of the goods and services inItaly (please see list below), Article 8-bis of the ItalianVAT Legislation continues to apply provided that theowning company performs a genuine commercial ac-tivity (see paragraph I.i above).

6.HOW TO DECLARE VAT AND HOW TO CLAIMIT BACK ON THE EXPENSES

Goods and Services:

• Transfers of equipment engines and their com-ponents and spare parts of the same

• Supply of goods to their on-board equipmentand supplies intended for their refueling andprovisioning, including the administration offood and drinks on board

• Provision of services, including the use of drydocks for the construction, maintenance, repair,modification, processing, assembly, equipment,fixtures, apparatus, engines and their compo-nents and spare parts and equipment on board,including the supply of services related to shipdismantling

• The provision of services other than those refer-red to in the previous point directly to meet thedirect needs of the vessels


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Owning entities registered in the countries of theMonetary and Economic Union of European Unioncan perform the payment of VAT by a transfer byusing the MT103 form as follows:

• BIC code: BITA IT RR ENT • IBAN: IT 64W 01000 03245 348 0 08 1203 01

– IVA SCAMBI INTERNI • Description of payment: Taxpayer’s VAT registra-

tion number assigned subsequently to direct re-gistration - Period to which the VAT payment refers– Tax code identifying VAT payment.

As an alternative to that and but only as a secondchoice, the payment may be made by a wire transfer,using the procedure of cross borders transfersnamed “TARGET”. The bank details to be used arethe following ones:• BANCA D’ITALIA – Tesoreria centrale dello Stato • Bic/Swift code: BITA IT RR XXX • IBAN code: IT87 N010 0003 2040 0000 0000 350

• Description of payment: Taxpayer’s VAT registra-tion number assigned subsequently to direct re-gistration - Period to which the VAT payment refers– Tax code identifying VAT payment.

As regards the method of payment of VAT due, thetaxpayer must communicate to his bank that thetransfer must be made through TARGET procedure.TARGET is the method chosen by European CentralBank to make a payment in Euro currency and en-sure the transactions to be treated in real time. Italso allows wire transfer of funds in Euro among allMember States of the European Union, includedthose not belonging to Euro area. All banks locatedwithin the European Union can operate using TAR-GET method by means of respective Central Natio-nal Banks.

After direct registration and assignment of a VATnumber, the owning entity shall, inter alia, be subjectto the following reporting and filing obligations as setforth in the Italian VAT legislation:

1. Invoicing and recording of active operations. Invoice must be issued at date of payment of eachinstallment 2. Periodic liquidations and VAT quarterly payments(art. 1 and 2 of Presidential Decree 100/98 as mo-dified by Presidential Decree 435/2001). Depending of issue date invoices: 1st quarter: by 16May – 2nd quarter by 20 August – 3rd quarter by 16November – 4th quarter by 16 March following year3. Annual communication of VAT data (art. 8-bis in-serted in the Presidential Decree no. 322/1998 by art. 9 of Presidential Decree no.435/2001). By 28 February of each year for data of previous fis-cal year

4. Annual VAT return (art. 8 of Presidential Decreeno. 322/1998, as modified by art. 8 of PresidentialDecree no. 435/2001) and related method of pre-sentation (art. 37 of VAT Decree). By 30 September of each year for data of previousfiscal year 5. Annual payment on account of VAT (art. 6, Law no.405/1990). By 28 December if there are invoices issued in 4thquarter 6. Adjustment payment.If any, by 28 February of each year 7. Keeping and storage of registers and documents. For 10 years 8. Presentation of INTRASTAT forms. If charterer is a UE registered company – By monthfollowing of issue date of invoice

6.1. VAT filings obligations for owning entity directly registered with the Italian tax authorities

6.2. Methods of VAT quarterly payments by non-resident subjects


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8. WHICH ARE THE OBLIGATIONS IN RELATION TO ! IMPOSTA DI STAZIONAMENTO "?

7. IN THE CASE CHARTERS OF YACHTS ARE DONE BY A YACHT BROKER, HOW SHALL THEOWNING ENTITY SECURE THE PAYMENT OF VAT ON THE CHARTER BY THE BROKER?

There is no obligation as the Imposta di Stazionamento has been abo-lished. The Imposta di Stazionamento has been replaced by a tax onthe ownership of a yacht that does not apply to foreign owned yachts.The tax on the ownership may apply if the ultimate beneficial ownerof the yacht is an Italian resident.

The broker is under no obligation to pay the VAT on the charter. It isthe charterer that shall pay to the owning entity the VAT on the charterand APA and it is up to the owning entity to pay such VAT to the Italiantax authorities.

Conclusions

As indicated in the introduction, this memo covers general aspectsof Italian VAT Legislation concerning the acquisition or the charter ofa yacht in Italy. It has been drafted on the assumption that the clientis based in a EU member state and that owns (or it is intended to buy)yachts that are built in Italy and will be chartered also in Italy.

Contact

Arnaud BezzinaMagellan Management & Consulting S.A.

89A Zone d’Activités de CapellenL-8308 CapellenLuxembourgTel : +352 26 30 40Fax : +352 26 30 40 40Email : [email protected]

Stéphane PelletAvocat aux barreaux de Paris et Luxembourg

Etude Felten & Associés2, rue Jean-Pierre BrasseurL-1258 LuxembourgTel : +352 45 77 451Mob +352 661 211 859Email : [email protected]

Gianfranco PuopoloPartner

TEMPEST LEGAL SERVICES MONACO SARLMonte Carlo Palace5th floor7 Boulevard des MoulinsMonte Carlo MC98000MonacoTel : 377 97981255Fax : 377 97981139Mob 33 (0)6 80861925Email : [email protected]

www.mmc.lu

This report is solely intended to provide preliminary and genericinformation on the current status of the Italian VAT legislationapplicable to the acquisition and charter of yachts in Italy. Thismemorandum, which is provided free of charge, shall not beintended as legal advice and shall not constitute the basis forconcluding any transaction or making any evaluation on whether tobuy or charter a yacht. The information contained in thismemorandum are accurate only at the date it was issued, which isDecember 2012. Italian tax legislation is subject to frequentchanges and it is highly recommended to review the accuracy ofthe information herewith contained from time to time and in anycase before entering into any contract. Magellan ManagementConsulting accepts no liability concerning the information andcommentary herein that are not intended to amount to legal adviceto any person on a specific matter. Every reasonable effort is madeto make them accurate and up to date but no responsibility for theiraccuracy or correctness, nor for any consequences of reliance onthem, is assumed by the firm.

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