As part of its endorsement of an industry-wide move towards prudent and transparent superyacht ownership structures, speaks to PricewaterhouseCoopers’ head of Luxury Asset Advisory, Nic Arnold. Below, Arnold, who advocates a diligent and pragmatic approach to ownership, identifies the steps owners should take to ensure that their superyacht remains compliant throughout its lifestyle.

It is important to consider early on how the yacht will be used so that an appropriate ownership structure can be chosen. So often we see owners following 'down the pub' advice or being persuaded to use complex tax-motivated schemes which become impossible to maintain as they never really fit the client's needs.  This can lead to multiple customs enquiries, penalties, impounding of the yacht and in some cases bad press for the owners. To reduce the risk of these issues potential buyers should take up-front advice on how their personal tax profile will impact the yacht’s taxation. It is not all about the yacht. It is about how the yacht fits into the international lives of owners and their families.

In terms of the acquisition itself, it is important to consider the location. For example, if the yacht is purchased outside the EU, VAT may not be payable on the transaction but it could be payable when the yacht is first brought to the EU. With advanced planning it may be possible to mitigate the tax or benefit from certain tax reliefs. The message is that potential buyers should do their ‘tax due diligence’, with enough time to evaluate the options. Knowing who you are really doing business with can be the most important thing of all. Who is behind the corporates and trusts? What is their reputation? And do they have any political or family ties which could damage you by association?

Mistakes can be made when buyers don't consider the flows of funds and timing of payments. Non Domiciled individuals living in the UK will need to adhere to the terms of the 'remittance basis' of taxation in order to prevent an unnecessary tax bill, and depending on the location of the asset, differing amounts of tax may be payable simply due to the local jurisdiction's rules.  

There are a range of options available to purchasers that may reduce the VAT cost of buying a yacht, but these need to be considered in light of their own individual circumstances. Some territories, such as Malta and Cyprus, have national leasing arrangements in place that reduce the effective VAT paid on the yacht. These arrangements do however, prevent the owner from chartering the yacht, which can otherwise be an attractive way of defraying some of the costs of ownership.

Having said this, chartering out your yacht may not be suitable for someone that does not want restrictions on how and when they use their yacht, and owners in this situation can end up making costly mistakes. Other mistakes can be made, without even knowing it, if proper due diligence is not undertaken. For example, how confident is an owner that the source of funds received is legitimate? International Anti Money Laundering and Counter Terrorist Financing regulations are placing increased emphasis on the requirement to understand sources of wealth, and individuals and companies should carry out due diligence checks and report suspicious transactions.

The allure of having a bespoke superyacht custom built is obvious, but with it comes the counterparty risk of cost and time overruns, disagreements and even the possibility of builders going out of business. This creates the risk of financial loss, which is less likely when purchasing a production or second-hand yacht.

Building a yacht also presents more instances where tax can be unnecessarily incurred. For example, if the delivery of yacht parts are taken within the EU, VAT will be applicable; whereas if the supplier is contracted to deliver the items to a non-EU location, VAT may not be payable.

Small changes to contracts can ensure those that are not required to pay it do not pay irrecoverable tax.  Tax efficiency can be increased where the shipyard makes certain purchases, but this needs to be reflected in the contract and be appropriate for the tax status of the yacht when eventually brought into use.

Finally, knowing who you are ‘getting into bed with’ on new builds and half-finished projects is something that needs to be considered in much more depth than when buying a second–hand yacht.

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