Unlike a number of other European countries, including France, Italy and Malta, Spain does not offer reduced VAT rates on charter fees. In Article 58 of EU Council Directive 2006/112/EC, VQAT Directive, entitled ‘criterion of effective use and enjoyment’, it provides that member states may choose to implement a VAT reduction scheme. However, it is not compulsory.
The directive is as follows:
In order to avoid double taxation, non-taxation or distortion of competition, Member States may, with regard to the supply of the services referred to in Article 56(1) and with regard to the hiring out of means of transport:
(a) consider the place of supply of any or all of those services, if situated within their territory, as being situated outside the Community, if the effective use and enjoyment of the services takes place outside the Community:
(b) consider the place of supply of any of all of those services, if situated outside the Community, as being situated within their territory, if the effective use and enjoyment of the services takes placing within their territory.
“As is clearly defined in paragraph (a), the provision seeks to minimise VAT taxation applicable to certain services, among them the hiring out of means of transport (for instance charter),” explains Alex Chumillas, director of Tax Marine. “However, the provision has not been implemented in Spain. Therefore, chartering in Spain is subject to a flat VAT rate which does not benefit from any reduction, even when sailing beyond 12 nautical miles.”
Paragraph (b) provides that the Spanish government is able to levy VAT charges on certain services that have been provided outside of Spain – so long as they are enjoyed within Spain. For instance, if a charter starts in Gibraltar, the yacht owning company will need to register for VAT and pay VAT on the length of the charter in Spain. By choosing to implement paragraph (b) only, the Spanish government has chosen to only apply the more burdensome element of the directive.
It may be the case that, should the government choose to provide VAT exemptions for superyacht charters, it would prove to be an unpopular move with an electorate that has experienced a particularly tough post-Global Financial Crisis recovery. The economic benefit of superyachting is frequently underestimated en mass and providing taxation benefits to the ultra-wealthy is rarely a politically popular move.