In 2019, the European Commission announced that the application of VAT on charters as practised in Italy, France, Malta, Cyprus and Greece would no longer be applicable in 2020. In other words, merely cruising into international waters and benefitting from a lump sum reduction in VAT will no longer be possible. Instead, VAT reductions are now to be determined on a strictly pro rata basis. Since the original announcement, various questions have been asked regarding the implementation and viability of the new system. On 15 June, Italian authorities provided confirmation on how exactly the new systems will be implemented.

“The Italian Budget Law for 2020 (Law no. 160 of 27 December 2019) has amended the rules regulating the application of the Italian VAT on short term charters (within 90 days) of yachts, regulated by Article 7-quarter, paragraph e) of the Italian VAT Code (Italian Presidential Decree no. 633/72),” explains Gianfranco Puopolo of PG Legal. “Specifically, paragraph 725 of Article 1 of the Budget Law recognises “the delivery of the services” of the short-term lease or charter of yachts outside the European Union (and VAT exempted) only if the sailing outside the EU is proved adequately.”

As a result, the lump sum VAT criteria that was previously applied relating to the length of yachts (e.g. 6.6 per cent VAT for the charter of superyachts over 24m) will no longer be applicable, and the ordinary VAT of 22 per cent will be due unless it is proved that the superyacht in question was sailing outside of EU waters. On 15 June 2020, the Italian Tax Authority issues Provision n.234483 that clarifies how and by what means sailing outside EU waters can be proved adequately.

Below the team from PG Legal provides a brief over of the necessary provisions for this proof.

Proof of sailing outside the European Union

The actual use of a yacht outside the European Union must be proved in paper or digital format. The lessee or another person who is in charge of the yacht (e.g. the Captain) will be obliged to exhibit:

  • the travel cartography;  
  • data and information extracted from systems of satellite navigation or transponder (e.g. such data may be provided through the system AIS, "Automatic Identification System" if the vessel has one); the navigation logbook kept on board by the Captain, with records of data and facts relating to navigation (under Articles 169, 173 and 174 of the Italian Navigation Code);
  • the documentation (invoices, contracts, tax receipts) proving the mooring of the yacht at ports located outside of the European Union;
  • the documentation (invoices, contracts, tax receipts) proving purchases of goods and/or services (relating to the use outside the European Union of the yacht), from sellers established outside of the European Union.  
  • the lease, charter, and other similar short-term contracts.

Pleasure boats equipped with satellite navigation systems

The data and information will be extracted from the satellite navigation systems in use or transponders (for example, the AIS, "Automatic identification System") and should indicate, with precision and consistency, the sea routes of the vessel.

Such data and information will be sufficient to prove the sailing outside of the European Union except in cases of fraud or abuse.

Pleasure boats without satellite navigation systems

In case of the yacht which is not equipped with satellite navigation systems, the proof of sailing outside the EU will be provided through the exhibition of the lease, charter, and other similar short-term contracts. Also, at least two of the following evidence must be shown:

  • the data obtained from paper/digital navigation logbooks;
  • digital photographs (made by any device) of the “vessel's position” for each week of navigation and detected with a frequency of at least two for each week of sailing;
  • the documentation (invoices, contracts, tax payments receipts) proving the mooring of the yacht at ports located outside the European Union;
  • the documentation (invoices, contracts, tax payments receipts) proving purchases of goods and/or services (relating to the use outside the European Union of the yacht), from sellers established outside of the European Union.

Such data and information will be sufficient to prove the sailing outside of the European Union except in cases of fraud or abuse.

Keeping documentation

Lessee and lessor of the yacht are obliged to keep the documentation proving the actual sailing outside the European Union until 31 December of the year following that in which the VAT annual declaration was submitted (or, in the case of failure to submit a VAT return, until 31 December of the seventh year following that in which the VAT annual declaration should have been submitted). This documentation must be shown upon request of the Tax Authorities.

Applicability

These rules apply to lease contracts, and other similar short-term contracts executed after the publication of the Provision ( i.e. after 15 June 2020).


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