The Stream Avocats & Sollicitors team of Freddy Desplanques , Amélie de Franssu and Rémi Kircher explore the various options for superyacht owners in 2020 and beyond to 2021
It is now clear that the 2020 yacht charter season in France is going to be delayed as President Macron has informed on Monday 13 April that the general lockdown was extended at least until 11 May. Nevertheless, we want to stay positive and still believe the 2020 season will open for the Summer. Here are our main concerns and general advice for yacht owners in order to prevent suffering the double penalty of having a trimmed season and the risking of undermining the charter possibilities for next year.
A brief reminder of the most commonly used tax and customs regimes for commercial yacht importations in France:
In principle, the act of importing any goods – including yachts – into the EU triggers the applicability of VAT of the value of such good (Article of the EU Directive 2006/112/EC of 28 November 2006 on the common system of VAT), customs duties (including additional duties).
However, yacht owners may be eligible to certain exemption regimes for the importation of yachts in France, such as the French commercial exemption (FCE) and reverse-charge mechanism.
STREAM law firm was involved with discussions with the French customs authorities to use the Returned-Goods Relief regime in order to simplify the customs formalities and also to allow US-built yachts eligible to this regime to benefit from an exemption of the 25% additional duties on importation. Specific conditions must be met to benefit from this regime, one of them being that the yacht left the EU Customs territory for less than three years and is reimported by the same person who proceeded to last export.
The COVID-19 issue raises a lot of questions such as:
- How does the 70% requirement of the FCE apply to a very short charter season if a yacht does come to the EU in 2020?
- Could the owner come for private use in the EU in 2021?
- For yachts in general, how to make sure that they can benefit from a VAT exemption on their next importation in 2021 if they are not used in the EU this summer?
- What are the options for US-built yachts that have not returned to the EU since 2017 and cannot come this summer?
1. Yachts under FCE and compliance with the 70% in 2020
You may be familiar of the 70% requirement of yacht’s total navigation outside French territorial waters.
Because the season will necessarily be somewhat curtailed, the question arises as to the applicability of this 70% rule, for yachts that are imported in the EU and also others that remain outside of the EU.
This ratio is calculated of a calendar year basis (even outside of the EU). However, if the season is shorter, less trips will be counted to calculate this ratio.
In order not to jeopardise the 2021 EU importation options, we advise to make sure the 70% ratio is reached and at least one charter with commercial registration is carried out.
Indeed, otherwise the French authorities in 2021 may refuse to authorise the yacht being imported under the FCE regime.
We are negotiating with the French customs and tax authorities to obtain derogations on the applicability of this criteria for the 2020 season considering the current exceptional circumstances. We hope to be able to update you as soon as possible on the outcome.
2. Private use in 2020 in the EU: a good idea?
While some owners will prefer to simply use the yacht privately this year whilst waiting for a more favourable season in 2021, we must warn that private use of the yacht in the EU in 2020 will make it impossible to apply for FCE regime or use the VAT reverse-charge in 2021 (for renewal of application – this condition does not apply for a first timer).
Moreover, VAT could be due on the yacht’s hull.
Under the temporary admission regime, and in light of the current French customs interpretation, the criteria of eligibility are very strict and EU residents are not allowed onboard (except under very specific conditions for crew members). We are working on a clarification of the concept of user, so that this regime can be more flexible in the future.
3. Any condition to comply with even outside of the EU if the yacht is not chartered in the EU in 2020?
Yacht owners who decide not to import the yacht at all in 2020 will need to look out for the following in order to maintain their rights for the 2021 season:
- Yachts previously imported under the FCE: the owner should maintain a commercial use (at least one charter contract and commercial registration) this year, albeit not in the EU. If this is not possible (for instance in the USA) then we invite the owners to check in advance with their local counsel if this could impact the return of the yacht in to France in 2021 for commercial use as a case-by-case analysis will be necessary.
- Yachts previously imported with the reverse-charge mechanism: these are recommended to be used commercially, at least once during the calendar year.
4. What are the options for US-built yachts?
US-built yachts and yachts that want to benefit from simplified customs formalities under the Returned-Goods Customs regime in the EU, need to make sure that conditions are fulfilled and especially that:
a. The last export dates from are 2018 or 2019 but not earlier.
If, however, the last export was earlier than that, we invite the owners to contact us in order to request for a derogation to the 3-years conditions in application of Article 203.2 of the Union Customs Code.
b. The yacht’s ownership does not change
If you are in the process of selling or buying a yacht, please note that the buyer may benefit from the 25% additional duties exemption under specific conditions, based on recent experiences and negotiations with the French customs authorities. We recommend that you contact us ahead of the sale process.
This crisis can have an impact on the charter activity. During this period, we recommend raising any questions before returning in the EU, anticipating each yacht’s situation to avoid any last-minute issues, allowing flexibility in the charter negotiations and yacht’s movement.
Do not hesitate to reach out for specific opinions about how to use your yacht this year considering the particulars of each individual situation to maintain VAT exemptions that you may have benefitted from in the past years.
This article is provided on the basis of our understanding of the current discussions and information provided to us at this time. It does not constitute tax advice to be acted upon. Specific advice should be sought for each situation.
We trust that the above is helpful and are at your disposal if you need any additional information.
If you like reading our Editors' premium quality journalism on SuperyachtNews.com, you'll love their amazing and insightful opinions and comments in The Superyacht Report. If you’ve never read it, click here to request a sample copy - it's 'A Report Worth Reading'. If you know how good it is, click here to subscribe - it's 'A Report Worth Paying For'.