With the pressure mounting in the European Union for all member states to reduce their budget deficits, Northern European countries are becoming increasingly intolerant of fiscal indiscipline in the South, which could directly affect the superyacht industry, according to leading finance and management company, Dominion Marine.
Dominion Marine claimed that a very clear message is forcing all countries to close tax loopholes for wealthy individuals. The message is that VAT is not a choice but a duty, doing away once and for all with the old adage that VAT stood for ‘Voluntary Added Tax’, and that it should be paid by everybody, regardless of wealth or status.
Ken Griggs, superyacht finance expert and director of Dominion Marine SARL, which offers a Monaco based ownership solution for qualifying private superyachts, explained, “We are feeling the pressure waves in the superyacht industry, with many changes in recent years, such as the payment of VAT on charters in Italy, France, and lately Spain and Croatia, and an attempt by the French Government to levy a mooring tax on yachts. This latter initiative failed because of pressure from the industry, which successfully lobbied for the removal of this counter-productive tax.
“The superyacht industry is worth billions to France and other Southern European countries and such taxes are a clear case of cutting off your nose to spite your face. We have often seen such taxes just drive the yachts into neighbouring waters.”
The different VAT rules and regulations in each EU member state can be very confusing as popular destinations such as Italy, Croatia, Spain, France and Greece, all have different VAT rates and rules. Dominion also claimed that it is a VAT minefield, and operating a charter yacht in the midst of these constant changes, requires precise knowledge of what is happening and all eyes are on what will happen next.
The French authorities, for example, succumbed to pressure from Brussels to amend their VAT exemption rules for commercial yachts and issued new VAT exemption conditions for commercial yachts that came into force in May 2015. It is not yet known how many yachts will qualify for commercial exemption, but those who do not qualify will find themselves paying full VAT and duty on the operation of their vessels.
Simon Roberts, head of yachting services for Dominion Marine, commented on the additional pressures that commercial yachts face, “The introduction of the ILO Maritime Labour Convention 2006, which came into full effect in August 2013, created many new rights for employees and obligations for employers.
“Whilst no one would argue against the importance of better working conditions for all on board and the protection of employee rights, it is 2015 after all, there is no doubt that this has added extra costs to the running of large commercial yachts.
“Although the MLC regulations are crystal clear, there are many grey areas when it comes to VAT for commercial yachts operating in EU waters, and this is creating a major headache for some superyacht owners.”
Some people may therefore feel there will be no return to the ‘good old days’ of continuous growth in the charter market, however others may feel optimistic about the future, but one thing is certain according to Dominion, the superyacht market is changing.
Simon finished, “The yachting industry will inevitably become a fully commercial or fully private affair. The historical ‘mix and match’ approach is increasingly unviable. It is crucial to decide from the outset whether the yacht is going to be run as a commercial or private vessel, as this will determine the ownership structure, the choice of flag state and the technical specification of a new build.”
There is also talk that the French Government’s next ‘gift’ to the yachting industry is to enforce a 20% withholding tax on charter revenue prior to being paid away to yacht owning companies located in offshore jurisdictions.
For more information, visit Dominion Marine.