The end of the French commercial exemption

On the 25th June, The French Fiscal Authorities finally published, after several months of rumours and indecision, a “Bulletin Officiel des Finances Publiques” which puts an end to so called “French Commercial Exemption”.

With the view to comply with the ECJ Bacino ruling, and with effect from the 15th of July, all charters starting in French waters will be subject to VAT at the full rate of 19.6%. All Charters signed before will still benefit though from the prior exemption regime.

Nevertheless and on the basis of art 59 of EC Directive 2006/112 - which governs the use and enjoyment rules for yachts capable of travelling in international waters and which applied so far to French Leasing Schemes- and on the basis of art 259 A 1 of the French Tax Code and art I-A-2 & 90 of the Bulletin Officiel des Finances Publiques published on 12 September 2012 - charter companies that make international voyages could either opt for the prorata temporis basis regime, if they can determine the time they spend inside and outside of internal waters or otherwise from an allowance of 50% on the taxable basis, leaving an effective VAT rate of 9.8%. This rate could be soon increased to 10% if the predicted increase in the standard VAT rate from 19.6 to 20% takes place.

Following this announcement, it now becomes urgent for all charter companies with yachts commencing charters in France and/or Monaco to register for VAT or to appoint a fiscal representative in either country. What remains unclear is how the new rule will be applied in practice. It will be necessary to wait for clarification on a few aspects, in particular how the French Authorities will interpret “International voyages” and “high seas”, how long the yachts shall stay in International waters, will the allowance be granted on an annual basis if the majority of the charters pass through International waters, and if so what will be the proportion required or for each charter?

What seems clear is that French Authorities do not wish to amend for the time being the VAT exemption applicable on the supply of goods and services provided to commercially registered and operated yachts. APA shall not be affected as well as they will fall under the disbursement regime on the condition that all invoices are issued in the name of the charterer.

For any questions or assistance, contact Monoeci Management SAM.