Tax Marine Spain explains new criteria on ultimate beneficial owner prohibition

Tax Marine Spain S.L. has discussed the new criteria adopted by the Spanish Tax Agency with regards to the existing limitation of use on ultimate beneficial owners of yachts that benefit from Spanish Matriculation Tax exemption.

Since October 2013, the amendments introduced in the Spanish Excise Duties Law allow chartered yachts, regardless their length, to benefit from Matriculation Tax relief. Before the law amendment the exemption only applied to charter yachts less than 15 meters LOA.

The wording of the exemption of the article 66.One.g of the 38/1992 law, under consideration, establishes a very important additional limitation: the prohibition of use of a vessel that benefits from this tax relief to related parties of the owning company.

In other words, the lease of a vessel to related parties, such as ultimate beneficial owners is not considered to be a commercial activity under the Spanish tax law, even the lease is agreed at arm’s length and VAT paid. In these cases the exemption requirements are not longer met and the benefit lost, being the tax enforced.

Since the approval of the law amendment, Tax Marine has been actively working to clarify the tax and legal frame surrounding yacht charter in Spain. Among the latest actions carried out, Tax Marine submitted a tax enquiry to the Directorate-General for Taxation (department of the Spanish Tax Agency in charge of providing clarification on the practical implementation of tax law), asking for clarification on the requirements that have to be met to benefit from matriculation tax exemption. Particularly, to clarify which was the position of those related persons or entities, which did not have the status of Spanish tax residents. 

In response to this enquiry the Spanish Tax Agency binding answer V0860-14 has provided two important clarifications and a new approach to the situation: 

• If a vessel that benefits from the exemption established on the article 66.One.g, is leased to related persons or entities of the charter company, who are not residents in Spain nor owners’ establishments in Spain, the Matriculation Tax event does not occur and the requirements to benefit from the tax relief are still met.

In other words this response allows the vessel to be hired to ultimate beneficial owners, when that person is not resident in Spain. This interpretation is a radical change compared with the previous situation, which did not allow a single use of the yacht by a related person or entity to the owning company. In those cases where the related party is resident in Spain the limitation still applies. To structure this use by the beneficial owner, there should be a charter agreement on place, the charter fee should be agreed at arm’s length and VAT applied.

• The second conclusion concerns to the geographical scope where the limitation to related parties, established in article 66.One.g, should be applicable. The answer provided by the Tax Agency clarifies that the use of the yacht outside the Spanish territorial waters does not involve a Matriculation Tax event. Therefore in this case it seems even possible for Spanish related parties to lease to themselves the yacht outside the Spanish waters and keep meeting the requirements to benefit from the tax relief.

For more information please visit Tax Marine S.L.

The English version of the binding enquiry is available here.