Value Added Tax (VAT) is a tax scheme that was established by the EU. It is a tax on what is referred to as consumption and is levied by the government of each member state. As a consequence VAT is chargeable on boats imported into the EU and on boats purchased and owned by residents of the EU who are using their boat within the EU. VAT is also chargeable on boats, irrespective of ownership, which spend more than 6 months in any calendar year cruising in the EU, although there is scope to enable an owner to use a yacht in the EU without being liable for VAT. EU residents should only use a vessel in the EU if it is VAT paid or deemed VAT paid (see below).
Yacht owners should be aware that each member state has a certain level of discretion as regards the interpretation, implementation, administration and enforcement of the EU legislation regarding VAT. This can cause difficulties in interpretation and of course why different member states charge VAT at different rates. Normally, VAT laws of the member state are enforceable by the relevant customs authority. It should be noted that the Channel Islands and Gibraltar are considered outside of the EU VAT area but the Isle of Man is.
A yacht owned by an EU resident or corporate body has the right to free movement throughout the EU provided VAT has been paid on that boat in an EU country. Please note, however, that if you spend more than 6 months in some countries you may become subject to local regulations. It is also important to ensure that whenever sailing in the EU you carry evidence of VAT payment, such as the builder’s receipt or paid invoice or a VAT certificate which some EU States provide. Alternatively, you must keep on board the document(s) issued by Customs or other relevant authority stating the reason for any exemption.
Should VAT have already been paid on the yacht, and if so, has it?
All yachts built in or brought into the EU on or after 1 January 1985 must be able to prove their VAT paid status. A boat built before this date is deemed to have VAT paid status if it was in private ownership and within the EU at midnight on 31 December 1992. Proof of this may be required by the local customs and can be difficult to provide as log books, marina receipts or invoices going back that far have often been lost or destroyed or simply not passed on as ownership has changed hands. If documentary evidence of the location of the vessel on 31 December 1992 cannot be provided you should provide whatever documents you have so that the local customs may form a view as to the location of the boat based on the documents you do have. Some sales have fallen through because such information cannot be provided and a potential buyer has an increased risk of being stopped and fined for a not having a VAT paid boat.
If the yacht is advertised as VAT paid it is important to request documentary evidence of this from the seller or their broker. For yachts built after 1 January 1985 the VAT should have been paid by the initial purchaser or importer. Evidence could by way of a receipted invoice or VAT certificate. Ideally you would want the original, but in the absence of this certified copies may be accepted. If the yacht is being sold by a company you will need to check whether it reclaimed any VAT paid when it purchased the yacht and thus the boat is now deemed VAT unpaid – a good point for brokers especially to consider.
If VAT should have been paid and was not, or there is no proof of the boat’s VAT status or the owning company paid and reclaimed VAT then the liability for paying any VAT due lies with the current owner and will pass to the purchaser on his/her purchase of the yacht.
Can a boat lose its VAT paid status?
If a yacht with VAT paid status is exported from the EU it will usually qualify for relief from having to pay VAT again if it is imported back into the EU within 3 years of its export, provided that it is imported by the same person who exported it, i.e. no change of owner whilst outside the EU. However, this will not exempt it from any customs duties that maybe apply. If your boat will be exported for more than 3 years you should check the position with customs.
If VAT has not been paid, when is it due?
VAT is payable on the happening of a chargeable event. A chargeable event occurs where the yacht is imported into the UK or is sold by a business in the course of its business.
If you are buying a new yacht from a VAT registered seller in the UK then VAT is payable on the purchase price. If the seller is VAT registered in another member state but the yacht is kept in the UK different rules apply in order to determine whether the VAT is due in the UK or the country of incorporation of the seller.
If you are buying a second hand boat and the seller is VAT registered, then VAT may be due on the sale price. The general rule in the UK is that if the yacht has increased in value since the date of purchase by the seller, VAT will be due on the amount by which the value has increased, even if VAT was previously paid on the purchase of the yacht and has not been reclaimed. The buyer will be liable to pay any VAT due. If the seller is not VAT registered no VAT will be payable on the purchase.
If you are buy at yacht from a business that does not charge VAT on the sale or from a private individual in the EU and the seller advises that VAT has previously been paid, you should obtain evidence from the seller or broker that VAT has previously been paid.
In respect of yachts imported from outside to within the EU, VAT should be paid at the time and place of import. It is assessed on the value of the yacht at the time of import. Customs will not necessarily rely on the value stated on the invoice or contract, they may seek valuations from brokers if they consider there has been an under-valuation.
An importer resident or incorporated in the EU should have paid VAT on import, even if the boat is registered in the Channel Islands or Gibraltar.
What if the VAT status cannot be proven and there is no chargeable event?
Some customs authorities may be prepared to look at the documentation available (and therefore any available receipts or log books should be kept) and may issue a letter of comfort that they yacht is considered by them as VAT paid. However, this is unusual and not a practice that is followed in the UK. In any event, such a letter is not proof that VAT is deemed paid. In respect of yachts build before 1 January 1985 and in the EU at midnight on 31 December 1992 such documentation and requests for a letter of comfort should be submitted to the customs authority in the country where the yacht was on 31 December 1992.
Tax is rarely straightforward and VAT in relation to yachts is no different. It is very rare that there is a simple yes or no answer. You should always obtain evidence of the VAT position before purchasing a boat.
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.