VAT on short term charters (less than 90 days): the end of the so called “lump sum reduction regime”

Following the infringement procedures made against Italy in 2019, Italy and France decided to align their positions on the way they apply the reduction of the taxable basis in relation to the calculation of VAT applicable on charter revenues.
 
It was made clear to the yachting industry that no more fixed lump sum reductions on the taxable basis will be accepted starting from 2020 for such vessels.
 
What was not clear though was whether time or distance will be taken as new basis for such calculation, the starting date for the application of the new rules and the position on charter contracts signed before this date.
 
 
French position
 
We still need to receive the new French BOFIP (French official Tax Bulletin) which will clearly state the new methodology to respect for the calculation of the VAT applicable on charters.
 
Since 29 January 2020 though, following the publication of a new Tax Administrative Circular, we already have some clear indications on what will be the new rules applicable starting from 1 April 2020. The Circular is not a final and binding text as the industry is free to address any comments to the Tax Administration for their review and consideration until the end of March and before the publication of the new French BOFIP (French official Tax Bulletin).  
For now the following points shall be retained: 
  • The “50% lump sum reduction of the taxable basis” applicable to vessels navigating in the high seas during the course of a charter will be no longer applicable;
  • All charters starting in France will be subject to the ordinary VAT rate of 20%;
  • The effective use of a vessel under charter agreement outside of EU waters is not subject to VAT;
  • Time and not distance has be chosen to evaluate the reduction of the taxable basis of the charter hire during the course of a charter agreement;
  • Evaluation of the time spent outside EU Waters is to be proven by all possible means. For those vessels equipped with AIS, AIS data will be the main mean of proof accepted by the Administration.  For vessels not equipped with AIS (LOA <15 Meters) the calculation will be based on any technical data the vessel can provide..
  • The cut off date is 30 March 2020 so only charters signed on or after that date will be concerned by the new regulations.
 
 
Italian position
As far as Italy is concerned, what is clear since the publication of the Italian Budget Law for 2020 (Law no. 160 dated December 27th, 2019) which amended the rules regulating the application of the Italian VAT on short term Italian charter is that starting from 1 April 2020:
  • the “lump sum VAT reduction” linked to the length of the yacht (ie: 6.6% VAT for yachts over 24 m in length navigating in the high seas during the course of a charter) will be no longer applicable;
  • All charters starting in Italy or partially in Italy if they have started in a non EU country, will be subject to the ordinary VAT rate of 22%;
  • The effective use of a vessel under charter agreement outside of EU waters is not subject to VAT.
 
What is still not clear is whether time or distance will be retained as criteria for the calculation of the reduction of the taxable basis relating to the effective use of the yacht outside of EU waters.
 
Italian Authorities announced that they shall publish a new circular by the end of February to confirm the new calculation mode and elements of proof to be retained.
 
 
For more information contact Janet Xanthopoulos, Yacht Ownership & Administration Dpt Manager, Rosemont Yacht Services at  j.xanthopoulos@rosemont-yacht.com


01/2020