The telephone rings. Yet another interruption in a busy day interspersed by attempts to get into the writer’s mode and produce the article one so reluctantly agreed to giving ‘Offshore Investment’all those months ago when it seemed feasible, although in the back of one’s mind one knew how quickly these deadlines came upon one and became a nightmare.

“Alright, put him through.” I am now talking down a tunnel to a mobile phone.

One almost goes into “automatic” at this point. The immediate identifiers and key questions come to mind. Another person who has left it rather late. Brilliant in his own business field but when it comes to his new plaything he has not given a single thought to its ownership and the financial ramifications of buying. As is so often the case, the broker or dealer has briefly discussed the unpalatable truths and costs of acquiring the boat and offered up one names in mitigation, but these have been ignored until the truth looms large on the horizon. Mr Rich is about to take delivery and is facing a potential VAT bill of hundreds of thousands of pounds for which he has hardly given a thought until now.

What follows is a brief interrogation as to Mr Rich’s background, his residence, his plans for the use of the boat, his perceived needs and his achievable and unrealistic wants together with important clarifications as to whether, in fact, the boat is now, or defined, or used. Examples of the typical responses are as follows.

(All of the situations below are based on genuine telephone calls. The names of the callers and nature of the enquiries have been changed to protect identity).

 

Mr Rich is going to use his boat in Greece. Mr Rich is an EU citizen and is married to an EU citizen. He currently resides in Greece but is not Greek. The boat is built in the EUand will cost GBP 700,000

 

Rule one - Mr Rich must account for VAT on the acquisition cost of the boat.

 

Rule two – If the vessel is used commercially, chartered, VAT on the acquisition cost may be reclaimed by the charter company if it is registered for VAT.

All well and good but for the fact that, in spite of this being maintained a prohibition against the charter of non-Greek flagged vessels in Greek waters. To qualify for Greek registration the owner of the vessel must be Greek and if a corporation, it must be owned by a Greek majority shareholding.

My heart sinks. We are into “Citizens Advice Bureau” again.

 

I make my suggestions.

 

1. Do not buy the boat unless he can afford to pay for it and has taken the charter income element in ata realistic level of return.

 

2. If he can afford the boat, or a cheaper model, he must account for the VAT.

 He can defer the Vat by using a programme whereby the VAT is reclaimed, or he can set up a company in the EU which is enabled to do this.

 

3. If he is able to buy the boat without chartering, is moving to Hungary before he uses the boat and is able to qualify for all the elements for TI (see below) he will be able to avoid liability to VAT.

 

Perhaps he ought to sort out what he needs, do some number crunching and come to a reasoned decision.

 

I am sure he will, but only if he thinks of another permutation or fouls up!

 

Mr Rich is a European resident client. He has had boats before and has always managed to ‘get away’ with the non-payment of VAT on them. The last one he owned was kept in France and he had bought it in 1992 when he heard that VAT was probably going to be introduced at the end of the year.

 

Mr Rich was lucky. The Directive (III/EC of 1992) was bundled through in mid-December 1992 and his boat was lying in an exclusive marina on the Oute d’Azur at midnight of 31 December 1992. His luck did not arise from the fact that it was in EU waters on 31 December 1992, that luck only extends to the owners of vessels built before 1985 because, in their wisdom, the Commission decided to backdate the effects of the Directive but, after perhaps a little deliberation and the need to get on with Christmas shopping, the compromise of a seven-year backdate was reached.

 

Mr Rich’s luck arose from the confusion and the desire in France to find a solution to the huge problem of boats sold before the passage of the Directive, to offer an unofficial, unwritten moratorium on the collection of VAT on vessels, regardless of age, lying in their waters whose owners remained the same.

 

Be that as it may, Mr Rich thinks it is time to trade-up to a new Motoscafi. He has heard about the leasing schemes whereby French finance houses, subsidiaries of French banks, take the sting out of the acquisition cost VAT, but it is less than comfortable with the thought of paying interest, subjecting himself to the vagaries of maritime liens (he does not want ‘his’ boat, which it will not be, being a sistership of hundreds of other lessees), the short-term nature of such arrangements and the additional costs and logistics of being French registered. He is unprepared to enter a mitigation programme because, as it turns out, the vessel is a rarely-used vessel bought by an Arab Royal a year ago and is no longer a new means of transportation. There is an immediate liability to pay the VAT where the vessel is sold or imported into the EU. The thought of taking it to the United Kingdom to enter a programme legitimately is not an option he will accept.

 

Mr Rich has heard that VAT is lower in Spain. It is 16% there. What is more, the Spanish will do a deal. Unfortunate, but true. There have been a number of vessels imported into Spain in recent years through compliant Customs agents and officials which have paid VAT on lamentably low valuations.

 

Mr Rich must be dissuaded from seeking these avenues. It is the opinion of the writer that the evidence in the form of a Single Administrative Document (SAD) of the VAT paid is like a virus which will go infecting all those who seek to rely on it.

 

Furthermore, the French have made it clear that a swift trip to Spain to avoid paying the higher French rate will be penalised by a demand in France. It is unlikely that Customs authorities in other EU countries are going to accept the amount of VAT paid in Spain on the face value of the SAD and that further enquiry is likely to result with potentially embarrassing and expensive results.

Finally, the Spanish themselves are beginning to wise up to the practice. A recent report from contacts in Spain has revealed that the Customs are finally trying to determine values from price lists rather than from earlier declarations.

 

  

In this scenario, Mr Rich is a non-EU resident. He has heard about boats being arrested by the customs authorities in EU waters and people being made to pay VAT and penalties.

There is still much confusion over the ability of a non-EU resident to enjoy a yacht in EU waters. Whilst the rules were changed for EU residents with effect from 1^st January 1993, there is effectively no change for non-EU residents who may enjoy a temporary importation (TI).

In short, the rules are as follows:

 

Questions are often asked as follows:

 

 

The answers should be obvious.

“With regard to the interpretation of us, it is generally accepted that use does not mean retention but actual use. Consequently in France, for example, users of TI are able to obtain a “fiche d’information”, the new name for the “titre de sejour”, stamped by the Douane evidencing their rights to enjoy TI.

 

There has, for a number of years, been talk of changing the rules to American styled cruising licence of two years duration requiring departure from EU waters, but this hasnot been introduced and would need a clear ruling on the ability to return after a short period.

 

There is a way forward to an EU resident who wishes to privately enjoy a peripatetic leisure yacht without fianancing the cost of a front-end VAT charge on acquisition. By a legal programme of deferment the VAT can be recovered or even deferred without prepayment on a new means of transportation purchased by a qualifying VAT registered company.

Of course there are answers, but we are not a Citizens Advice Bureau; we’ve got a living to make!