BREAKING NEWS: EU VAT reductions are no longer applicable in 2020

Year 2020 marks the revolution of yacht VAT regulations.

Short term charters (under 90 days) in EU waters will not be able to use the reduced VAT rate, also known as ‘use and enjoyment’, and the full rate of VAT must be charged on the charter fee.

Let’s have a look at the Italian and French regulation changes in more depth.

ITALY

The “Italian Budget Law” for 2020 (Law no. 160 of December 27th, 2019), published on the Italian Official Gazette (GAZZETTA UFFICIALE) on December 30th 2019, changes the provision of the application of the Italian VAT due on short term charters with departure from the Italian territory.

Specifically:

  • This Law will be applicable to all Italian charters (starting in Italy and/or those starting outside the EU territory and then entering in Italy) and the “lump sum VAT criteria”(6.6% VAT for charter of yachts over 24 meters) will not be applicable anymore;
  • The ordinary VAT rate of 22% will be due on all Italian Charters (starting in Italy and/or those starting outside the EU territory and then entering in Italy) from April 1st 2020 and onwards;
  • Within 60 days from the publishing of the Italian Official Gazette (March 1st 2020), the Italian Inland Revenue (Agenzia delle Entrate) will issue a new method for the calculation of the effective use of the yacht outside the Union territory that will allow the Owning Company not to charge Italian Vat on this portion of use (it is still under discussion  if the “ effective use “ refers to the time or the miles spent in international waters);
  • The law will enter into force on April 1st 2020, which means that regardless of the date of signature and payment of the charter contract all Italian charters starting from April 1stand onwards in Italy will be subject to the new law.

As mentioned above, within March 2020 the Italian Inland Revenue will issue a new method for the calculation of the effective use of the yacht outside the Union territory that will allow the Owning Company not to charge Italian VAT on this portion of use.

FRANCE

The French VAT lump sum reduction of 50% of the taxable base in case of cruising into international waters, due on charter contracts starting from France, must no longer be applied.

The French Tax Authorities specifies, through the French Official Tax Bulletin published on January 30th 2020, that the VAT lump sum reduction will be replaced by an effective reduction in proportion of the time spent outside European waters. The new regulation specifies that the French

VAT will be due at its full rate, 20%, for the time spent into French waters or/and EU waters. As a result, only the time spent outside French / EU waters will be VAT exempted. The owning company will have to demonstrate by proper evidence the actual use and enjoyment of the service outside EU waters. The owning company remains liable.