What are the main tax questions that your clients in the yachting sector ask you?
We are frequently asked by our clients, mainly boat management companies or luxury yacht owners, about questions concerning the tax regime applicable to yacht charter. Indeed, this subject has been the subject of recent regulatory amendments following European case law.
Explain to us how these yacht charter operations should be treated for tax purposes?
The amount of rent, constitutes taxable income: either to corporation tax, or to income tax depending on whether the lease is a corporation or an individual.
As for VAT treatment, it is more subtle, hence the questioning of our customers. VAT varies considerably according to the following criteria:
- the location of the vessel
- its owner and the intermediary
- the duration of the rental
- the use that makes of it
But, very schematically, it should be remembered that most often, the rental of a boat is subject to a VAT rate of 10%.
Why 10% and not 20%, the common rate of duty?
This reduced rate is explained by reasons relating to the sovereignty of States. Indeed, a country can only charge VAT on transactions carried out on its territory. Thus, navigation time on the high seas is not taxable. For the sake of simplification, the French authorities estimate that a vessel spends half its time on the high seas, explaining this VAT rate reduced by half.
Are there no VAT exemptions?
Yes, it is. All transactions (purchase, hire, repair and sale) involving commercial vessels are exempt from VAT.
What characteristics must a boat have to qualify as commercial?
To the extent that the scope of this exemption is considerable, the administration is quite strict on what it considers to be a commercial vessel.
The vessel shall:
- measure at least 15 metres
- be entered in a trade register
- be equipped with a permanent crew
- be assigned to a commercial activity
- frequently leave territorial waters
What opportunities do individuals have to reduce their taxes?
The most classic legal arrangement known to all boat sellers is the charter purchase option (LOA), which offers several advantages over a cash purchase. In addition to a cash gain, the future owner will benefit from the reduced VAT rate of 10%
