Under French Law specific rules apply to allow VAT exemption to the commercial activities of yachts cruising in France. The applicable provisions under French Law are mainly the article 262-II-3 of the French Tax code, the article 190 of the French Customs code with the administrative decisions (BOI n°168 dated 22 October 2003 and BOD dated 24 June 2004)
Basically French Tax and Customs autorities have decided to classify yachts as commercial yachts if they comply with the following requirements :
-the vessel must be registered as a commercial yacht on the registration
-the vessel owners must employ a permanent crew member on board.
-the vessel must be used exclusively for commercial purposes i.e under charter agreements. In particular the administrative decision (BOD n°6603 dated 24 June 2004) provides that in order to facilitate customs inspection, users of vessel are required to keep on board a copy of the charter agreement and to enter details of the agreement in the log book (duration of the charter, name of the charter or charterers). We draw your attention that if the vessel is used/chartered by one of her beneficial owners a charter agreement has (also ) to be signed.
The French exemption offers various advantages like duty free fuel supplies, VAT exemption on supplies of goods relating to the yacht (regardless the flag of the vessel) on supplies of services (repairs or refit) and on charters.
Nevertheless the EU Commission has required France to change its legislation. According to the Commission, France was contravened the meaning of the article 148 of the VAT Directive. Basically the Commission has considered that not all the vessel used for commercial purposes are entitled to the VAT exemption. The FCE requires the navigation on the high seas.
Consequentlty the article 262 of the French Tax code was amended by a statute on 22 december 2010 which includes this fourth criteria (navigation on the high seas i.e navigation beyond the limit of the territorial waters (12 miles) from the coast).
As the French Tax authority has issued an explanatory ministerial note saying that the VAT exemption still apply to commercial vessels which comply with the three requirements laid down in the administrative note dated 24 June 2004 the EU Commission lodged a claim against France on 26 April 2012. As per a judgement served on 21 March 2013 the European Court of Justice has considered that France was in breach with the article 148 of the VAT Directive. Therefore Owners has to comply with this criteria.
On the other side, some changes result also from the Bacino court case (dated 22 december 2010) served by European Court of Justice which held that :
« article 15 of sixth council directive 77/388/EEC of 17 May 1977 (..) must be interpreted as meaning that the exemption from value added tax provided for by all provisions does not apply to services consisting of making a vessel available, for reward, with a crew, to natural persons for purposes of leisure travel on the high seas »
« In order for such a hiring service to be capable of exemption under that provision, the lessee of the vessel concerned must use if for an economic activity »
Bearing this in mind VAT is payable on the charter hire (whether or not the yacht is used on the high seas) when the charterers are private individuals who are chartering the vessel for leissure. Therefore VAT has to be collected by the owners and/or by the brokers if the yacht is chartered under charter agreements (MYBA charter contracts mainly). VAT applies also on the brokers commissions.
Nevertheless, pursuant to the article 262 II 2° of the French Customs Code no VAT shall apply on some services provided to the vessel if the Owners are able to evidence that she is registered as commercial vessel (with permanent crew and for commercial use) and she navigates on the high seas.
If one of your client decides to import a vessel in France (during the charter period – high season for example) a DAU (Document Administratif Unique) will have to be issued in order to let the vessel cruise and charter without paying the VAT on the value of the boat during the short stay of the vessel in France. Once the vessel imported in France no VAT will apply on the value of the vessel.
The duration period will have to be specified at the beginning (at the issuance of the DAU). Various documents are requested to import a vessel in France. Mainly you will have to disclose a certificate of registry of the vessel, the insurance policy of the vessel, charter agreement (if already signed)…
The importation of the vessel will be completed once customs written approval only. The inspection of the vessel could be requested by the Custom authorities.
All the documents regarding the status of the vessel (DAU, certificate of the yacht as commercial yacht, charters contracts..) will have to be kept on board the vessel to evidence the correct status of the vessel in case of customs control.
Regarding the incomes from the charters contrats except if you plan to register and/or to base/locate a company in France during the stay of the vessel the owner of the vessel will not have to pay corporate income tax on the amount earns from the various charters concluded. Neverthless the appointment of a “représentant fiscal” will be useful for the VAT aspects during the stay of the vessel (on charters contracts, yachts brokers commissions)