Case Study: Structuring and Registering a Commercial Yacht for International Operations

CLIENT PROFILE

The Client is a United States resident and a successful entrepreneur in the luxury travel industry.

The Client is looking to purchase a commercial yacht for charter purposes, with a focus on operations in the European Union (EU) and other international destinations out of Summer season.

The Client requires assistance to structure ownership of the yacht optimally and to navigate the associated regulatory requirements.

OBJECTIVES

– To establish a suitable entity in an effective jurisdiction for the purchase and ownership of the yacht.
– To register the yacht with a suitable and reputable flag state according to its intended use.
– To consider any necessary fiscal planning for commercial use within the European Union (EU) as well as the rest of the world.
– To ensure tax efficiency for the charter business while adhering to international regulations.

KEY CONSIDERATIONS

Owner’s Tax Residency: As the Client is a U.S. resident, consideration must be given to the impact of his tax resident status and obligations, both in the U.S. and the EU.

Geographical Usage: The yacht’s planned operation in the EU, particularly the Mediterranean, as well as in international waters, including the Caribbean, requires careful planning to navigate varying tax and regulatory regimes.

Commercial Usage: The yacht’s intended commercial use and availability for charter requires specific structuring to comply with EU regulations for charter businesses, including VAT and customs duties.

Choice of Jurisdiction: The choice of jurisdiction for ownership and registration is important for effective ownership and operation.

EU importation: For the majority of importations, VAT is chargeable at the standard rate on the customs value of yachts that are imported into free circulation in the EU; however, there is no automatic right to VAT recovery. So, although certain VAT recovery models do exist for commercial yachts, careful consideration must be given to the choice of Member State and importation well in advance of any import taking place.

Subject to meeting certain conditions, EU’s Temporary Admission regime may be used for yachts which are owned and registered by a non-EU established person and which are used for private purposes. However, Temporary Admission generally is not appropriate for use by EU resident individuals.

Whereas a yacht that operates under Temporary Admission is restricted to certain conditions, a yacht that has been imported into free circulation in the EU and had its border tax obligations met has the right to free movement throughout the EU.

If a yacht is supplied in the EU as a domestic supply with VAT applied, then no customs event arises and the yacht remain in free circulation with its VAT and customs positions intact.  In such transactions where the supplier has reclaimed VAT on their purchase of the yacht they will likely be required to charge VAT to the purchase who may be entitled to reclaim this if they intend to operate commercially and are registered for VAT in the same Member State.

French Reverse Charge Scheme (‘FRCS’)

The FRCS is an alternative to the French Commercial Exemption but is not an exemption scheme. The main advantage is that you do not need to disburse the VAT on the value of the vessel upon importation. Whilst VAT is due and declared it is declared and reclaimed in the same VAT return when the yacht is imported so no actual payment of VAT is required.

Under the French reverse scheme a yacht must be 15 metres or longer, any usage of the yacht by the owner must be performed under a charter agreement and at least 70% of the charters must take place outside of France.

To be eligible for the FRCS, EU (i.e. Malta) entities must make 4 importation in a 12 month period however non-EU entities (i.e. Isle of Man) do not need.

If the Client can meet these conditions, careful planning is necessary, prior approval from French customs is required and a fiscal agent must be appointed to obtain a VAT number and EORI, and file the VAT return etc.

OUR SOLUTION

If the owner choose to operate the yacht commercially they need to import her, which involves careful planning in order to avoid suffering a standard-rated VAT cost on the hull value of the yacht.

At this stage expert advice and customs representation is required but, broadly speaking, the Client has two options:

1. ownership through a non-EU (i.e. Isle of Man) company and utilisation of an import scheme for non-established vessels, such as the French reverse charge procedure; or
2. ownership of the vessel in an EU country such as Malta and obtaining the necessary VAT registrations etc.

On the basis that the US client wishes to operate the yacht commercial within the EU, a decision has been taken to structure the ownership of it in a Maltese company and to process a full importation into free circulation.

Tax Planning: Working closely with the Client’s tax advisors to develop a tax-efficient strategy for structuring ownership allowing for commercial activity taking into account EU VAT, corporate tax, and any potential U.S. tax implications.

EU Importation: Assist the Client in navigating the customs and VAT requirements, including proper documentation and adherence to the applicable regulations to ensure compliance with EU importation rules for commercial use.

The Client can set up a Malta company and subsequently register it for VAT. Thereafter, and subject to satisfying certain conditions, the VAT registered Malta company may procure an authorisation for such VAT to be deferred – this can be done without the need of a bank guarantee in cases where the Revenue Authorities can easily follow the activities of the person importing the yacht.

The VAT rate on the importation of yachts for commercial use in Malta is 18%, however, Malta has an attractive VAT deferment procedure for commercial yachts that replaces the need to physically pay and eventually recover the VAT.

In other instances, the most that the Revenue Authorities would require is either a bank guarantee of 0.75% of the yacht’s value (capped at EUR1 million) or the appointment of a VAT representative in terms of Maltese VAT law.

EU Company Formation: Incorporate a Maltese Company (EU Company) to purchase, import, own and operate the yacht commercially.

Advantages of Malta Companies

– One of the most advantageous corporate tax regimes in the EU.
– Onshore solution.
– Share capital requirements as little as €1,165.
– No language barrier – English is the official business language.
– Low cost company formation.
– No withholding taxes or stamp duty on the distribution of dividends of profit from Malta to non-resident shareholders.
– Tax refund system for non-resident shareholders.
– Malta’s reputable maritime registry and favourable tax regime are key factors in this decision.

Yacht Registration: Provide guidance on registration options. Consider the vessel’s intended use, present the Client with choices of registering the yacht with a reputable flag state such as Malta or the Isle of Man, taking into account his preferences and operational requirements.

International Compliance: Given the vessel’s global operations, ensure that the Client is guided through the relevant international regulations, flag state requirements, and compliance measures necessary for commercial charter operations worldwide.

RESULTS

By structuring the ownership of the commercial yacht through a Maltese company, registering it in Malta, importing the yacht into the EU via Malta, ensuring compliance with EU importation rules and international regulations, the Client will achieve the following benefits:

– Access to Malta’s favourable tax regime and yacht-friendly regulations, providing a competitive advantage for his charter business.
– Compliance with all relevant EU regulations, including VAT and customs, allowing for seamless operations in EU waters.
– Flexibility for global charter operations, including the Caribbean, with minimal tax and regulatory hurdles.
– Peace of mind knowing that the yacht’s ownership and operations are structured optimally to meet the Client’s business objectives and international regulatory requirements.

In summary, our expertise in ownership structuring and registration services, combined with a deep understanding of international tax and maritime regulations, enables us to create a tailored solution that meets each Client’s objectives while optimising yacht ownership for both tax efficiency and compliance within the complex web of international regulations governing commercial yacht operations.

---

Sentient International Limited is not licensed to provide tax/VAT advice and the information contained in this case study is for guidance purposes only. We always recommend that the appropriate professional advice is obtained before entering into transactions of this nature. If you would like an introduction to a suitable person to provide such advice, please do not hesitate to ask.