Case Study: Optimising Yacht Ownership Structure Using Temporary Admission Regime

CLIENT PROFILE:

The client is a high-net-worth individual residing and domiciled in the United Kingdom.

A passionate yacht enthusiast, the Client wishes to purchase a luxury yacht for private use with the intention of primarily cruising in the Mediterranean during the summer season and exploring other international waters during the winter.

Aware of the complexities of yacht ownership, the Client requires the appropriate professional advice and assistance in relation to tax, VAT and structuring to ensure that the ownership of their vessel is done in an effective yet compliant manner.

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 to ensure smooth cruising in the European Union (EU), particularly in France and the Mediterranean.
– To ensure tax efficiency and compliance with all relevant regulations.

KEY CONSIDERATIONS:

Owner’s Tax Residency: As the Client is a non-EU resident, their tax status and obligations need to be considered carefully to ensure compliance with international tax laws. The owner’s nationality also has significance in tax/VAT planning.

Geographical Usage: The yacht’s intended use in and around France and the Mediterranean for the summer season and worldwide cruising during the winter requires a structured approach to ensure compliance with varying tax and regulatory regimes.

Private Use: The client’s intent to use the yacht solely for private purposes aligns with the Temporary Admission Regime‘s eligibility criteria.

Temporary Admission is a Customs tax relief regime that enables non-EU resident owners of private yachts the ability to bring their yachts into Europe for a limited time without having to pay VAT on the value of the yacht.

It is undeniably an important mechanism, without which many non-EU resident yacht owners would likely avoid visiting European waters due to the prohibitive cost of paying VAT on arrival that would ordinarily be applicable.

The TA conditions are fundamentally concerned with accommodating non-EU residents, flag states and owning entities. Therefore, given that the Client is a non-EU individual, they are clearly starting from the correct TA position. If the Client utilises an Isle of Man owning entity and flag, subject to meeting the broader TA conditions they will be entitled to use the yacht in the EU under TA.

Choice of Jurisdiction: Selecting the right jurisdiction for ownership and registration is a strategic decision for which the intended use has relevance.

It is important that the correct jurisdiction and entity is selected to ensure effective ownership and management both from a tax and operational perspective.

OUR SOLUTION:

Tax Planning: Work closely with the Client’s tax advisors to ensure that the chosen ownership structure and usage patterns comply with UK tax regulations and any relevant international tax treaties.

Temporary Admission Regime Compliance: Work with the Client’s tax advisors to navigate the complexities of the Temporary Admission Regime, meticulously documenting the Client’s intended usage of the yacht to ensure it aligns with the regime’s criteria. This includes proving that the vessel is used solely for private purposes and that it is not used for commercial activities within the EU.

From simplified border crossings, reduced paperwork, and streamlined customs procedures, TA is a great way for private yacht owners to operate their yacht without the need for it to be formally imported, thus avoiding the Customs formalities, inevitable import VAT costs and structuring costs associated with EU importations.

When entering the EU under TA, it is important to be prepared should the yacht be required to complete/provide documentation to local authorities that evidences/supports the yacht’s temporary admission status.

Such documentation might include an oral or written declaration to the competent authorities, particularly to the Customs office of the first port of entry within the EU; an official temporary admission document completed when the yacht first enters the EU at the start of the 18-month period; a Costituto D’Arrivo, if entering Italian waters, which is issued by the maritime authority; or evidence to show that the principal user of the yacht is genuinely not established in, or a resident in the EU.

Company Formation: Incorporate an Isle of Man company (non-EU Company) to purchase and own the yacht and to enable utilisation of the temporary admission regime.

Advantages of Isle of Man Companies

– An internationally endorsed regulatory system.
– Politically stable.
– Self-governing Crown Dependency.
– A favourable tax regime.
– No capital gains tax, no inheritance tax, no wealth tax.
– Range of financial assistance available to businesses.
– Accessible & responsive Government.
– A European time zone.
– A range of professional services designed to support yachting.
– Full political support for maritime.

Yacht Registration: Provide guidance on registration options. To qualify for temporary admission, the yacht must be registered with a non-EU flag, which the Isle of Man is. Considering the vessel’s intended use, present the Isle of Man as a suitable choice of jurisdiction for registration.

Advantages of the Isle of Man Flag

– Professional ship registry that offers a high quality service.
– The right to fly the ‘Red Ensign’ and access the support of British Consular services worldwide.
– Dual registration available.
– Flexibility in the requirements of registered owners, including acceptance of Limited Partnerships.
– No tonnage fees.
– 24-hour availability of senior staff by phone to deal with queries/problems.
– Immediate, friendly advice on complying with all aspects of SOLAS, MARPOL, COLREGS, ISPS, ILO etc.
– A dedicated surveyor assigned to each project.
– Reasonable costs.
– Support for vessels treated unfairly by Port State Control.
– Strong emphasis on quality, high standards and efficient service.
– Mortgage registration.
– Availability of a demise registry both ‘IN’ and ‘OUT’.

Customs and VAT Compliance: Together with the Client’s tax/VAT advisor, provide guidance on customs procedures and assist in the preparation and submission of necessary documentation to ensure compliance with EU customs and VAT requirements during the yacht’s temporary importation into EU waters.

RESULTS:

By carefully structuring the ownership of the yacht through an Isle of Man company, registering it with the Isle of Man Ship Registry, and ensuring compliance with the Temporary Admission Regime, the Client will achieve the following benefits:

– Temporary Admission Regime allows the Client to enjoy his yacht in the EU without incurring significant customs duties or VAT.
– The Isle of Man’s favourable tax regime provides the Client with tax efficiency and privacy.
– Compliance with all relevant regulations and documentation ensures peace of mind and minimises the risk of legal and financial complications.
– The Client is able to enjoy his yacht in multiple international waters throughout the year without undue tax burdens.

In summary, our expertise in ownership structuring and registration services, combined with a deep understanding of international tax regulations, maritime and compliance requirements, enables us to create a tailored solution that meets each Client’s objectives while optimising yacht ownership for both tax efficiency and regulatory compliance. For more information on our yachting services visit www.sentientinternational.com/yachting or contact info@sentientinternational.com.

---

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.