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What is Meant by ‘Use and Enjoyment’ of a Superyacht?
When we read about VAT in the superyacht industry we see the phrase ‘use and enjoyment’, but what exactly does that mean?
Since superyachts are movable assets, the EU allow member states to determine what proportion of usage is carried out in EU waters, as opposed to international waters; usage outside of the EU is taxed at a lower rate.
Some member states, such as Spain, do not allow reduced ‘use and enjoyment’ rates whilst most Mediterranean States, including France, Italy, Malta and Cyprus, have various reduced rates. These rates vary from member state to member state, but it is the state where usage commences that govern the agreement.
There are two principal times when ‘use and enjoyment’ rules apply:
1. Charters commencing in an EU state
a) If a third party commercial charter involves the yacht sailing into international waters then the VAT rate may be reduced under ‘use and enjoyment’ rules. For example, France will determine that 50% of the charter is likely to be in international waters and will therefore reduce the VAT to an effective rate of 10%.
b) If usage of the yacht is under a long term agreement (over 90 days) then the member state will presume that a portion of the usage will be outside EU waters and will automatically apply their reduced rates. For example, if Malta determines that, subject to the length of the yacht, up to 70% of usage is likely to be outside EU waters, they therefore apply an effective rate of 5.4%. However, it is important to understand that some states, such as Monaco, retain the right of clawback if it is later shown that the yacht did not in fact sail outside EU waters.
2. Charters commencing outside an EU state
If a charter starts outside the EU and proceeds into EU waters, then each member state in which the yacht sails can claim VAT on the proportion of time spent in their waters. Hence, if a three week charter commences in Gibraltar and the yacht spends a total of seven days in each of Spain, France and Italy, each country can claim VAT (at their rates and subject to their rules) on one third of the charter fee.
If you are seeking further expertise on Superyacht Ownership and VAT structures, please contact our team of experts at Dominion Marine.