This bulletin provides some clarity on a commercial vessel used for navigation on the high seas in order to benefit from the VAT exemption associated with such use.
In order to benefit from the French Commercial Exemption, certain conditions must be met:
This final condition of 70% of trips outside French territorial waters is the clarity on ‘high seas’ that the industry has been waiting for. This does however raise further questions including:
A trip means all commercial navigation between two ports including national, EU and International waters under charter contract. Sea trials, movement of the yacht to shipyards and static charters cannot be included. The disembarkation/embarkation of charter guests during the charter constitutes a new trip so a charter could include multiple trips. The ships logbook and charter guest lists must be accurately maintained in order to make this calculation.
Any trip carried out from Jan 1 to Dec 31 in a given year as per the above definition can be counted towards the 70% target. This target (if reached) entitles the yacht to VAT exemption on goods and supplies acquired in France during the following year.
VAT exemption will apply for the first year although the 70% target must be met. a provisional declaration must be given by the owner confirming that the yacht will continue to meet the requirements of the FCE including the 70% trip rule.
VAT will be applied to all purchases of goods and supplies as well as all works carried out by French Shipyards. It will however still be possible to reclaim this VAT although agents will apply a cost for doing so. Failure to comply with the FCE under a provisional declaration could give rise to a VAT liability on the yacht value plus possible penalties on the 1st January of the following year.
Static charters do not count in the trip calculation however during a given calendar year, a yacht must undertake more regular charters than static ones.
For yachts that have been imported into France under the French Commercial Exemption, clarity is currently being sought to determine whether the “In Free Circulation” status of such yachts could be lost if the yacht does not meet the FCE requirements. If this is indeed the case then yachts will need to be re-imported into the EU. Suitable locations would include the country of VAT registration where VAT on the yacht itself has been accounted for.
The current rules applied on charters put at the disposal of the charterer in France including the 50% reduction for high seas charters will continue irrespective of the yachts ability to meet the 70% rule.
A statement of compliance should be issued by the yacht owner as a self declaration of conformity. Sarnia has approved templates for both provisional and permanet versions.
Careful management of the commercial operation is required to monitor both the number of actual trips rather than charters and also the levels of third party charter versus owner charter.