The European Commission issued, on 30 April, an official Guidance Note to clarify the customs and tax treatment of pleasure craft — boats, vessels and private aircraft – under EU customs and VAT rules across all 27 Member States.
These issues have long created uncertainty for boat owners and businesses, particularly in respect of cross-border cruising, second-hand boat sales and vessels returning to the EU from abroad. Although not legally binding, the Guidance published by the Directorate-General for Taxation & Customs Union will carry significant practical weight.
The Guidance confirms several key principles, including:
- Union Status – A yacht’s ‘Union Status’ is the relevant legal concept rather than the more commonly used industry term “VAT-Paid Status” (VPS). Goods that have been released for free circulation in the EU by customs authorities have the ‘status of Union goods’. This means that the necessary controls have been conducted on the goods and that, if applicable, the taxes and duties have been paid.
If a yacht is used solely in the EU Customs Union territory and the EU VAT territory, it is presumed to have the ‘customs status of Union goods’. This means there should be no general requirement for yacht owners to demonstrate EU status every time the vessel returns to port or after an international voyage unless customs authorities have grounds to question it.
The guidance also makes clear that factors such as a yacht’s flag, registration, the owner’s nationality or place of residence are not, in themselves, determinative of its Customs or VAT status. A yacht registered under a non-EU flag can therefore hold Union Status where the relevant Customs conditions are satisfied. However, a yacht registered outside the EU may be subject to more frequent Customs controls.Where evidence is requested, yacht owners can rely on a range of supporting documentation, including forms T2L or T2LF, transport records, purchase invoices, sale agreements or other proof relating to VAT payment and the vessel’s origin.
If a yacht has customs status of Union goods and remains in the EU Customs Union territory, it does not lose this status, regardless of the number of times it is transferred to other purchasers, on condition that the corresponding VAT is paid.
It should be noted that if a boat is released for free circulation in a part of the EU Customs Union territory that is not also part of the EU VAT territory, such as the Canary Islands, the boat may have the customs status of Union goods but VAT may still be payable on import if the boat subsequently enters the EU VAT territory and is not eligible for relief from customs duties or is not imported by the person who exported the boat.
- Returned Goods Relief (RGR) – generally, a yacht will lose its Union Status when it exits the EU Customs Union territory. Under the RGR provisions, however, yachts may regain Union Status when they return. To qualify, the yacht must normally return within three years, remain substantially unchanged, and, for VAT exemption purposes, be re-imported by the same person who exported it.
If the three-year window has expired, the vessel can no longer benefit from RGR. To re-enter free circulation, the owner is required to pay import duties and VAT or, if the yacht owner qualifies (see below), the vessel can be declared for Temporary Admission for a stay of up to 18 months without payment. - Temporary Admission (TA) – TA applies for yachts entering EU waters that are both registered outside the EU and owned by a person (individual or corporate) that is resident outside the EU. The TA procedure allows eligible non-EU yachts to enter and be used within the EU without paying customs duties or VAT, provided they are intended for re-export and comply with the applicable conditions. It does not apply to yachts with an EU registration.
The standard period of TA is up to 18 months, which may be extended only in exceptional, justified circumstances. There is no minimum period during which the vessel must remain outside the EU, so a yacht can sail out of EU waters and a new 18-month TA period will begin on its re-entry. Simply crossing the EU border is sufficient to initiate TA. It should be noted that TA is subject to a maximum cumulative total of 10 years per vessel.
“This new guidance provides greater clarity for recreational boat owners, brokers and builders, and should help to ensure smoother cross-border cruising and improved compliance with EU customs and tax rules,” said Gabriel González, Director of Gibraltar-based Sovereign Marine Services.
“The acquisition of a new yacht in the EU can involve significant VAT exposure but there are a number of strategies to reduce, defer or minimise this liability. These include commercial registration, Temporary Admission, offshore delivery or basing the yacht outside the EU. Malta’s leasing scheme can also serve to significantly reduce effective VAT rates.”
“It is essential to obtain specialised advice to structure your purchase because VAT implementation and administrative procedures may vary between Member States. It is also essential to obtain and retain all documentation, such as invoices, contracts of sale, VAT or customs records that can help to substantiate a vessel’s status.”
If you require guidance on your yacht’s EU Customs status, please contact Gabriel by telephone on +350 200 76173 or click on the contact button.
Gabriel specialises in corporate ownership, international yacht registration and the regulatory and fiscal issues arising from the ownership and operation of yachts. As such he assists yacht owners, law firms, yacht management companies, brokers and builders.
