Superyacht lawyer Jonathan Watson shares his views with regarding VAT for superyachts and structures in Monaco and Malta.
Jonathan regularly advises on ownership structures, sale/purchase contracts, newbuild projects, finance, VAT, registration and flagging issues. His superyacht legal team were recognised in “The Times” 2019 list of Best Law Firms 2019.
“Understand the risks and benefits and know your way out, before you venture in…” – says Jonathan Watson, head of yachting at MFB Solicitors, explores the continued relevance of the VAT paid status.
VAT is a competitive business. Each administration in the Customs Union fights with the other to be the one to whom you owe your tax. Large member states force you to pay it to them by using muscular tax laws with extra-territorial reach. Small ones incentivise you to pay it to them with discounts and exemptions.
For years, Malta had the edge when it came to superyachts, offering a quick and cheap way to become VAT-paid. They could get you there at an effective rate of 5.4% after only a short period of charter. It became too fast, too slick and too much for the rest of the EU. They simply could not compete with their own relatively clunky and expensive schemes and so it became inevitable that, sooner or later, Malta would find itself in their cross-hairs. And so it came to pass. Following the EU Commission’s notice of infringement in March 2018, Malta was forced to close these popular structures leaving hundreds of owners wondering what it all meant for their Maltese VAT-paid status.
Malta is developing an alternative, but whatever that is, it will never be as cheap as it was before to become VAT-paid. It will be seriously expensive, and the cost cannot be recovered or recouped. If you pay 20% VAT to purchase a €60m yacht, that €12m does not get returned to you when you sell. Your old yacht will be worth about the same as your non-VAT paid neighbour’s. Nor does any of it get returned if you decide to leave EU waters. In fact, if you stay away for too long, then you might have to pay it again when you come back. Even if your yacht is an insurance write-off, the VAT that you have paid on the hull might be irrelevant to how your loss is calculated.
With that mind, EU owners are asking themselves whether they really need VAT Paid status. Can they cruise their non-VAT paid yacht in EU waters without it and without having to “go commercial”? In fact, for some years now, Monaco has offered a way. It did not get too much attention while Malta was in full-swing, but it is there.
The arrangement involves you selling your yacht to a VAT registered Monegasque company and then bareboat-chartering her back again. If done properly, for so long as this arrangement is in place, VAT should be payable on the bareboat charter hire, not on the hull.
It can work out at about €200,000 p/a in VAT for a €60m yacht. While this structure is in place, you can enjoy free circulation within the EU and you can be in the structure for as long as you want. In effect, this is a temporary “pay-as-you-go” alternative, to VAT-paid status.
Of course, particularly these days, anything that has a tax “angle” to it comes with a risk as does any arrangement that involves sale and purchase and long-term chartering.
“Any structure must be properly implemented having regard to all applicable regulations and background circumstances.” – says Jonathan Watson, head of yachting at MFB Solicitors
The days of a standard “plug-and-play” leasing arrangement are over. For some, VAT paid status (obtained without the benefit of any structure, however lawful) will still be the preferred option. When it comes to structures, the advice is always the same; understand the risks and benefits and know your way out, before you venture in.
MFB, formerly known as More Fisher Brown, is a specialist shipping law firm, established in 1988, which offers a professional approach with a high level of partner involvement. Despite the firm’s expansion to close to 30 fee earners, of whom 16 are partners, MFB prides itself on remaining a compact and integrated team, with a wealth of legal knowledge and experience in shipping, insurance and international trade.
Official website: http://www.m-f-b.co.uk
MYA – Long Term Bare Boat Rental
Official website: mya.mc