FRENCH VAT LUMP-SUM REDUCTION, IS IT OVER?
Last January 30th, the French authorities, under the direction of the European Commission, announced that a reduction in the proportion of time spent outside French and EU waters will replace the current tax regulation governing contracts from March 30th onwards.
Article 59bis of EU Directive 2006 112/EC currently applies to charter contracts which derive from a European country. This is where charters count for a cut in the VAT lump sum of 50 percent of the taxable base in the event of a trip into international waters. Now this regulation won't apply in France anymore.
For the duration spent in French and EU waters, French VAT will be payable at its full rate, 20 per cent. This ensures that only time spent outside French and EU waters will be VAT-free.
The time spent in/out of EU waters will be determined using the Automatic Identification System(' AIS') for yachts over 15 m long. The evidence provided by the AIS, which is compliant with SOLAS (Safety of Life at Sea), can not be challenged by the French tax authority and will be deemed to be conclusive proof for the time a vessel has spent outside EU waters. If a vessel has no AIS instead assessments can be done using other technical means such as GPS.
The European Committee for Professional Yachting (ECPY) President, Thierry Voisin, in an interview explained the spirit of this law: "You pay VAT on charter fees in EU waters, you do not pay outside of EU waters. The situation with Malta, Cyprus, France and Italy as well, was that lump sum reductions were tolerated when yachts were not even exiting EU waters in reality. This reason explains the EU Commission’s reaction, and the request to change the lump sum reduction practice for a proportionate practice. All the EU countries using lump sum reduction must change their practice for charter contracts taking place in 2020 as requested by the EU commission. The countries are Italy, France, Greece, Cyprus and Malta."
So, how this will affect to yacht owners? Well, since the charter contract is based on the time spent in EU waters (taxable time) and the time spent outside of EU waters (non-taxable time). It will certainly mean that more VAT will be paid by the charterer on the charter; in 2019 the lump sum reduction of the taxable base applicable in 2019 was 50%. It was generous as a yacht is, in general, never spending 50% of its time while in charter outside of EU waters. It will certainly mean that the amount of VAT paid in 2020 will be higher than the amount paid for the same charter in 2019.
All charter contracts signed (and with the first instalment paid) will be subject to the 2019 rules (lump sum reduction). The new rules will apply for charter contracts signed after March 30th.
For more information, or if you would like to discuss how the changes may affect the operation of your vessel, please email firstname.lastname@example.org