Yacht ownership – is the tax tail wagging the dog?

The adage often applies when a yacht owner is confronted with tax. Some yacht owner’s representatives, typically lawyers or accountants, take it as their absolute duty to ensure their client or boss pays as little tax as possible. It’s in their mandate or DNA to ensure tax efficiency is top priority but: at what cost?

In most cases a yacht owner is in a clear situation, they are either obliged to pay tax or they don’t have to: tax is not optional. However, yacht owners have many choices as to how they structure the ownership of a yacht and certain methods can deliver genuine tax efficiency advantages.

The challenge comes when the owner knowingly (or not) enters into an arrangement where there is no tax on the yacht subject to certain conditions. Quite simply, any applicable conditions must be met or the intended tax efficiencies will not be delivered and you can be sure that the authorities will take a dim view of any non-compliance with the requirements (whether abusive or otherwise).

Stretching the boundaries of non-compliance with tax requirements is an extremely risky business which jeopardises the yacht, the operation and the owner. The risks do not solely lie with the relevant tax authorities as the court of public opinion may also cause irreparable reputational damage and the media are unlikely to be anything other than sensationalist in their coverage irrespective of the facts.

EU residents who buy or import a yacht into Europe are liable to an average VAT charge of 20% which can be reduced to zero if they charter the yacht to third parties. Given the substantial costs involved, some less scrupulous owners or representatives may be inclined to take steps to give the impression that the yacht is being genuinely chartered but in reality it is only used by the owner.

Similarly, where the owner makes use of the charter yacht, they will be liable for VAT at the commercial rate in respect of the time spent on the yacht.  Again, this can be a bitter pill to swallow and those involved might be tempted to permit the owner to use the yacht for leisure purposes without a charter agreement.  Such situations can be difficult for a captain where the owner pays the salaries.

Authorities are wise to window dressing and can spot the signs very easily.  For many years, customs authorities have been searching charter yachts looking for evidence of the owner’s belongings to indicate whether the private yacht is being dressed up as a charter yacht. In recent times, the authorities have become increasingly sophisticated in collating data on yachts and owners and the net is increasingly becoming tighter.

The cost of oversight in this space can be significant.  The yacht can be seized, the VAT must be paid together with potentially large fines and interest payments on top.  This is in addition to the potentially significant and irrecoverable reputational damage if the case attracts the attention of the media.

Good compliance is the key to a long and successful yacht ownership without running the risk of complications.  This applies as much to tax compliance as it does to good corporate governance.  ZEDRA has significant expertise and is well placed to ensure that all matters are properly dealt with so that you do not end up in murky waters.

For more information, please contact Andrew Wilson (ZEDRA’s Head of Aviation and Marine) at [email protected]