De-mystifying yacht chartering arrangements in Spain

Having recently attended the Superyacht Fiscal management meeting in Barcelona it was quite apparent from the conversations and discussions around me that there is still a huge amount of uncertainty around the tax and legal rules relating to chartering activities in Spain.

Based on my observations it seems that one of the biggest difficulties people face when determining what rules are applicable is that there still exists different rules for each region in Spain. By this I mean that rules in respect of charter from Barcelona are somewhat different to the rules when chartering from Palma, for example.

However, with an understanding of the EU legislation from which the Spanish fiscal rules emanate and with an appreciation of the local rules and regulations, chartering in Spain can be as easy as chartering in any other EU Member State so as long as you don’t try and deviate away from the processes in place.

Here is a brief summary of the main discussion points:

Matriculation tax

Matriculation tax was introduced by the Spanish Tax Authorities in relation to transportation services. It is applicable to commercial activities carried out by the yacht, aviation and road transport sectors in Spain.

It is calculated on a number factors including the type, size and value of the mode of transport and is payable in addition to any VAT and other taxes which may be due. In the main, the applicable rate of matriculation tax is 12%.

Following the introduction of Matriculation tax in Spain it quickly became apparent that the application of this tax had a detrimental effect on the yacht charter industry so the tax authorities introduced a relief from matriculation tax meaning that only in the following instances would matriculation tax be applicable:

  • A yacht is engaged in commercial activities (i.e. chartering); and
  • Registered in Spain or used in Spanish waters by a Spanish resident or holder of resident permit in Spain.

The result is that, generally speaking, matriculation tax does not apply to chartering activities in Spain as around 95% of UBO’s are not Spanish resident and very few superyachts are registered in Spain.

However, as with all tax matters, there are two points of caution which are worth noting:

  • If the person/entity owning the yacht has any sort of commercial activity in Spain, even where it is not yacht related (such as owning rental property), this may bring the yacht activities into the scope of matriculation tax.
  • In order to benefit from relief of matriculation tax the exemption has to be applied for, it is not automatically applicable.

It is also worth noting that established case law has determined that hiring a berth in Spain will not create a permanent establishment and therefore an exemption from matriculation tax can still be applicable where a berth is rented in Spain.

Sale of yachts in Spain

Generally the sale of a yacht in Spain will be subject to VAT at the standard rate (currently 21%). However, if the owner is an individual (and therefore not considered to be ‘in business’ in Spain) and the purchaser is tax resident in Spain then VAT will not be applicable. Instead transfer tax will be due and payable by the purchaser. Transfer tax is normally levied at a rate of between 8% and 10% depending on the base price of the yacht being purchased.

Sailing in and out of the EU

Unlike many other EU Member States Spain still requires a declaration to be made in respect of yacht movements in and out of the EU. Therefore to ensure any VAT paid or deemed VAT paid status held in respect of a yacht is retained a formal declaration of temporary export must be made to the Spanish Customs Authority when leaving EU territorial waters. Likewise, upon returning to EU waters (even if not back into Spanish waters) an import declaration must be made in that Member State in order to null and void the temporary export declaration made in Spain.

VAT on charter activities

Chartering activity commencing in Spain is subject to VAT at the standard rate and therefore a yacht owning company will be obligated to register for VAT in Spain. There is no requirement to appoint a Spanish VAT representative if the yacht owning company is resident in another country which has a signed double tax treaty in place or is established in another EU Member State.

When determining the amount of VAT due on chartering activities carried out in Spain the VAT Department recognises the use and enjoyment rule in a slightly different manner from other EU Member States. This can get a bit complicated so let me explain by way of some examples using differing EU Member States as comparison:

I am going to start a charter in Malta. I have a 50 metre motor boat and I am going to sail to Croatia. I would apply the VAT rate of 5.4% to the charter amount. The VAT rate of 5.4% is the prescribed rate applied by the Malta VAT Department based on the length of my yacht (i.e. over 24m) as it is assumed that I spend only 30% of the charter in Maltese territorial waters due to the length of my yacht. The Croatian authorities do not look to charge any VAT even though my passengers disembark in Croatia as I started the charter in Malta so that is the place which lays claim to any VAT which may be due. If I start a new charter with passengers embarking in Croatia who later disembark in Malta I would charge and account for Croatian VAT at the applicable rate and the Maltese Authorities would disregard the fact that I have sailed into Maltese territorial waters to drop my passengers off.

So what happens if I sail to or from Spain? You guessed right, it’s something different:

The next charter I carry out is from Gibraltar and I am going to sail to Palma. As Gibraltar is considered to be outside the EU it would be natural to assume that no VAT is due on the whole charter amount if we use the same logic applied as per the example above. Correct in so far that Gibraltar do not expect or demand any VAT on the charter. However, as soon as I enter Spanish territorial waters the law states that I am required to charge and account for VAT at 21% (i.e. standard rate of VAT in Spain) on the proportion of the charter which takes place in Spanish waters. The Spanish VAT Authorities do not have a simplified method for determining how to calculate this amount so it is possible to apply the best method on a case by case basis. Suggested methods would be to use actual values so whether that is number of days, nautical miles sailed or some other method, so long as the Authorities agree.

You have probably spotted the major issue with respect to the Spanish VAT arrangements in that the charterer may end up having to account for VAT twice on a portion of the charter: firstly on the charter amount being reported and paid in the jurisdiction where the charter commences (assuming it starts from another EU Member State) and secondly, based on the current interpretation of Spanish VAT law, it would appear the Spanish Authorities could demand a VAT payment in relation to the charter activities which take place in Spanish territorial waters.

However, there is currently no clear guidance from the Spanish Authorities on how these situations are handled, so if you do happen to come across this issue please get in touch and tell me all about it.

Spanish Income Tax

Chartering activities carried out in Spain are treated as the hiring a means of transport, which under Article 7 of the Spanish Income Tax Act is considered to be a taxable supply as it creates an opportunity for profit.

This applies even where the UBO is a non-resident. However, if the country of residence of the yacht owning company has signed a double tax treaty with Spain then the income tax rules of the country of residence will be applicable, overriding Spanish taxation rules. Thus no Spanish Income Tax will be applicable.

Flag States and licenses

It must be said that, based on the discussions at the recent fiscal event, flag state of a yacht appears to create the most issues in Spain in respect of chartering activities.

The various regions of Spain have different rules which are difficult to manage in practical terms. For example non-EU flagged vessels are currently not permitted to start a charter from Barcelona, however, it is acceptable for non-EU flagged vessel to start a charter from the Balearics. It is therefore important to check with each of the local regions to determine any particular nuances which could affect a charter.

In addition to dealing with local regional rules and irrespective of whether EU or non-EU flagged, every yacht used for charter is required to hold a charter license issued by the particular region where passengers embark on the yacht (i.e. charter passengers embark in Palma, charter license issued by Palma etc.)

In order to apply for charter licenses all vessels are required to undergo a port state inspection which has to be carried out in Palma. As you can imagine, there are a lot of requests for inspections so it is important to apply for an inspection at least 8 weeks before any chartering activities are due to commence.

Charter licenses are valid for a period of one year.

Please note the above details should not be treated as advice or guidance, each matter should be dealt with by obtaining specific advice relating to the individual situation.

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Written by Samantha Snow – Client Services Manager, Abacus Malta

The information provided herein is not intended to constitute advice of any nature whatsoever. We assume no responsibility for errors, inaccuracies, omissions or any other inaccuracies herein.