The Italian Tax Authority has confirmed that VAT (Value Added Tax) reductions on yacht charter in Italy will now be based on time spent in EU waters, and has outlined new provisions for calculating VAT reductions.
From today, flat-rate reductions (also known as lump-sum reductions) on VAT for yachts chartering in Italy will no longer apply, regardless of the signature date on the contract.
According to the EU Directive, the full 22% Italian VAT on charters will be due from now, and can only be reduced according to the time spent in non- EU waters.
Non-EU waters (or international waters) is generally considered to be more than 12 nautical miles off the coast.
The legislation was initially set to be enforced in April, but the COVID-19 crisis has delayed it until now.
In order to be eligible for a VAT reduction for time spent in international waters, the Captain must now provide means of proof at the end of the yacht charter period and up to six years afterward.
Means of proof includes;
- Travel cartography, data and information extracted from satellite navigation systems and/or AIS;
- Digital photos showing the position of the yacht during the charter period;
- The navigation log or logbook kept by the captain where all data and the facts related to the cruising during the charter period must be noted;
- Documentation proving the mooring of the yacht at ports outside the EU territory (invoices, contracts, fiscal receipts and proofs of payments);
- Documentation proving the purchase of goods and/or services to suppliers based outside the EU territory (invoices, contracts, fiscal receipts and proofs of payments);
- Copy of the charter contract.
The above means of proofs must indicate the cruising routes made by the yacht with precision and consistency and must also supply details about time and dates.
The following excerpt has been taken from fiscal yachting firm SOS Yachting:
"The Tax Authority does not clarify the exact calculation methodology, but on the basis of what is contained at paragraphs 4.1 “Prova del tempo di navigazione al di fuori dell’Unione europea” (Proof of cruising time outside the European Union territory), we can interpret the calculation method as follows;
Total number of hours sailing outside the EU territory
Total number of hours of the charter contract
7 days charter contract, charter fee Euro 100.000 with 8 hours of effective cruising of the yacht outside the Union territory on the whole charter period.
The calculation would be as follows:
_______ = 4,7%
The invoice for VAT on charter fee will be as follows:
Euro 4.700 NO VAT
Euro 95.300 + 22% IT VAT (taxable base)"
These changes were first put into motion in December 2019, when the European authorities announced major changes for VAT reductions on Mediterranean yacht charters beginning in 2020. The reform aimed to scrap the practice of briefly cruising into international waters in order to benefit from a VAT reduction.
In a statement released by the European Committee for Professional Yachting (ECPY) on December 2, the organization stated that "In 2020 the only possible reductions will be pro-rata reductions for cruising outside European waters (i.e. time spent/or distance in international waters."
It comes after the ECPY spoke with the Directorate of Tax Legislation (DLF). "The DLF officers informed ECPY that the application of the VAT reduction on charters as practiced in Italy, France, Malta, Cyprus and Croatia would no longer be applicable for the 2020 season (i.e. just cruising into international waters and obtaining a VAT reduction)."
"The European Commission has asked the above-mentioned countries to modify their practices in order to apply the principle of ratio [...]. It is expected that the implementation of the new rules on VAT reductions will be applied under the same terms and at the same time in different countries."
If you are considering a yacht charter vacation in Italy, speak to your yacht charter broker for advice, guidance and everything you need to know about VAT and yacht charter.
As Italy begins to reopen its borders for travel and charter after successfully flattening the Coronavirus curve, the destination is expected to be popular for late-summer charters. The islands of Capri and Sardinia have declared themselves free of COVID-19; if you'd like to book a Social Distancing yacht charter here, take a look at all Amalfi Coast yachts for charter.