Will 2013 Med charters be subject to new taxes?

Will yacht charter clients be forced to pay Value Added Tax (VAT) this summer on the Côte d’Azur? If yes, then how much will the VAT be? We asked Claude Niek, CEO of Cannes-based CSO Yachts and a member of the Mediterranean Yacht Brokers Association (MYBA) Tax Committee to give us his best guess before a decision comes (all hope) in time for the charter season.

Why is there so much confusion regarding VAT payment?

A few years ago, the European Commission approached all European countries to review their positions about VAT on charter yachts. While the commission can decide something about VAT regulations, each member country had the ability to apply its own rates and exclusions, which is why we have different VAT rates in different countries, as well as different exemptions on those rates.Until now, France considered commercially registered yachts to be commercial vessels performing commercial operations, so they were not charged VAT at all (much like cruise ships or big ships transporting goods). Then, last year, the European Commission told France that it had to apply VAT to yacht charters. VAT applied even if people chartered for their own pleasure.

France sent its reply to the commission on January 21, 2013. Nothing has been ratified yet, but France is proposing to charge half of regular VAT, or a rate of 9.8 percent, on all yacht charters.

How is the discussion expected to proceed?

From what I understand, the proposition made by France is in line with the Commission’s wishes. They might argue on bits and pieces and small points, and the rate of the VAT could be disputed, but I am guessing that by the time the summer season begins, there will be VAT of some kind, probably about 10 percent, imposed on charters starting in France.

Does that mean that clients signing a contract today should expect to pay VAT later this summer?

I don’t think so. We are not charging VAT right now because VAT on charters does not currently exist in France. To me, the contract signature date is the essence of the commitment of all the parties. That is my best guess.

If France or the commission argue that point, would it fall to the charter client or to the yacht owner to pay the VAT later this summer?

There are many ways to handle this. You could insert a mention in the agreement stating that if the French government seeks VAT retroactively, then the owner or the client is responsible for paying those taxes, whichever the parties agree to allow. But the MYBA contract clearly states that any tax is to be paid by the charter client, so under a standard contract, the client would be financially responsible. This is now part of the charter, price negotiation and discount, and the split is different from one contract to the other depending on the length and the period of the charter and the vessel booking.

Even if France gets sorted out, VAT rates vary across Europe. Will there ever be a single, unified rate?

Oh, that would be a dream! The first step would be to have the same VAT rate in all European countries; it will be ages before we can achieve this with the VATcollected on charter yachts.

Should clients forget about holding out for an extra 10-percent discount on the charter rate and instead sign the contract before a 10-percent VAT is added?

Indeed, the best idea is to book right now and sign the charter contract before the agreement is ratified, but no one knows for certain what will happen later.

Interview Kim Kavin