The Tax Man Tries to Crack Down on Yacht Owners

Italy, Russia, and Spain have all been in the news the last year for their increasingly aggressive tax stance on wealthy yacht owners.  Most countries in Europe impose a value-added tax (VAT) on the sale of products and services.  A country’s VAT rate can reach 20 percent or even higher.

People who buy expensive yachts obviously have a strong financial incentive to avoid the VAT on their purchases.  A common way of avoiding the VAT on yacht purchases is to exploit a rule exempting yachts from the VAT for 18 months.  When a ship leaves European Union (EU) waters, docks in a foreign port, and then returns to EU waters, a new 18-month period begins all over again.  Thus, yacht owners in the EU can avoid the VAT by simply sailing to North Africa or another non-EU destination every 18 months.  Alternatively, people can form a business in a non-EU country and purchase a yacht in the name of that foreign business.

Lately, however, some EU countries are taking measures against yacht owners who seek to minimize their taxes.  Italian authorities inspected yachts in 2012 to verify that their owners were reporting high incomes and/or using their yachts for business purposes.  Spain assesses a 12 percent “matriculation” tax against yacht owners, in addition to its 18 percent VAT.  Not surprisingly, many Spanish yacht owners have re-located to France, which offers a VAT exemption for certain yachts.  Some people familiar with the situation believe that the matriculation tax has had a net negative effect on Spanish tax revenues, because so much economic activity generated by yachts and owners now takes place in France or another country.