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Registration tax applied to charter yachts over 15 metres imposes a serious financial cost to operate in Spain. This article seeks to analyse the various tax levies imposed upon the yacht charter market in Spanish waters.
1) Any commercial activity carried out in a specific country is, as a rule, duty bound to pay the taxes levied by that country. In the case of private and charter yachts, the mobility of the element, in other words the yacht used for the activity, creates a more complex issue. In other words, what should we be paying and who should we be paying it to. In Spain, aside from the usual catalogue of profit related taxes (corporation or income tax) plus VAT, we have an additional taxation proviso in the form of the eminent Impuesto Especial sobre Determinados Medios de Transporte, (Special tax on certain means of transport), known as registration tax or matriculation tax (MT). The tax, a one off payment of 12% of the yacht's total value, a substantial economic blow as far as the owner is concerned.
The registration tax is levied on boats and private yachts over 8 metres under the following circumstances:
1 ) When a request is made for the yacht to be registered under the Spanish flag
2) When the yacht is not registered under the Spanish flag, but intended for use by residents or proprietors of an establishment in Spanish territory.
The first proviso is quite clear. IM registration must be paid upon request for registration, except for those entitled to the tax exemption anticipated for charter yachts, which we will be taking a look at further on in the article.
As regards the second provision, this has a significant impact on yachts registered under a foreign flag, chartered or intending to charter in Spanish ports or waters, being the property of foreigners, albeit without Spanish registration, owners will apparently be obliged to pay the IM tax. To determine on what grounds yachts registered under foreign flags are subject to the IM tax requires an in-depth analysis of the regulations and what we can expect in term of decisions from the AEAT (Spanish Inland Revenue) and the Courts of Justice
The "use by residents" clause is understood to apply when the yacht is available for charter by Spanish residents, that is to say, the service is provided for their use. A resident is classed as an individual who has lived in Spain for more than 183 days or whose main business interests are in the country and confirm no other residency. At this point we have to ask ourselves if, on the basis of use by Spanish residents, the yacht will be subject to the tax even if it is chartered just once a year by Spanish residents. To which we have to reply, the precedents are far from clear. What is evident is that in terms of the various payments imposed by the AEAT for chartering to residents without pre-payment of the IM, the AEAT has used this argument (chartering to residents), along with others, such as: extended stays in Spanish ports.
Moving on to the use by "proprietors of an establishment in Spain" the interpretation becomes even more complex. This is due to the fact that the term "establishment" is non-existent in taxation terminology, but simply defines what is referred to as a permanent establishment (referring to an ongoing business in the country), when the tax law regulating the matriculation tax appears to refer to an "establishment" as actually having a place in Spain. Whatever the case, the interpretation in question is that "the proprietor of an establishment" refers to anyone running a business in Spain. To quote an example, supposing a company has established itself in Spain and therefore has to pay matriculation tax on its charter yachts, even though that company is providing a charter service purely for foreign residents from a base in Spain.
Finally, we have to ask ourselves if a charter yacht which is not available for charter by Spanish residents, but navigating in Spanish waters, is also subject to IM tax. The answer ought to be no, although the owner still has to be cautious when it comes to clients embarking or disembarking in Spain, risking fatal consequences if the AEAT authorities, as a result, assume the activity to be carried out in Spain and the charter company is considered to be established.
As regards the possibility of acquiring IM tax exemption, according to officials this will apply only to yachts up to 15 metres exclusively for charter. Foreign owners in particular should make note that applications for tax exemption must be made to the tax authorities before the onset of any business activity. In the case of vessels over 100GT, exemption may have been possible by registering the yacht in the Canary Islands on the Registro Especial Canario, the second Spanish register, although apparently as from 2008, due to a modification in the legislation, the AEAT consider the exemption no longer applicable.
Who pays VAT?
VAT, where applicable, also conforms to new regulations with Spanish VAT set at 21% when the yacht is acquired in Spanish territory. If the charter company is exempt from VAT declarations in Spain, a system is exists whereby a VAT return can be submitted through the tax office in the owner's country. Alternatively, when the company declares VAT in Spain, the VAT paid on charges such as mooring, fuel, maintenance and other related costs, is deductible from the VAT applied to the service.
Concerning taxable business profits in Spain, the rate is usually set at 30% although a 25% rate applies to smaller companies, often the case as regards charter companies.
Authors note: this article, based on law, presents a general and illustrative evaluation of the topic in question. The author disclaims responsibility for the consequences arising from using the content of this article in genuine cases, in the event of which you are advised to seek legal advice.
Yamandu R. Caorsi
Lawyer at Blas de Lezo Abogados
Yachting tax and legal consultant in Spain