Yachting in Spain: A Legal Guide
presented by Alex Chumillas, Tax Marine
On October 2013 the Spanish Congress of Deputies approved a bill regarding tax, environmental and financial measures which included modifying the current exemption foreseen in the Spanish Excise Duties Law for vessels exclusively engaged in the charter activity. This bill eliminated the mention to the maximum length of 15 meters for these vessels and its approval meant the opening of the Spanish yacht charter market to anyone interested to operate avoiding the payment of matriculation tax.
The tax benefit does not mean the activity can be developed without previous administrative approval. Even more, carrying out the charter activity without the necessary permits could involve penalties and the loss of tax benefits. Therefore it is completely necessary to go for a licensing procedure before starting the activity in Spain.
Matriculation tax and private yachts owned by non-residents in Spain The ownership or navigation in Spanish waters of private pleasure yachts by non-resident in Spain does not involve any tax liability with regards Matriculation Tax. Only if the yacht owner, person or entity, were Spanish residents tax would be due.
It is important to remark that those individuals planning to move their residency to Spain are entitled to apply for a Matriculation Tax relief.
Charter activity: The tax set up
With regards of the tax position of the charter business, the key stipulation is that the owning company of the yacht will have to register in Spain for VAT purposes. There will be no obligation to
appoint a Spanish VAT representative when the owning company is resident of a state with which Spain had signed a convention to avoid double taxation or in an EU country. In the rest of cases the appointment of a VAT representative will be mandatory.
The tax set up to carry out the charter activity might depend on different circumstances. However the basic scheme, on those cases where the intention is to carry out a seasonal or an occasional charter service would be to open a VAT position by the owning company with no permanent establishment in Spain. This possibility has been recently clarified by the Directorate-General for Taxation (department of the Spanish Tax Agency in charge to provide clarification on the practical implementation of tax law).
When the owning company plans to carry out a long term activity in Spain, being the yacht permanently moored in Spanish ports, the tax authorities will understand the yacht to have a
permanent establishment. The tax position of the owning company will depend on several factors, such as, the length of time the activity is carried out in Spain, the fact the owning company counts with business premises in Spain or to perform the activity through a dependent agent with powers to conclude contracts on behalf of the foreign company.
This duality is important for tax purposes, as it might be interesting in some cases to fall in one or another category.
Therefore a preliminary analysis of the circumstances surrounding the charter operations in Spain is basic in order to detect possible aspects that might produce the business to be classified in one or another way, even if that was not the initial intention of the operating company.
A third alternatively could be to charter the yacht through a Spanish based company. In this case, a management or sub-letting contract would have to exist between the management company and the owner, thereby avoiding the necessity of the owner registering for tax in Spain.
On the other hand, if the charter starts and ends at a port outside Spain, only in these circumstances, it seems possible that a yacht can charter in Spanish waters with no VAT registration in Spain as per provisions established in the VAT EU Directive. However in this case is still important to consider certain aspects that might have implications on Matriculation Tax.
Additional tax considerations
VAT − Charter services rendered in Spain are subject to VAT at 21% tax rate. There is no provision in the Spanish VAT Act 37/1992 with regards the exception established in the article 59a of the Directive 2006/112/EC, as it happens in other countries. Therefore there is no option to apply a percentage reduction on the VAT associated to a charter service.
The main restriction connected with the new tax relief is that will not apply if the person operating the vessel leases the vessel to related parties, i.e.: beneficial owners. The bottom line is that the exemption will not apply to commercially operated vessels if used from time to time by the beneficial owner of the vessel. However the binding answer V0860-14 dated 27 March 2014 of the Directorate-General for Taxation has provided two important clarifications and change of criterion:
If a vessel that benefits from the exemption established on the article 66.One.g, is leased to related persons or entities of the charter company, who are non-residents in Spain or non-holders of permanent establishments in Spain, the Matriculation Tax event does not occur and the requirements to benefit from the tax relief are still met. In other words this response allows the vessel to be leased to ultimate beneficial owners, when that person is non-resident in Spain. This interpretation is a radical change compared with the previous situation, which did not allow a single use of the yacht by a related person or entity. In those cases where the related party is resident in Spain the limitation still applies. It is our understanding the bottom line of this interpretation is to circumscribe the tax to a personal sphere connected with the Spanish residency of the user.
The second conclusion refers to the geographical scope where the limitation to related parties, established in article 66.One.g, should be applicable. The answer provided by the Tax Agency clarifies that the use of the yacht outside the Spanish territorial waters does not involve a Matriculation Tax event. Therefore in this case it seems even possible for Spanish related parties to
lease to themselves the yacht outside the Spanish waters and keep meeting the requirements to benefit from the tax relief.
Prior to start the charter activity in Spain it will be mandatory to obtain a license from the Spanish authorities. The legal competences related to marine affairs are divided in two different political and administrative levels: regional and national. In order to start a charter activity shall be necessary to get a double permit from these different governmental authorities. The public bodies in charge of issuing these authorizations are the Spanish Merchant Marine Authority and the Department of Transport of the region where the vessel is intended to be chartered.
Flags entitled to operate in Spain
Since 2011 there is no obligation for yachts to register under Spanish flag in order to carry out a charter activity. Undoubtedly, this is an advantage when we consider the administrative paperwork involved in registering the yacht under a different flag.
In principle, from the perspective of the Spanish Marine Authorities it is possible for a non-EU flagged vessel, which VAT status has been resolved (imported or accounted for), to legitimately operate a charter business in Spain. The main difference compared with an EU flagged vessel is that it might be necessary to ask for a special permission to Spanish National Maritime Authority (DGMM).
As mentioned above, the Spanish regions are as well competent for licensing the activity. Is at this governmental level where some regions establish restrictions to the possibility of carrying out charter activities with non EU flagged vessels.
For example the Balearics government regulatory only allow Spanish or EU flagged vessels to obtain a permit to start charters in that region. For clarification at the time of producing this report, theBalearic authorities do not consider Isle of Man flagged yachts as EU vessels, not being possible by now to license these boats in that region. Other places, like Barcelona does not seem to have any inconvenient with licensing off-shore British registered vessels, being necessary in those cases where the yacht is registered in a different jurisdiction not belonging to the EU the permit from DGMM in Madrid. Therefore if an off-shore British registered vessel decides to apply for a charter license in Spain, it might be possible to obtain it, as far the application is submitted in Catalonia instead of the Balearics. The only inconvenience in this case is that the vessel should start the charter departing from Barcelona.
Once the yacht is licensed in Barcelona, it is free to sail towards any other region, not being necessary to obtain any additional permit, as far guests do not embark in that region.
***All information is correct to the best of our knowledge as of June 2014. We cannot accept any responsibility for any loss occasioned to any person as a result of action as a result of any item
herein. We suggest that you contact us direct in order to confirm any relevant information and discuss the most suitable structure to your case.
Alex Chumillas Amat – Tax Marine Spain, S.L.
Tax Marine – Superyacht services
Calle Balmes, 191, 3-2 – 08006 Barcelona - Spain
Ph.: +34 667 663 521