The "Italian Lease"
In principle, the Italian lease allows the following VAT rates;
» A yacht more than 24 m length is therefore 0.9% more expensive than the Malta Solution at 5.4%; a yacht less than 24 m is 1.2 % more expensive than the Malta Solution at 7.2%.
The legislator has acted:
On 30 September 2020, the Italian tax authority amended the last resolution No 47/E of 17 August. The old lump sum scheme now refers to the date of the conclusion of the charter party and not to the period of performance of the service:
The "old" flat-rate VAT system (6.6% for yachts over 24 metres) now remains applicable to charter contracts signed before 1 November 2020, irrespective of the dates of the charter period.
This latest resolution applies not only to short term contracts (charters) but also to long term contracts, leases, rentals and the like and is the result of strong pressure exerted by Confindustria Nautica (the Italian Maritime Industry Association) on the Italian tax authorities in the interest of the Italian yacht charter industry. I do not consider this result to be in conformity with EU law; it is purely political.
Italian charter contracts signed from 1 November onwards are subject to the "new" VAT system, which means that 22% Italian VAT is due by the charterer according to the actual use of the yacht outside the territorial waters of the Union. The yacht must provide proof in paper or digital form (as indicated in regulation no. 234483 issued on June 15th) in order to certify accurately and uniformly the itineraries that the yacht follows in non-EU and international waters. 22% will be applied only to the part of the charter that takes place within Italian and EU territorial waters.
The lease and the VAT payable on it is a pure service use lease and not a hidden purchase lease as was previously the case in the leasing model that has not been allowed since the ECJ Mercedes ruling at the end of 2017.
What does this mean in practice?
Usage leasing at conclusion BEFORE 1.11.2020:
boat > 24 m, net purchase price € 5 million
Leasing period 4 years, real residual value of the yacht then around 60%.
flat-rate 6.6 % VAT on the leasing instalments; 22 % VAT on the residual value at takeover
Advantage: Reduced VAT on the period of use under lease,
Usage leasing at conclusion AFTER 1.11.2020:
Boat as above, but no flat-rate VAT, but only according to proof of the yacht's stay in or outside the EU; if the yacht - as often - is only used in the EU, this results in
22% VAT on leasing instalments and 22 % VAT on purchase at residual value at takeover
Advantage: Purely stretching the necessary cash flow
For all those whose yacht is or will be largely located in the EU in the future, this type of lease is not really worthwhile. The verification effort is just as huge as the tax risks. There are better and more economical solutions for all with yacht investments from approx. 800 T€. We are happy to advise you on this.
Yacht-Leasing-VAT according to the ECJ Mercedes judgement: BMF of 18 March 2020
Federal Ministry of Finance clarifies the classification of the transfer of goods under leasing contracts
CONCLUSION: Yacht leasing models are not considered to be hire-purchase with full VAT due with the first instalment if they are economically calculated as real use leases with a real residual value and do not lead to the de facto payment of the yacht after a short term and if there is no economic alternative to the final takeover.
Notwithstanding the postponement of the new VAT legislation, the new rules explicitly apply not only to short-term charters of less than 90 days but also to those above that period and to leasing. Ultimately, the legislator in Italy is only reacting to the ECJ-Mercedes judgement of October 2017, according to which yacht leasing models are not instalment purchases with due full VAT at the first instalment if they are economically calculated as real use leases with a real residual value and do not lead to the actual payment of the yacht after a short term and there is no economic alternative to the final takeover. The 'Italian lease' is therefore 'passe' with taxation of the yacht by means of leasing instalments with a flat-rate reduced VAT rate.
Anyone wishing to claim more favourable VAT in future must prove that the yacht is actually used within and outside EU waters. Every route, every berth, everything must be documented. This requires an adequate technical equipment of the yachts with satellite transponders, e.g. A.I.S. Automatic Identifcation System. Recognised are: a) records by means of analogue or digital logbook, b) digital photos of the positions from the plotter, at least twice a week, as well as c) documentation by invoices, contracts, receipts. Inspections can take place at any time.
As a consequence, the charter contract must contain precise route and location descriptions and plans, including regulations with penalties and payments if these routes are not adhered to.
The model has also in the past not offered any legal certainty and is a deceptive package which in the final analysis, is subject to audit and hardly ever holds muster even for Italian citizens.
The reduced VAT rates were available – unlike in Malta – only SUBJECT TO AUDIT BY THE TAXATION AUTHORITIES. If these rates (i.e., 70% of the travel time outside 12 nautical miles in the EU) cannot be proven accurately with the help of the log books, then the full VAT, which is 22% at present, will be due:
“The captain of a yacht shall carefully Keep the logbook of the yacht. The logbook is a record of operational data relating to a ship (under Italian navigation code, a vessel whose overall length exceeds 24 meters is a ship) such as weather conditions, times of routine events and significant incidents, crew complement or what ports were docked at and when. The logbook, which can be also in electronic format, is essential to traditional navigation, and must be filled in at least daily. The captain of a yacht is required by international maritime conventions and national legislation to keep accurate records of the cruise. As such, in the case of inspections on board carried out by Italian Cost Guard or by Guardia di Finanza, the captain of the yacht shall immediately provide evidence of the cruise and of the route taken with indication of the actual time spent in international waters. This should be sufficient evidence to prove the correctness of the application of the reduced rate or of the non-application of VAT on the invoice.”
90% of the yachts more than 24m long cannot prove the 70% offshore stay as required, so that after a check, the 30% quota is obsolete.
The Italian Leasing thus functions only for owners who can prove that they are in transit predominantly or exclusively outside European Union territorial waters, e.g., in the Caribbean.
» Fixed rates are applicable in Malta, without any Audit.
IV. The scheme is subject to Italian law, place of jurisdiction is Italy and the official language of all documents and processes is Italian:
We had a few mandates involving Italian Leasing, which on the whole are not only causing a lot of distress, but are also not working out as expected.
In the end the owner did not get the sought EU VAT paid certificate, he received only a proof of the VAT paid for the purchase option price.
» In Malta, there is legal certainty right from the start of the lease; the concrete model is rubber-stamped after the presentation of all data by the finance ministry through notification.
For all those whose yacht will in future be located or sailing largely within the EU, this type of lease is not really worthwhile. The verification effort is just as huge as the tax risks. There are better and more economical solutions for all with yacht investments from approx. 800 T€. We are happy to advise you on this.