Fundamental reasons against Italian Lease:

The "Italian Lease" 

In principle, the Italian lease allows the following VAT rates;

  • Yachts more than 24 m length:                6,4%
  • Yachts more than 16.01-24 m length:       8,8%
  • Yachts of 12.01-16 m length:                  11,0%

» 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%.

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EUGH 2017

However, whether this type of yacht financing can still be qualified as a "provision of services" since the European Court of Justice Mercedes judgment of 2017 is questionable. Judging by the verdicts, there is an advance purchase, which must be subject to the full applicable sales tax at the beginning of the lease.


"Old" VAT still applicable to charters in Italy until 31.10.2020 - but end of the "Italian Lease" sealed

On 17 August, the Italian tax authority published Decision No. 47/E/2020 postponing the new VAT law until 1 November 2020. This means that the "old" VAT regime (6.6% for yachts over 24 meters) will be applicable until October 31st for charter contracts starting in Italy.

Italian charter contracts concluded after October 31, 2020 are then subject to the new VAT law: 22% Italian VAT is due for the time the yacht is in EU waters, which must be proven. It is not yet clear whether the new VAT law will also apply to those charters for the 2021 season that are agreed and paid in full before November 1st.

Notwithstanding the postponement of the new VAT legislation, the new rules explicitly apply not only to short-term charters under 90 days, but also to those above that date and to leasing. Ultimately, the legislator in Italy is also merely reacting to the ECJ-Mercedes ruling of October 2017, according to which yacht leasing models are not installment purchases with due full VAT at the first installment 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 there is no economic alternative to the final takeover. Thus, the "Italian Lease" with taxation of the yacht via leasing installments with flat-rate reduced VAT is 'pass'.

Whoever wants to claim more favorable VAT in the future must prove the actual use of the yacht 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. Recognized are: a) records by means of analog 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 be made at any time.

As a consequence, the charter contract must already contain exact route and location descriptions and plans, including regulations with sanctions and payments if these routes are not followed.

The reservation of the inspection period is long: in case of a completed VAT registration 5 years from the 31.12. of the year of submission, in case of a not yet completed VAT registration 7 years from the 31.12. of the year in which the VAT registration should have taken place.

The model does not offer 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 above mentioned rates are valid – 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.

Result:

In our opinion, Italian Leasing is not worth recommending; too many factors militate against it. A risk that should not be underestimated is that leasing with fixed design is possible only through leasing companies that are approved in Italy (mostly bank subsidiaries). Therefore, the lessee pays for a boat that belongs to the leasing company. If this company goes bankrupt, as many examples indicate, its purchase option at the end of the financial lease becomes worthless. Besides, many banks / Leasing companies in Italy create problems if attempts are made at free purchase, be it due to lack of knowledge about the material, or through excessive compliance. We required more than 6-12 months for such takeover processes which should rightly have taken less than a month.