5 reasons against the "Italian Lease Scheme" - Der Yacht Anwalt

The new "Italian-Lease 


Similar to Malta, now offers a purely EU-compliant usage lease, which, however, only offers significant tax savings for yachts that are demonstrably used for a large part outside EU waters. 

The legislator has also acted here:

On 30 September 2020, the Italian tax authority amended the previous Resolution No. 47/E of 17 August. The old flat-rate regulation is now linked to the date of conclusion of the charter contract and not to the period of performance of the service:

The "old" flat rate VAT regime (6.6% for yachts over 24 metres) will now remain applicable to charter contracts signed before 1 November 2020, regardless 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 on the Italian tax authorities by Confindustria Nautica (the Italian shipping industry association) in the interest of the Italian yacht charter industry. I do not consider this outcome to be EU compliant; it is purely politically driven.

Italian charters signed from 1 November will be subject to the "new" VAT system, which means that 22% Italian VAT will be owed 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 specified in regulation no. 234483 issued on 15 June) to accurately and consistently confirm the routes followed by the yacht in non-EU and international waters. 22% will be applied only to the part of the charter conducted within Italian and EU territorial waters.

NOTE:

The lease and the VAT thereon is a pure service use lease and not a disguised purchase lease as previously in the leasing model not allowed since the ECJ Mercedes ruling at the end of 2017.

What does this mean in practice?

Use leasing on conclusion BEFORE 1.11.2020:

Boat > 24 m, net purchase price € 5 million.

Leasing period 4 years, actual residual value of the yacht then approx. 60%.

flat rate 6.6% VAT on the leasing instalments; 22% VAT on the residual value on takeover

Advantage: Reduced VAT on the period of use under lease,

Use lease on 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 is only used in the EU - as is often the case - this results in:

22% VAT on leasing instalments as well as 22% VAT on purchase at residual value on takeover.

Advantage: Pure stretching of the necessary cash flow

 

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.

Result:

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.