The French lease is based on
EU Directive 2006/112 / EC as amended by Directive 2008/8 / EC and relates to VAT for the provision of services and the place of supply of those services. In the long-term rental of pleasure yachts, VAT on leasing rates is subject to French VAT rules when the ship is made available to the lessee in France. This regulation is also regulated in the Tax Code (see § 3a (3) sentence 2 UStG). The French tax regime provided for in Paragraph 259 (1) of the General French Tax Code and Paragraph 172 of Annex 11 provides that leasing installments are payable in accordance with the time spent in European Union waters. When the ship goes to sea, a 50% VAT charge will be levied on leasing rates in accordance with the provisions of the French Administrative Order 2 3A-1-05 of 24 January 2005.
However, whether or not this type of yacht financing has yet to be qualified as a "provision of services" since the European Court of Justice's Mercedes judgment at the end 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.
French colleagues believe that the Scheme is (still) tolerated in France, i. if the yacht is in France, but this depends on the further course of the EU Infringements. There is no security.
The French tax administration has not changed your practice so far. It should be noted, however, that in French law leases with a purchase option are also to be regarded as supply contracts for goods, as in Article 14 of Directive 2006/112. It depends on the contract will of the parties, according to the tax administration. In the hire-purchase contract, the ownership of the object is targeted, even if the tenant / buyer can withdraw from the contract if he does not fulfill the purchase option. So far, the French tax authorities have not treated leases as hire-purchase agreements, if in the contracts the tenant only receives a purchase opportunity which, per se, can not be met. This is the ECJ Mercedes judgment of 04.10.2017 clearly contrary.
Federal Ministry of Finance clarifies the classification of the transfer of objects within the framework of leasing agreements
CONCLUSION: Yacht leasing models are not installment purchases with full VAT due with the first installment if they are economically calculated as real use leases with real residual value.
As of March 30, 2020, the way French VAT is calculated on yacht charter activities should change. This has now been postponed until 31.20.2020 due to the Corona crisis in favor of the yacht industry. Then it is finally over. There will be no further concessions.
Until now, VAT for short-term yacht charters as well as for long-term French leasing, which start in French waters, was due and payable on the basis of a flat-rate reduction of 50% of the taxable amount.
The new law is nothing other than the implementation of the ECJ-Mercedes ruling of October 2017, according to which yacht leasing models are not installment purchases with due full VAT with the first installment only if they are economically calculated as real use leases with 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.
According to the judgement, the French lease, as well as analogous models in Malta, Italy or Cyprus, is not a real service lease, but a hire-purchase finance lease.
The new law means that in future the full VAT rate of 20% will be applied to all yacht charters starting in France. The French tax authorities have made it very clear in their recent communication regarding the changes to the VAT rule and have stated unequivocally that it is a time-based rule and not a distance rule.
On this basis, it is not distance but the time you spend outside EU waters that will be the basis for calculating VAT. Therefore, VAT is now calculated at the full VAT rate (20%) for the time the yacht is in EU waters, with no VAT charged while in international waters or non-EU waters.
Notwithstanding this, French leasing was previously subject to the obligation to prove that the yacht spent at least 50% of the sailing time outside EU waters.
For yachts with a length of more than 15 m, the time spent in/from EU waters is determined using the automatic identification system ("AIS"). The evidence provided by the AIS, which is SOLAS-compliant, cannot be challenged by the French tax authorities and is therefore considered conclusive evidence of the time a vessel spent outside EU waters. If a vessel does not have AIS, assessments can be made using alternative technical means, such as GPS.
The first model leans directly on the text of the taxation law based on the actual use of the yacht, and is worthwhile especially for owners who go out on long cruises or have a permanent anchorage outside the European Union. At present, they pay 20% French VAT only for the time their yacht lies within the 12 mile zone of the territorial waters of the EU. The model is ideal especially for small yachts that have their own anchorage in the Caribbean (French and Netherlands Antilles). The tax is therefore computed over minimum 5 years as a mix between 0 and 20%, depending on the stay.
For all owners or lessees who are unable to prove convincingly with the help of log book records that they spent the required time outside EU territorial waters, there are rules that are supposed to simplify the process considerably. The second model is based on the provisional assumption of the French tax authorities favouring the leasing company that from the purely technical perspective, a sports boat is in a position to spend 50% of the time outside the 12 miles zone of the territorial waters of the EU. If the Leasing company faces difficulties in assessing the time frame, which brings the leased sports boat outside the territorial waters of the European Union, this may be evaluated with the tax authorities at a flat rate. An appropriate clarification must be demanded by the lessor from the lessee every year, because the liability of the acceptance by the tax authorities remains with the lessee. The lessor forwards the declarations only in the name of the lessee. The responsibility of minimum 50% stay (subject to audit) here too lies with the lessee. 50% lump-sum and using the yacht as house boot in EU territorial Waters therefore, is not possible.
At the end of the leasing period, the owner has the option of becoming the owner of the yacht. The final purchase Option price in turn is subject to the full regular French VAT.
Since the ECJ's ruling of 2018, we see the French lease in its scheme as a concern, because France qualifies - as before Malta, Cyprus and Italy - the French lease as a service lease, although it is directed from the beginning to the purchase of the yacht. In that regard, it is at the core of a buyout with corre sponding tax consequences.
It may be that France here still practices in tolerance towards only in own country operating French lease boats. The fact is that in France, unlike other leasing systems, such as Malta or Cyprus, there is no official "VAT PAID" certificate from the tax authority, which can be used to prove state-recognized taxation in other countries that do not know the French lease. Due to the new case law of the European Court of Justice, other EU countries do not have to recognize what can cause problems for such boats, especially on the secondary market. We currently have some cases in court that deal with the issue of "proper VAT taxation via French lease" and the seller can not provide the legally compliant proof, especially the problem that he never sailed significantly "off shore "as a condition for the reduction of the tax. In France, the subject may be time-barred, it begins in another EU country with the entrance.