COVID lockdown had my boat languishing in France forcing me to do a deep dive into the EU custom rules to make sure I would not be hit by a massive 20% + VAT bill once we got back to Les Sables D’Olonne. Here are the results of my research.
Sailboats, cars, motor-homes, superyachts and Lear jets etc are called ‘Means of Transport’ by the EU Customs rules. They can be temporarily imported into the EU Customs area without being hit up for import duty and Value Added Tax (VAT) under rules called the Temporary Admissions procedure (sometimes referred to as Temporary Importation). Read More
The EU Temporary Admission rules are not written as some kind of benevolent freeby for impoverished sailors and motorhomers. The intention and the overarching rules, which are common across many countries, are documented in the Istanbul Convention. Annex C has all the detail for Means of Transport. The Convention sets out the internationally agreed principles by which, for example, international passenger flights can land in a foreign country without paying import duty on the plane. Or tourists can enter without paying duty on the clothes and personal gear in their suitcase. All on the promise that their stay is temporary and they will eventually leave or be “re-exported”.
It is also worth noting that whilst the VAT on boats and motor-homes is expensive for us – the rules are applicable to means of transport from a 10,000 euro banger to a 100 million euro superyacht. So yes, I suppose you could try complying with some of the rules regarding offshore ownership by registering your ride as being owned by your private company ‘Shady Enterprises LLC’ with 100% of shares held by a Discretionary Trust with your dog as the sole ultimate beneficial owner or whatever. I did. But also bear in mind that the average Russian oligarch with a floating palace serviced by a tender twice the size of your boat is also trying to do the same thing. And the EU has an army of tax lawyers writing rules to prevent billionaire Vladamir Ripuoff from cruising the Med without paying VAT. Make sure your pooch has a tax lawyer as well.
For the EU, the overarching rules for Temporary Admission of just about anything that qualifies are in Article 250 of the EU Regulation No 952/2013 “Union Customs Code”. And the rules are essentially the same for motor-home owners, motor-bike tourers etc. I will write another post on the specifics of motor vehicles sometime soon.
The simplified summary of the EU Temporary Admission procedures for Means of Transport are described here. For yachties, Article 212 in the EU VAT Directive has all the rules specifically for ‘Pleasure Boats’ as ‘Means of Transport’. These rules are more simply described here.
I for one, am grateful for the simplicity of the EU rules. There is no stupidly expensive prepayment of Carnets, and no need to lodge complex customs documentation before arriving. But there are rules to qualify your means of transport for the Temporary Admission procedure and therefore avoid duty and VAT, temporarily, until you re-export the boat not more than 18 months later.
The key requirements to satisfy the Temporary Admission rules (aka “VAT free”) applicable in most common situations for sailors are in simple terms: non-EU Registered Boat, non-EU-resident owner, non-EU tax-resident skipper, and not more than 18 months in the EU Customs territory. You can find the official list of 18 month boltholes here. Pay particular attention to those territories where Customs and VAT rules do NOT apply.
You may have heard that the rules allow you to trigger the Temporary Admission rules just by crossing the border. Yes, more precisely: means of transport can be declared by the sole act of crossing the frontier if they are for temporary admission. Older versions of the Uniform Customs Code accidentally omitted this. This ‘gimme’ was reinstated in 2018 by Commission Delegated Regulation 2018/1063.
‘Declaration by the sole act of crossing the frontier’ means that means of transport are not subject to the usual customs formalities and do not have to be presented to customs. How much easier does it get? But note the discussion I had with the Italian Guardia Finanza in the post VAT and Boats in Italy regarding the Costituto (a kind of customs importation document proving how long the boat has been VAT free in Italy). Their answer “It is a legal requirement but its not mandatory”. And also note the Greek requirement for a similar document – the Transit Log – the subject of a detailed post in the future perhaps.
Now, here”s the bit that may ruffle a few feathers amongst the sailing community of free spirits not bound by the mundane conventional rules trapping our poor brethren land lubbers. To recharge the 18 month Temporary Admission concession with another 18 months of VAT-free sailing bliss requires more than a selfie of you and your chart-plotter proving you left the territorial waters of Greece, Italy, or wherever.
I say this tentatively because i have yet to find a hard-core EU reference to support this BUT after referring to the Istanbul Convention (Chapter 5 Article 10); and rereading the EU VAT Directive; and most importantly plying with many beers an old friend who happens to be an international tax consultant for a big four consulting firm – I conclude that “the out and back” (as he scoffingly called it) ruse for justification of Temporary Admission is a recipe for a big VAT bill.
Why? Because a) crossing the territorial boundary of an EU country does not equal crossing the “customs frontier of the EU”. And b) when the initial Temporary Admission was granted it was given on the basis that the means of transport would be re-exported, meaning re-exported to somewhere. And c) the Istanbul Convention says customs authorities … accept as evidence of re-exportation … a certificate issued (by another) territory … or other documentary proof.
But its not just about the boat and 18 months. The requirement for a non-EU tax-resident skipper seems to be often ignored, forgotten or misunderstood. Note I am deliberately distinguishing between the legal owner and the person using the boat (“skipper” for simplicity though not necessarily a licensed skipper – just the authorised user). Here is an interesting question: Is a boat compliant with the Temporary Admission rules if (a) Skip the “skipper” has become a tax resident of Greece by virtue of an extended stay of more than 6 months, BUT (b) the ultimate beneficial owner is Rover back at the kennel in Hometown USA and (c) Rover has authorised visiting cousin Vinny to operate the boat instead of Skip?
Your Europe Advice
The EU Legal Advice Service “Your Europe Advice” offered the following in response to a simpler question for more conventional situations:
Q: I am an Irish citizen. My husband is a third-country national. He owns a boat purchased outside the EU and brought into the EU Customs area under the Temporary Admission rules documented in the EU Uniform Customs Code. Our permanent residence is in Australia, where we have a house, adult offspring, dog, car, bank accounts and pension fund. We travel from country to country on the boat usually staying less than 3 months in each. Sometimes we extend our stay using Irish passport and my husband’s status as the spouse of an EU citizen. Typically we spend 9 months of the year in the EU. We are confused by the rule in the Temporary Admission rules for the owner of the boar to not be “habitually resident in the EU”. Authorities in Greece have told us if we stay more than 6 months in Greece then the boat will be liable for VAT. Could you provide a reference that explains how this habitual residence is defined please? Read More
A: The temporary admissions procedure is contained in Article 250 onwards of the EU Uniform Customs Code. Under the temporary admission procedure non-Union goods intended for re-export may be subject to specific use in the customs territory of the Union, with total or partial relief from import duty.
The person who makes use of the procedure must be established outside the customs territory of the Union. Under the EU Uniform Customs Code, a “person established in the customs territory of the Union” is defined as a person who has their habitual residence in the customs territory of the Union. The EU Uniform Customs Code does not further define the concept of habitual residence . However, it is possible to refer to other rules which may be useful in interpreting this concept.
There are two instruments which define residence for the purposes of exempting permanent imports of personal property and exempting temporary imports of certain means of transport imported from Member State into another. The definition is contained in Article 7 of Directive 83/182 relating to tax exemptions within the Community for certain means of transport temporarily imported into one Member State from another and Article 6 of Directive 83/183 relating to tax exemptions applicable to permanent imports from a Member State of the personal property of individuals.
For the purposes of these Directives, the term “normal residence” is defined as meaning the place where a person usually lives, that is for at least 185 days in each calendar year, because of personal and occupational ties, or, in the case of a person with no occupational ties because of personal ties which show close links between that person and the place where they are living.
As a result, the concept of a person established outside the customs territory of the Union is likely to be interpreted as applying to a person who has their habitual residence outside the customs territory of the Union, namely someone who is not tax resident in the EU because they spend less than 6 months in any EU country in a given tax year. This then means that the temporary admission procedure will be applied to the benefit of who is not tax resident in the EU because they spend less than 6 months in any EU country.
However, you have told us you do not spend more than 3 months in any individual EU country, so therefore you do not spend 183 days or more in any specific EU country. We consider that it would only be if you were to spend more than 6 months in a tax year in a specific EU country – such as Greece – that you would then become liable to tax in Greece and therefore no longer eligible for the temporary admission procedure.
Although you mentioned that you spend 9 months of the year in the EU, as we cannot advise with authority on Australian law, we are unable if this have an impact on your Australian tax status and whether this could also mean you are no longer tax resident in Australia because you do not spend 183 days there. You may therefore want to obtain a certificate of fiscal domicile from the Australian tax authority to prove you are tax resident in Australia. In any event, you would be well advised to obtain independent advice from a tax consultant on this issue.
Scared of tax? I am. And each country makes it scarier because the rules are not uniform. This online resource courtesy of international accounting advisory consultants Price Waterhouse Coopers gives a great summary of Tax Residency rules for your home country and everywhere in Europe. As does this OECD resource. 183 days is common but by no means uniform. Compare say Italy (183 days in a calendar year) with Croatia (183 days in any one year period) with France (no mention of 183 days) as examples.
It is also worth remembering that bilateral Tax Treaties between countries can alter the definition of tax residency. Though this is often just for the purposes of Income Tax and specifically not for every other kind of tax you are held hostage to. I wonder if that includes VAT? And I wonder how much money Tax Lawyers make?
Q and A from Readers
Q: We are on the process of buying a non-vat paid yacht in Croatia. Our understanding is we have 18 months before we need to pay any VAT. Can anyone confirm please? We are both NZ citizens and residents and the boat will be NZ registered
A: I can’t find a definitive answer to this. A boat in the EU under Temporary Admission will be, and remain, VAT-exempt for 18 months from the time it entered the EU (not the time you bought it) as long as all the conditions for Temporary Admission are met. According to Article 218 of the Uniform Customs Code you can be authorized for TORO (Transfer of Rights and Obligations) for goods under special procedures which includes boats under Temporary Admission. Ask a tax lawyer. If the boat was a Charter Boat then the boat is not currently under the Temporary Admission procedure. The safest approach would be to take the boat out of the EU Customs territory to Montenegro (for example) and restart the Temporary Admissions clock when you sail back.