New boats (and all other ‘means of transport’ – cars, airplanes, motorhomes, superyachts) sold in the EU for private use are subject to a 16% – 27% consumption tax called Value Added Tax or VAT. The tax is levied country-by-country. The rate of VAT depends on the country and listed here in the National VAT Rates. Around 20% is common. Boats used in the EU customs zone must prove prior VAT payment or pay VAT. Boats imported, owned and used by non-EU residents under Temporary Admission rules enjoy a VAT exemption for 18 months.
The overarching detail is in the Union Customs Code and the meaty detail in Article 212 of the UCC Delegated Act
Question to Your Europe Advice
I asked the following question of the Your Europe Advice legal service:
Question: 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 boat 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
They answered as follows:
Answer: The temporary admissions procedure is contained in Article 250 onwards of the Union 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 Union 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 Union 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.
Residence for Import Purposes
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.
6 Months in Greece
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.
Questions and Answers from the Web
Question: Does the VAT rule also apply to temporary EU residents? Read More
Answer: There is no rock-solid answer for this. The EU legislation for VAT exemption says the skipper cannot be “habitually resident in the EU”. Not an “EU member State”. But I cannot find anywhere that defines this in the context of Temporary Admission.
It seems many countries default to their local definition of tax residency to apply this. Hence the 183 day rule. But it seems even this is applied differently. In Italy, it is <183 days in a fiscal calendar year. In Croatia it is <183 days in a fiscal year including the prior fiscal year. So in theory I guess you could stay in Italy for 11 months spread over a fiscal year boundary without becoming a tax resident though the visa might be problematic.
It also seems that the tax resident days are counted independent of time spent in other jurisdictions. Which makes sense because how would Greece bill you for VAT based on a skipper who was partly tax resident in Italy. This past year I spent 3 months in Spain, then 5 months in Italy. When the Guardia Finanza inspected – no issue. Actually I dont think they even considered tax residency – only interest was the 18 months.
Question: Does the 183 day tax residency rule apply to all persons regardless of their citizenship, habitual residency or visa-waiver status? For example, if I was habitually resident in Australia with lots of evidence to support that assessment and stayed in Italy for 9 months legally, under an Irish passport, would I then become a tax resident of Italy? Read More
Answer: The EU legislation says the skipper must be “not habitually resident in the EU”. It seems most countries interpret this as “not a tax resident”, which in many countries is dumbed-down to <183 days in-country. You could spend forever researching tax law and definitions of “domicile”, “habitual”, “customary”, and “tax” residency blah blah blah. Passports and actual nationality seem only passingly relevant.
There are a few more twists. Like many countries, Australia has a Tax Treaty with Italy which exempts Australians from paying income tax in both countries. But Aussie friends engaged a tax lawyer and eventually shied away from tax residency because it adversely impacted investment dividends in Australia. I guess this only applies in the context of that tax treaty, but the treaty defines tax residency as the place where a resident has a permanent home.
On the other hand the Italian equivalent of the IRS the Agenzia Nitrate says a person is a tax resident if, for the majority of the year they a) are registered as residents; or b) they have their habitual residence in Italy or c) they have a principle place of social interest (domicile) in Italy regardless of the presence of the individual. I wonder what happens when a boat registered as a domicile is left in a marina over winter, with no presence of the individual? It may just be easier just to get out before day 183 IMHO.
For your specific question, like my Irish passport holding wife, you are required by EU and Italian law to register as a resident for > 3 months in Italy. I don’t know how they would police this. But having registered, yep no denying tax-residency per a) above. I guess.
Question: Is the Customs zone the same as the Schengen zone? Read More
To maintain VAT-Free status the boat has to leave once every 18 months the Customs zone of the Union. The Customs zone is slightly different to the Schengen zone. You could go to Norway for example – which is a signatory to the Schengen Aquis but not in the EU for Customs purposes. The full list is here.
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