French exemption

Since 1993 the authorities on the French Mediterranean coast have exempted commercial yachts from VAT. This exemption is not in line with the EU VAT directive and was only effective locally. Despite this, it was availed of by many superyachts which were both based in France and visiting the EU. Over time the French exemption was unofficially recognised in many areas of Italy also. All this has now changed.

The European Commission has formally told France to change its legislation granting VAT exemption for commercial yachts. The Commission has ruled that the scope of France’s current VAT exemption goes beyond what is permitted by EU law as contained in the VAT 6th Directive. In May 2004 the French extended the application of their fiscal codes Article 262-II-2o, 3o, 6o, and 7o and Article 291-II-5, to include all yachts in commercial use. Previously this was only applicable to merchant ships. All that a yacht needed under the regime was to have a commercial registration certificate from any Flag State, have a permanent crew and be available to charter. Customs entry and exit formalities for such yachts were scrapped. Charter activities that the yachts undertook in France were treated as exempt from VAT and the yachts benefit from tax-free fuelling and provisioning.

The French regime however contrasts sharply with other EU Member States, which have not recognised such exemptions in law. The exemption has been an unfair boost to the French yachting industry in recent years.  Its success has encouraged other EU countries, such as Italy and Malta, to tolerate some features of the regime, (without expressly changing their national law). The Commission’s attack on the French regime is significant in that it also sends out a strong signal to other Member States.

The French industry through the guidance of the MYBA is in negotiation with the authorities for a solution. They are obviously keen to hold on to the lucrative charter market and if possible the competitive advantage they held over many other EU regions because of their exemption. So far it’s not clear what, if anything, they can do. Watch this space.