Tax rules

Value Added Tax and Yachts: An Overview

Find your dream yacht in Europe? Here’s what you need to know about the VAT, which can add 20 percent to your purchase.

There’s no denying it: European boats have a style all their own. And today’s global search makes it easy to find what you’re looking for, even if it’s on another continent.

But if you’ve got your eye on a boat to buy in Europe, make sure you understand the tax implications and the paper trail—especially if you plan to cruise in Europe for any length of time. All privately owned vessels used by EU residents within the EU are required to pay a Value Added Tax (VAT), which can add a hefty 20 percent to your sales price. And that’s just the beginning of all the details to consider.

VAT on yachts can add a hefty amount to the price tag.

VAT when buying a used boat

If you’re not resident in an EU country, you can temporarily import the vessel without paying VAT, for instance to cruise in the EU, for a period of usually up to 18 months.

If the permanent importation of the boat coincides with transferring your residence from outside the EU, it may qualify for VAT relief. Similarly, a VAT paid boat exported from the EU (such as when long-term cruising) may also qualify for relief on its return if it’s returned to the EU within three years of export, imported by the person who exported it from the EU, and has not undergone significant repairs that increased its value.

The Association of Brokers and Yacht Agents recommends that its members should obtain the relevant paperwork from the vendor before listing a yacht as being VAT paid. However, sadly, not all are so diligent, which can lead to delays in a transaction at a later date. On the other hand there are also brokers who are adept at tracing a long-forgotten trail of paperwork, even where companies (boat dealers as well as builders) are no longer in business.

Complications also arise because a VAT paid boat can lose this status. This will happen, for instance, if it’s sold outside the EU – even if purchaser and vendor are EU residents – and VAT must then be paid if the boat is brought back into the EU. Equally, boats that are kept outside the EU for more than three years may be required to pay VAT again.

Should you expect the price of a second-hand boat to be reduced if it doesn’t have the appropriate paperwork? There’s no clear-cut answer to this – for many smaller lower value craft the vessel’s condition and level of equipment has a much greater bearing on its value than the 20 per cent VAT. On the other hand, it’s clear that a one-owner boat that’s only a few years old will be reduced in value by the entire value of the VAT if the paperwork is not available. Unfortunately, there are also many cases in which the legal situation is not clear cut, especially as VAT is a tax on a transaction – the sale or importation of goods or services – not on the vessel itself. It’s in these cases that an expert broker or solicitor can help out significantly, especially for high-value yachts.

Customs officers in other EU countries you visit may require you to provide evidence of paid VAT, as will prospective buyers when you sell the boat. That sounds fair enough, however in practice many boats, particularly older ones, may not have the complete documentation. It’s important not to underestimate the complexity of VAT and yachts, especially for higher value craft – there are situations in which a boat that appears to have appropriate paperwork may not in fact be VAT paid.

Ideally the evidence of VAT having been paid on the vessel will be in the form of the original VAT invoice, from when the boat was either first sold within the EU or when it was imported from outside the EU. In the case of home built vessels, invoices for the materials used in the construction boat will suffice.

Older vessels built before 1985 are deemed VAT paid if they were in the EU on December 31, 1992, providing there’s paperwork to support both dates. For age this could be a marine survey, Part 1 registration, insurance documents or a builder’s certificate, while receipts for mooring or winter storage would satisfy the location requirement. When buying a second-hand pleasure craft from any VAT registered business in the EU, the invoice should itemize the VAT charged in that transaction.

If the seller is unable to provide the normal documentation, for vessels in the UK it’s recommended that, while cruising within the EU, you carry a Bill of Sale (if applicable and between two private individuals in the UK). Although this is not conclusive proof VAT has been paid, it indicates that the tax status is the responsibility of UK authorities.