ITALIAN VAT ON CHARTERS: The Proof on the Effective Sailing Outside the European Union – Short and Long-Term Contracts

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  • 2 November 2020
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ITALIAN VAT ON CHARTERS: The Proof on the Effective Sailing Outside the European Union – Short and Long-Term Contracts

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As highlighted in our previous newsletters, Italian Tax Authority (Agenzia delle Entrate) has postponed the entry into force of the new VAT regime on short and long term yacht charter contract, financial leasing included. Indeed, this new regime is applicable to agreements concluded since November 1, 2020. Therefore, from November 1, 2020, the “lump sum VAT criteria” related to the length of the yachts (ex. 6.6% VAT for the charter of yachts over 24 meters) will be no longer applicable, and ordinary VAT rate of 22% will be due unless it will be proved the navigation outside EU waters. On October 29, 2020, Agenzia delle Entrate issued Provision n. 341339/2020, which clarifies the means of proof necessary to prove the effective use of the vessel outside the EU waters, to enjoy the VAT exemption. The Agenzia delle Entrate had already defined in June 2020 the means of proof for short-term contracts, but after the extension of the new regime also to long-term contracts and the postponement of the entry into force of the new regime even for short-term contracts, it had to redefine the means of the proof regime with the Provision in question.

PROOF OF NAVIGATION OUTSIDE THE EUROPEAN UNION – SHORT TERM CONTRACTS (MAXIMUM DURATION 90 DAYS)  

GENERAL RULES

The Provision makes it clear that the navigation time spent outside the European waters must be proved.


A VESSEL EQUIPPED WITH SATELLITE NAVIGATION SYSTEMS 

The data and information will be extracted from the satellite navigation systems in use or transponders (for example, the A.I.S., “Automatic identification System”) and should indicate, with precision and consistency, the sea routes of the vessel. Such data and information will be sufficient to prove the navigation time spent outside of the European Union except in cases of fraud or abuse.


A VESSEL WITHOUT SATELLITE NAVIGATION SYSTEMS 

In case of a yacht which is not equipped with satellite navigation systems, the proof of navigation time spent outside the EU will be provided through the exhibition of the lease, charter, and other similar short-term contracts. Also, at least two of the following evidence must be shown:

– the data obtained from paper/digital navigation logbook;

– digital photographs (made by any device) of the “vessel’s position” for each week of navigation and detected with a frequency of at least two for each week of sailing;

– the documentation (invoices, contracts, tax payments receipts) proving the mooring of the yacht at ports located outside the European Union;

– the documentation (invoices, contracts, tax payments receipts) proving purchases of goods and/or services (relating to the use outside the European Union of the yacht), from sellers established outside of the European Union.

Such data and information will be sufficient to prove the navigation time spent outside of the European Union except in cases of fraud or abuse.


PROOF OF NAVIGATION OUTSIDE THE EUROPEAN UNION – LONG TERM CONTRACTS (FINANCIAL LEASING CONTRACTS INCLUDED) 

GENERAL RULES

The Provision clarifies that the share of the year spent in navigation in non-EU waters (for each year of the contract duration) must be proved.

The proof is provided through the exhibition of the contract, including financial leasing, charter, and other similar agreements, as well as through the production of paper or digital data of the official logbook or, in the absence of the latter, of a certified book attesting all the movements made, the relative hours of motion, proved by an hour counter device, beginning and end of each activity and, eventually, the transfers made for tests and/or technical or maintenance-related trip.

Also, at least one of the following evidence must be shown:

  • data and information extracted from systems of satellite navigation or transponder (e.g. such data may be provided through the system AIS, “Automatic Identification System” if the vessel has one);
  • digital photographs (made by any device) of the “vessel’s position” for each week of navigation and detected with a frequency of at least two for each week of navigation;
  • the documentation (invoices, contracts, tax payments receipts) proving the mooring of the yacht at ports located outside the European Union.
  • the documentation (invoices, contracts, tax payments receipts) proving purchases of goods and/or services (relating to the use outside the European Union of the yacht), from sellers established outside of the European Union.

Such data and information will be sufficient to prove the sailing outside of the European Union except in cases of fraud or abuse. For a comparison of the two test regimes (short term contracts vs long term contracts) see the table below

Contracts

Short term contracts

(a yacht equipped with satellite navigation systems)

Short term contracts

(a yacht not equipped with satellite navigation systems)

Long term contracts

(financial leasing included)

Proofs required

     
Contracts documentation X X
Logbook data. In the absence of the latter, of a certified book attesting all the movements made, the relative hours of motion, proved by an hour counter device, beginning and end of each movement and, eventually, the transfers made for tests and/or technical or maintenance-related trip X
And at least two of following proofs And at least one of following proofs
Sat.navigation data X X
Logbook data X
Digital photographs (made by any device) of the “vessel’s position” for each week of navigation and detected with a frequency of at least two for each week of sailing X X
The documentation (invoices, contracts, tax payments receipts) proving the mooring of the yacht at ports located outside the European Union; X X
The documentation (invoices, contracts, tax payments receipts) proving purchases of goods and/or services (relating to the use outside the European Union of the yacht), from sellers established outside of the European Union X X

 

DECLARATION OF NON-TAXABILITY IN ADVANCE AND LIABILITY OF THE DECLARANT

The lessee can make a declaration to the lessor at the beginning of each year of the contract duration, about the time that will be spent sailing outside European waters. Therefore, the lessor will be able to issue a non-taxable invoice for VAT purposes in proportion to the declared time of navigation outside the European Union waters. However, the lessee will have to verify what has been declared in advance and communicate to the lessor the possible difference between estimation declared and actual navigation time. In this case, the lessor shall, in turn, make the necessary increases or decreases in tax under Article 26 of Presidential Decree no. 633 of 26 October 1972, proceeding, if necessary, to pay the higher tax due and interest on arrears, without any payment of penalties under Article 5 of Legislative Decree no. 472 of 18 December 1997.

KEEPING DOCUMENTATION

Lessee and lessor are obliged to keep the documentation proving the actual navigation outside the European Union for until 31 December of the year following that in which the VAT annual declaration was submitted (or, in the case of failure to submit a VAT return, until 31 December of the seventh year following that in which the VAT annual declaration should have been submitted). This documentation must be produced at the request of the Tax Authorities.

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