On 27 May 2022, the Italian Customs Agency (Agenzia Delle Dogane” or “AD”) with Circular Letter no. 20/2022 (the “Circular”) provided important clarifications that simplify the procedures for non-European flagged pleasure yachts entering EU waters to carry out maintenance and refitting works at Italian shipyards.
The main simplified features are:
- exemption from guarantees and VAT for maintenance works carried out under the Temporary Admission regime;
- possibility of reducing the guarantee to be given to customs up to 100% for authorized shipyards for refitting works performed on yachts placed under the Inward Processing regime.
THE TEMPORARY ADMISSION REGIME AND MAINTENANCE WORKS
Maintenance works under the TA Regime: doubts existing before the issuance of the Circular.
According to Article 212 of EU Regulation no.2446/2015, the Temporary Admission regime (“TA”) allows a pleasure yacht registered in a non-EU country’s Shipping Register to enter EU waters duty/VAT free and remain there for a maximum period of 18 months. To enjoy this tax relief, a yacht must be owned and used by a subject established outside the EU.
Before the clarifications provided in the Circular, it was uncertain whether any maintenance work performed on a yacht under the TA regime had to be submitted to the inward processing regime or could be performed without using the latter customs procedure. As is well known, the inward processing regime has the disadvantage of requiring a guarantee equal to the amount of the import customs duty/VAT which would have been due on the import of the goods subject to process. In addition, it was uncertain what VAT regime should be applied to the fees for maintenance work.
Clarification provided by the Circular.
The Circular has clarified that maintenance works performed during the operability of the TA regime do not require the provision of any guarantee and are exempt from VAT. Indeed, repair and maintenance work may be carried out on a yacht under the TA regime without providing a guarantee of inward processing, but the work to be carried out must not change the structure of the yacht or lead to an improvement in performance or a considerable increase in the yacht’s value. This may include, by way of example, maintenance work on the hull, including fairings and decks (treatments, painting, polishing, wrapping, and joinery); maintenance, repair, and possible replacement of unit systems and apparatus, propulsion systems, and engine room apparatus; maintenance and repair of interiors. For this purpose, the yacht owner or his representative must submit the application form 71-01 RD to the competent customs office where the maintenance works are to be performed to prove the date of entry of the yacht into EU waters. If the works, although part of the maintenance activity, are complex and entail the need to transfer the parts and pieces being repaired at other sites, it will be obligatory to carry out this activity under the inward processing regime only.
Furthermore, AD clarified that the maintenance activities indicated above fall within the VAT exemption cases provided for in Article 9, first paragraph, no. 9, of Presidential Decree no. 633/72.
The beginning of the TA Term Regime.
The Circular has also precised that the Temporary Admission Regime is achieved by simply crossing the border, including the territorial waters of the EU Member State within 12 miles from the coast. However, the shipowner may optionally make a Customs declaration by completing the special form No. 71-01 RD to prove the date of arrival in EU waters with a certain date. As pointed out above, the declaration to be filed to customs using Form No. 71-01 RD is necessary to avoid tying the yacht to the inward processing procedure in case of maintenance works to perform.
It should be noted that the Circular does not mention the declaration (the so-called “Costituto d’Arrivo”) usually filed before the Port Authority (i.e. “Capitaneria di Porto”) among the documents proving the beginning of the TA Term Regime. In addition, the Customs Agency clarified that the period of TA term should be suspended for any time during which the yacht was placed under inward processing by the shipyard carrying out the work. On the other hand, if the shipowner asked for the inward processing, its period must be taken into account for the 18-month limit of the TA Regime. It should be noted that the shipyard applying for admission to the inward processing regime is the most common case.
THE INWARD PROCESSING REGIME
Structural works.
Structural works on the yachts, such as refitting and/or other activities that substantially improve the yacht, can enjoy duty and VAT exemption under the Inward Processing regime. Therefore, in this case, the TA regime does not work for duty and VAT exemption purposes. By way of example, such activities could include:
– refurbishment of the yacht’s interior;
– a variation of the yacht’s internal subdivision;
– extension or other modification of the hull;
– decks or fairings elongation;
– complete replacement of motor equipment;
– replacement or installation of plants with more efficient and innovative solutions.
This regime makes it possible to import goods (pleasure yachts included) temporarily for processing (or repair) and re-exporting such goods outside the territory of the EU without paying customs duties and VAT for the importation. The only performance required is the payment of a guarantee equal to the amount of the import customs duty, which would have been due on the import of the goods subject to process.
To authorise the Inward Processing regime, the yacht owner or the shipyard (most common case) should apply to the competent customs office. The customs office will issue the authorisation, indicating the activities to be carried out and all the operators involved in the specified actions.
Total or partial exemption from providing a guarantee.
It is possible to obtain the concession of total or partial exemption from providing a guarantee against VAT and other customs charges. The Circular clarified what rules apply to the maritime industry to take advantage of possible reductions in the guarantee to be provided.
(Article 84 of the EU Regulation n. 2446/2015 and article n. 158.1 of the Implementing Regulation n. 2447/2015). Under this framework, Customs must assess the financial solvency and reliability and risk of incurrence of the customs debt of those who have applied for the guarantee reduction.
As a result of the above evaluation, the granting of the reduction could amount to up to 50% or 30% of the VAT reference amount of the guarantee, while in the presence of an AEO authorization (i.e. the Authorised Economic Operator authorisation that the Customs Office issues to shipyards or shipowners deemed particularly reliable), the Customs Office may authorise a waiver of the guarantee amount to up to 100%.
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For more on this, please feel free to contact:
Avv.Gianfranco Puopolo
Partner & Head of Superyachts Team
E: g.puopolo@pglegal.it
Dott.Domenico Rinaldi
Partner & Tax Specialist
E: d.rinaldi@pglegal.it