Italy VAT Update: Flat-rate tax reductions may still apply to yacht charters in Italy this summer

By Katia Damborsky 1 April 2020

New legislation to change the Value Added Tax (VAT) application for yachts chartering in Italy did not come into effect by the February 29 deadline, so it is believed that charterers can continue to apply old legislation and benefit from lump-sum VAT reductions this summer until new legislation goes ahead.

Regulations to amend the flat-rate VAT reductions applicable to yacht charters in Italy have not gone ahead as a result of the COVID-19 outbreak.

A statement by Ezio Vannucci, a Partner at Italian law firm Moores Rowland Partners has suggested that the old legislation will therefore still apply until new regulations are finalized.

Under the new legislation relating to the Italian Budget Law 2020 (Law no. 160/2019 published in the Official Gazette on 30 December 2019) any VAT reductions would be subject to the amount of time the yacht has spent cruising in international waters (more than 12 nautical miles from the shore). Approved applications made under the old legislation were known as 'lump-sum' reductions.

The statement by Mr. Vannucci reads; “Pending the decisions of the Italian Authorities on this topic, it is however to be considered that until the eventual publication of the appropriate provision containing the methods and means suitable to demonstrate the effective use of the service outside the European Union, you can continue to apply the old legislation and therefore the flat-rate reductions also in Italy.”

aerial shot of yachts in the island of capri

It is however to be considered that [...] you can continue to apply the old legislation and therefore the flat-rate reductions also in Italy.”
Ezio Vannucci, Moores Rowland Partners

Once Italy gets back up on its feet after the Coronavirus crisis, it’s expected to be a popular yacht charter destination for the later summer months.

The current VAT situation in France

The news comes just days after France announced the postponement of the VAT reforms on charter yachts.

The French reform was meant to take effect on new charter contracts signed after April 1. The Direction Generale des Finances Publique has canceled the changes introduced on January 30th in light of the extraordinary situation.

"Taking into account the context created by the current health crisis, the changes to the conditions for determining the portion of short-term leasing to be taken into account in the tax base of value-added tax (VAT) in relation to the chartering of yachts, which imply the use of new technical data is withdrawn. "

Thierry Voisin, the President of the Trade Organization ECPY has said that the details are not available yet, but in France “the deadline of March 30 for signing contracts with a flat-rate VAT reduction no longer exists."

Background on Postponed EU VAT Changes

These changes have been in motion since December 2019, when the European authorities announced big changes for VAT reductions on Mediterranean yacht charters starting in 2020. The reform aims to scrap the practice of briefly cruising into international waters in order to benefit from a VAT reduction.

In a statement released by the ECPY on December 2, the ECPY has stated that "In 2020 the only possible reductions will be pro-rata reductions for cruising outside European waters (i.e. time spent/or distance in international waters."

It comes after the ECPY spoke with the Directorate of Tax Legislation (DLF). "The DLF officers informed ECPY that the application of the VAT reduction on charters as practiced in Italy, France, Malta, Cyprus and Croatia would no longer be applicable for the 2020 season (i.e. just cruising into international waters and obtaining a VAT reduction)."

"The European Commission has asked the above-mentioned countries to modify their practices in order to apply the principle of ratio [...]. It is expected that the implementation of the new rules on VAT reductions will be applied under the same terms and at the same time in the different countries."

YachtCharterFleet will be sure to keep you updated as more information becomes available when new tax reforms are finalized.

Get in touch with your preferred yacht charter broker for more information about VAT in the Mediterranean.