Another VAT question

[barnab]

If you buy the LLC you must retain proof from the time before you bought the LLC. The "I don't know about the past" work only if the ownership changes from one person/company to another. As long as the same LLC owns the boat the LLC must be able to show proof from the past.

currently a non-EU resident (irrelevant here

this is a misunderstanding....residency is all that matters, not citizenship. If you are a German citizen, but life in the US and have residency there (no residency in the EU), your boat is eligible for TA. But if you are American, but have residency in Berlin, your boat has to be imported the moment you enter the EU customs zone. You are NOT entitled for any period of TA, not 18month, not 18 weeks, not for one night, you must import at the first port of entry.

[Montanan]

Originally Posted by barnab

Maybe it needs to be stated in clear words: This boat is NOT under temporary admission, it is contraband.
The LLC has only one owner who is a EU resident, therefore the LLC will be deemed to exist only to avoid paying VAT, which means customs would look at the residency of the one owner of the LLC to determine VAT eligibility...

VAT has been due from the moment the boat first entered the EU customs territory, officials could go after the current owner AND the LLC, and the LLC will retain all "guilt", so if you buy the LLC you also buy its past...


Your questions (1) and (2) are pointless, as the VAT requirement has already triggered


For (3) you are a bit unclear if the buyer is EU resident (quote "Buyer is a non-EU citizen/resident (also EU citizen).". Most countries require you to be resident or citizen to register in their country.

If I remember correctly Poland requires you to be EU resident and the boat to be VAT paid to register, but I might be wrong on that.


Regarding (4) the current owner needs to take the boat out of EU customs zone, you could then transfer ownership and bring it back under a fresh TA. I guess in reality this will keep you out of troubles.

[Montanan]

Geez, just have the EU resident seller pay the VAT [and custom's duty, if any] that are way past due. There likely will be interest and a penalty also due arising from the vessel not having cleared proper customs procedure. The VAT that will be due is that which is applied by the country of the EU whose territory was the place of first entry by the EU resident. Alternatively, the country in which the vessel is now located may chose to demand payment. Once the proper VAT and custom's duty are paid then and only then will the good be placed the privilege of being of free circulation within the EU territory and only then can the good [the vessel] become offered for sale and sold within the EU territory.

One must pay VAT [and custom's duty, if any] for goods to be granted the privilege of free circulation. The EU resident owner was required to pay the privilege taxes when the owner exercised the privilege of importing the vessel upon first entry into the EU territory. The payment is past due.

There was no valid Temporary Admission. Do not proceed with consideration that it ever was or is of Temporary Admission status.

If a vessel is placed under Temporary Admission status that is a special procedure of relief from VAT [and custom's duty, if any] with the conditions that the vessel be used by the non-EU resident owner for private purposes only AND that it is intended to be discharged by export within the 18 month period of time.

A Temporary Admission does NOT grant free circulation [in commerce] of the good [e.g., a vessel] in the EU; that means that the good vessel cannot be used for other than the private purposes, which means it cannot be offered for sale or sold while in the EU territory without first paying the VAT [and custom's duty, if any] so as to thence be granted free circulation status.

Offering for sale or selling a good in the EU territory that is not in free circulation is illegal. Significant fines and criminal charges are likely to be invoked and / or the vessel is impounded and confiscated. That is an act of smuggling non-community goods. Do not participate in a seller's smuggling.

Goods that enter the customs territory of the EU from a non-EU country are referred to as 'non-community goods’. Before these goods can be marketed within the EU, they need to be released into free circulation. This means that a customs entry should be raised for the goods and a duty and/or VAT should be paid.

As to a future buyer being a non-EU resident and flagging the vessel with an EU country [e.g. the open registry of Poland] and the prospect of being provided Temporary Admission upon arrival into the EU territory of the EU country flagged vessel, well temporary admission would appear to become in conflict of Article 212.

The flagging of a vessel is a privilege of granted nationality by a country. According EU nationality invokes the privilege taxation upon import of the vessel to the EU custom's territory. The flagging of the vessel by an EU country does NOT trigger EU privilege taxes if the vessel is not imported into the EU custom's territory.

Recommend that the non-EU resident pursue non-EU territory flagging of the vessel so as to avail temporary admission upon entry to the EU territory.

Article 136
Oral declaration for temporary admission and re-export
(Article 158(2) of the Code)

1. Customs declarations for temporary admission may be lodged
orally for the following goods:

(a) pallets, containers and means of transport, and spare parts, accessories and equipment for those pallets, containers and means of
transport, as referred to in Articles 208 to 213;

. . .

Article 212
Conditions for granting total relief from import duty for means of
transport
(Article 250(2)(d) of the Code)

1. For the purposes of this Article the term 'means of transport' shall
include normal spare parts, accessories and equipment accompanying
the means of transport.
2. Where means of transport are declared for temporary admission
orally in accordance with Article 136 or by another act in accordance
with Article 139, the authorisation shall be granted to the person who
has the physical control of the goods at the moment of the release of
goods for the temporary admission procedure unless that person acts on
behalf of another person. If so, the authorisation shall be granted to the
latter person.
3. Total relief from import duty shall be granted for means of road,
rail, air, sea and inland waterway transport where they fulfil the
following conditions:

(a) they are registered outside the customs territory of the Union in the name of a person established outside that territory or, where the means of transport are not registered, they are owned by a person established outside the customs territory of the Union;
(b) they are used by a person established outside the customs territory of the Union, without prejudice to Articles 214, 215 and 216.
Where those means of transport are used privately by a third person established outside the customs territory of the Union, total relief from import duty shall be granted provided that that person is duly authorised in writing by the holder of the authorisation.

Reference link:
https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:02015R2446-20160501&qid=1523448584275&from=EN

[h20man]

Originally Posted by boatman61

In the EU there are many EU citizen owned boats flying the US flag because the owners formed a Delaware LLC for the sole purpose of avoiding VAT.
Form the company and buy the boat then register it as an asset of the LLC.
So from where I sit if you buy the company and it's assets (the boat) no VAT should apply as it is owned by an offshore company and as long as it stays within the 18mth TI conditions all should remain as is currently.
You could always take it out of EU waters to restart the clock after transfer.. W Med. maybe Gib or Tangier.. E Med. Turkey or Tunisia..
The value of this info is the time it took to post so due diligence is advised..

My understanding of US law, is only a US Citizen, or a company owned by a majority of US Citizens... has the right to register a US Vessel.


https://www.dco.uscg.mil/Portals/9/D...ER%2012-21.pdf

[Montanan]

Originally Posted by h20man

My understanding of US law, is only a US Citizen, or a company owned by a majority of US Citizens... has the right to register a US Vessel.


https://www.dco.uscg.mil/Portals/9/D...ER%2012-21.pdf

Correct, albeit Permanent Residency status also avails the right to document a vessel with the USCG and thus garner USA nationality to the vessel.

The USCG documentation is not an open registry.

The primary evidence of citizenship required by the USCG typically includes:

Proof of US Citizenship
Individual vessel owners must possess documentation that confirms their US citizenship. This can include a valid US passport, birth certificate, certificate of naturalization, or certificate of citizenship.

Entity Ownership
If the vessel is owned by an entity (e.g. a corporation or LLC), the entity must meet specific citizenship criteria. Generally, at least 51% of the entity’s ownership must be held by US citizens. Evidence of this ownership structure, such as ownership records and legal documentation, must be provided.

Permanent Resident Status
Non-US citizens who are permanent residents of the US may be eligible to document their vessels. In such cases, they need to provide evidence of their permanent resident status.

The process of providing citizenship can vary slightly depending on the specifics of the ownership structure and the type of vessel. However, regardless of the ownership scenario, the USCG does require clear evidence of the vessel owner’s citizenship or the entity’s compliance with citizenship criteria.


Specific reference: Section L Link below.

https://www.dco.uscg.mil/Portals/9/DCO%20Documents/NVDC/CG-1258.pdf?ver=2017-05-09-113142-067

[Montanan]

Originally Posted by barnab

I was wondering where in your references found this information? I read the first link but must admit I didn't read all of the second...

A reference, there are many regarding free circulation.

https://taxation-customs.ec.europa.e...circulation_en


Free circulation
Article 28 of the Treaty on the Functioning of the European Union (TFEU) stipulates free movement of Union goods throughout the European Union (EU).

This principle applies not only to goods made in the Union, but also to imported goods which have been released for free circulation after payment of the import duty to which they are liable.

What is the purpose and scope of the procedure of release for free circulation?
The purpose of the release for free circulation is to fulfil all import formalities so that the goods can be sold on the Union market like any product made in the EU.

Release for free circulation thus confers on non-Union goods the status of Union goods.

Article 201 (2) of Union Customs Code (UCC) clarifies that release for free circulation entails:

both the collection of import duty and other charges where goods are liable to them according to the Union Customs Tariff and no duty and/or tax relief is applicable
and the application of commercial policy measures (such as the presentation of an import license for goods subject to quotas) and any other formalities laid down in respect of the importation of such goods (such as the presentation of a veterinary certificate for certain animals or animal products).

How are goods entered for the procedure?
Imported goods are entered for the procedure by means of a customs declaration.

The time of acceptance of the customs declaration for release for free circulation (Articles 77(2), 172(2) and 85 UCC) determines, in principle, the date to be taken into account for calculating the amount of import duty if the goods are liable to duties (as well as value added tax and, if applicable, excise duty).

This applies both to the nature, customs value and quantity of the goods as well as the duty or tax rate to be applied.

Do Union goods keep their status forever?
No, goods released for free circulation, like goods made in the Union, may lose their status as Union goods.

This is notably the case where Union goods leave the EU customs territory (Article 154 UCC).


TITLE VI

RELEASE FOR FREE CIRCULATION AND RELIEF FROM IMPORT DUTY

CHAPTER 1

Release for free circulation

Article 201

Scope and effect

1. Non-Union goods intended to be put on the Union market or intended for private use or consumption within the customs territory of the Union shall be placed under release for free circulation.
2. Release for free circulation shall entail the following:
(a)
the collection of any import duty due;

(b)
the collection, as appropriate, of other charges, as provided for under relevant provisions in force relating to the collection of those charges;

(c)
the application of commercial policy measures and prohibitions and restrictions insofar as they do not have to be applied at an earlier stage; and

(d)
completion of the other formalities laid down in respect of the import of the goods.

3. Release for free circulation shall confer on non-Union goods the customs status of Union goods.

[barnab]

Montanan, sorry for not being clearer with my question: I was wondering why a good under TA cannot be sold or offered for sale in the EU?



I think it is common practise and the only thing to consider is that the sale does not reset the 18 month. Scenarios I see often
- Non-resident buying a new boat without VAT (and they always have pressure to find a non-EU place to go...)
- Charter companies selling their boats as VAT not paid
- Private owners selling their boat to another non-resident


Would all of these scenarios be illegal or at least on the grey side?

[boatman61]

Originally Posted by h20man

My understanding of US law, is only a US Citizen, or a company owned by a majority of US Citizens... has the right to register a US Vessel.


https://www.dco.uscg.mil/Portals/9/D...ER%2012-21.pdf

I think you'll find these boats only have State registration which is accepted by most all HM's.
Another thing to note this boat is BVI LLC owned and flagged so the Delaware parameters are of zero relevance.

[Montanan]

Originally Posted by barnab

Montanan, sorry for not being clearer with my question: I was wondering why a good under TA cannot be sold or offered for sale in the EU?



I think it is common practise and the only thing to consider is that the sale does not reset the 18 month. Scenarios I see often
- Non-resident buying a new boat without VAT (and they always have pressure to find a non-EU place to go...)
- Charter companies selling their boats as VAT not paid
- Private owners selling their boat to another non-resident



Marketing to non-residents
Would all of these scenarios be illegal or at least on the grey side?

A foreign flagged yacht on a cruising permit in an EU jurisdiction can be marketed for sale “No VAT” to a non-European resident. A non-VAT paid status boat does not have free circulation status so it does not have the commercial privilege status to be marketed to EU residents.

What is not legal is for the yacht that is for sale might have overstayed it’s welcome in the EU, and if that is the case, then VAT is past due, and should have been paid.

A good is either of free circulation status or it is not.

Within the EU, it may be a non-community good or it may be a good under special procedure. Special procedures have specific use and specific periods of time of special procedures. Temporay admission is one of the special procedures.

A non-EU VAT status boat has very specific charter use limitations, e.g., the charter cannot originate within the EU. And then there is the whole issue of VAT on the service of charterers.

A new boat can be purchased without VAT paid if it is promptly discharged by export, kind of like when one purchases goods at the duty free shop at the airport when departing the country. The VAT privilege tax is due on the residents as part of their privilege of residing in the custom's territory.


Yacht owners should be aware that each member state has a certain level of discretion as regards the interpretation, implementation, administration and enforcement of the EU legislation regarding VAT. This can cause difficulties in interpretation and of course why different member states charge VAT at different rates. Normally, VAT laws of the member state are enforceable by the relevant customs authority.

If the yacht is advertised as VAT paid it is important to request documentary evidence of this from the seller or their broker. For yachts built after 1 January 1985 the VAT should have been paid by the initial purchaser or importer. Evidence could by way of a receipted invoice or VAT certificate. Ideally you would want the original, but in the absence of this certified copies may be accepted. If the yacht is being sold by a company you will need to check whether it reclaimed any VAT paid when it purchased the yacht and thus the boat is now deemed VAT unpaid

If VAT should have been paid and was not, or there is no proof of the boat’s VAT status or the owning company paid and reclaimed VAT then the liability for paying any VAT due lies with the current owner and will pass to the purchaser on his/her purchase of the yacht.

[itnem80]

Thanks Montanan! Super helpful!

To summarize, a couple of things I learned:
- Selling a boat during TA is legal as long as it's sold to a non-EU resident
- EU flag (e.g. Poland) is not a viable option for a boat in TA...I'd have to find another convenient flag

Also, while I understand well the TA rules and the fact that this boat is currently not legal, I wonder how things works in real life.
Currently the boat is clearly in breach of its TA and if caught the owner will have to pay VAT and also a fine.
However, to my knowledge, there is no paper trail kept or needed for past TA periods, before the current one.
My logical conclusion would be that if the seller, or any owner of a boat with an expired TA, sails out and back into the EU without being caught and now has paper proof that he checked into the EU less than 18 months ago, all should be clear if checked.
I might be naive, but has anyone ever been asked to prove the TA status for the entire history of the boat, vs. only the current period? It doesn't seem reasonable to keep receipts for so long, especially as the a boat changes ownership.
Who asks the former owner to share the port receipts for the entire life of the boat to have proof of where the boat was?

[Montanan]

"It doesn't seem reasonable . . . " now that is humorous way to start a sentence regarding taxes.

Add "My logical conclusion . . ." & "I might be naive . . . " now that is hilarious.

In the meme time,

[itnem80]

Originally Posted by Montanan

"It doesn't seem reasonable . . . " now that is humorous way to start a sentence regarding taxes.

Add "My logical conclusion . . ." & "I might be naive . . . " now that is hilarious.

In the meme time,

I'm glad I'm humoring you with my reasoning

Seriously though, there are plenty of boats that do the 18 months dance in the med, and I'm sure many change owner multiple times.
Is an owner expected to have the paper trail of the entire history of the boat, including previous ownerships?
Do sellers provide such documentation to new owners?
Has anyone ever been stopped and asked to provide proof their boat was in regular TA 2+ years ago?