Another VAT question

[itnem80]

I searched the forum but I didn't quite find this situation.

- Seller is a EU resident who owns a BVI flagged boat in the EU and the boat is owned by a BVI LLC of which the seller is the only owner. The boat is under TI.

- Buyer is a non-EU citizen/resident (also EU citizen).


Setting aside that the seller is technically liable for VAT if he gets caught.

Questions:
1) Can the buyer buy the company while the boat is in EU without triggering the VAT payment? My understanding is that buying the boat while in the EU would trigger the VAT payment, but I'm thinking maybe buying the company wouldn't.

2) If #1 triggers VAT payment, would it be advisable to close the transaction outside the EU and then sail back putting the boat under TI by the buyer?

3) Could this boat be flagged in an EU country (e.g. polish flag) and still be under TI?

4) If the boat has in the past overstayed its 18 months but it wasn't caught, and now it has proof it was outside the EU less than 18 months ago, would the buyer have any risk for the past overstay?

Thanks!

[Montanan]

A good [e.g. a boat] that is under temporary import [temporary admission] is not allowed to be sold in the EU. The temporary import allows for freedom of movement within the EU but does not allow for freedom of commerce.

Temporary Admission – Sale of Vessel
The sale of a yacht whilst lying within the EU under Temporary Admission would breach the conditions of the relief and result in VAT [and custom's duty] being applied.

A condition of Temporary Admission is that the boat is not offered for sale in the EU. A good must be imported before it can be offered for commerce within a country, including the EU.

In order to discharge the TI / TA, the good [the boat] needs to be exported to a foreign place or port or a subsequent customs procedure. A TI / TA is good for 18 months, the discharge must be completed before the end of 18 months, otherwise the good loses its temporary status and VAT becomes immediately due.

References:

https://taxation-customs.ec.europa.e...ats-faq_en.pdf

https://eur-lex.europa.eu/legal-cont...301277&from=EN

Recommend removing the vessel from the EU to a foreign place or port and then concluding the sale. Mind you the place one exports the boat to from the EU so as to discharge the TI / TA will involve an import into that country and then that country's tax rules will apply to the sale.

If the buyer is a non-resident of the EU, then the buyer can pursue TI / TA upon bringing the boat into the EU. VAT is a type of privilege tax that is imposed upon residents of the EU.

[Montanan]

The EU resident seller is liable for the VAT [and custom's duty] upon the boats first arrival to the EU territory. The boat is NOT under TI / TA because the residency status of the owner [or operator] makes such status to be invalid ab initio, or from the moment the owner became a resident of the EU. EU citizenship is irrelevant, EU residency of the owner / operator [either by an EU citizen or a non-EU citizen] is the key factor.

It appears from your stated facts of the situation that VAT and custom's duty are past due on this boat.

Avoid colluding in tax and custom's fraud.

Have paid by the seller what is due for VAT and custom's duty and then proceed with the purchase and be sure to obtain certified documentation of payment of the tax and duty as part of the purchase closing documents.

The privilege of paying VAT and custom's duty is an obligation that is associated with the privilege of being a resident of the EU.

[Montanan]

a non-EU vessel that is intended for re-export can be temporarily brought into and used for private purposes in the EU without customs duties or Value Added Tax (VAT) needing to be paid.

The moment the intention for reexport is changed the vessel loses its TI / TA status.

[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..

[Montanan]

Originally Posted by itnem80

I searched the forum but I didn't quite find this situation.

- Seller is a EU resident who owns a BVI flagged boat in the EU and the boat is owned by a BVI LLC of which the seller is the only owner. The boat is under TI.

- Buyer is a non-EU citizen/resident (also EU citizen).


Setting aside that the seller is technically liable for VAT if he gets caught.

Questions:
1) Can the buyer buy the company while the boat is in EU without triggering the VAT payment? My understanding is that buying the boat while in the EU would trigger the VAT payment, but I'm thinking maybe buying the company wouldn't.

2) If #1 triggers VAT payment, would it be advisable to close the transaction outside the EU and then sail back putting the boat under TI by the buyer?

3) Could this boat be flagged in an EU country (e.g. polish flag) and still be under TI?

4) If the boat has in the past overstayed its 18 months but it wasn't caught, and now it has proof it was outside the EU less than 18 months ago, ]would the buyer have any risk for the past overstay?

Thanks!

Yes, the buyer can become a debtor obligated due to non-compliance.

https://eur-lex.europa.eu/legal-cont...301277&from=EN



Article 79
Customs debt incurred through non-compliance

1. For goods liable to import duty, a customs debt on import shall be
incurred through non-compliance with any of the following:

(a) one of the obligations laid down in the customs legislation
concerning the introduction of non-Union goods into the customs
territory of the Union, their removal from customs supervision, or
the movement, processing, storage, temporary storage, temporary
admission or disposal of such goods within that territory;

(b) one of the obligations laid down in the customs legislation
concerning the end-use of goods within the customs territory of
the Union;

(c) a condition governing the placing of non-Union goods under a
customs procedure or the granting, by virtue of the end-use of the
goods, of duty exemption or a reduced rate of import duty.

2. The time at which the customs debt is incurred shall be either of
the following:
(a) the moment when the obligation the non-fulfilment of which gives
rise to the customs debt is not met or ceases to be met;

(b) the moment when a customs declaration is accepted for the placing
of goods under a customs procedure where it is established
subsequently that a condition governing the placing of the goods
under that procedure or the granting of a duty exemption or a
reduced rate of import duty by virtue of the end-use of the goods
was not in fact fulfilled.

3. In cases referred to under points (a) and (b) of paragraph 1, the
debtor shall be any of the following:
(a) any person who was required to fulfil the obligations concerned;
(b) any person who was aware or should reasonably have been aware
that an obligation under the customs legislation was not fulfilled
and who acted on behalf of the person who was obliged to fulfil the
obligation, or who participated in the act which led to the
non-fulfilment of the obligation;
(c) any person who acquired or held the goods in question and who
was aware or should reasonably have been aware at the time of
acquiring or receiving the goods that an obligation under the
customs legislation was not fulfilled.

4. In cases referred to under point (c) of paragraph 1, the debtor shall
be the person who is required to comply with the conditions governing
the placing of the goods under a customs procedure or the customs
declaration of the goods placed under that customs procedure or the
granting of a duty exemption or reduced rate of import duty by virtue of
the end-use of the goods.

Where a customs declaration in respect of one of the customs
procedures referred to in point (c) of paragraph 1 is drawn up, and
any information required under the customs legislation relating to the
conditions governing the placing of the goods under that customs
procedure is given to the customs authorities, which leads to all or
part of the import duty not being collected, the person who provided
the information required to draw up the customs declaration and who
knew, or who ought reasonably to have known, that such information
was false shall also be a debtor.

The debtor would be inclusive of the buyer who knew the good was past due as to paying VAT and custom's duty and / or who pursued a TI / TA status of the good fraudulently.

[Montanan]

RESIDENCY of the beneficial owner and / or the operator of the vessel is the key factor. Non-EU residency avails the opportunity to seek TI/TA.

A boat owned by EU resident individual or by an EU resident owned body corporate has the right to free movement throughout the EU, provided VAT has been paid on that vessel in one of the EU countries.

An EU national may establish residence outside the EU VAT zone, for example BVI or Gibraltar, and thereby avail himself of the temporary importation relief from VAT.

A VAT paid yacht will encounter no difficulties in EU waters provided the vessel is not chartered. Pleasure yachts built pre-1985 and in EU waters on 31st December 1992 are treated as VAT paid. Evidence that the yacht was in EU waters on this date may be required.

Temporary importation relief from VAT is available to yachts beneficially owned and used by non EU residents provided such non EU resident does not become ordinarily resident in the EU and the vessel is used for private purposes by the non-EU resident(s).

Boats owned by non-EU residents and registered outside the EU are entitled to tax free temporary importation into the EU for a total period of eighteen months. The EU Common Customs Tariff provides for relief from VAT liability for up to 18 months (Article 562(e) as referenced above) when the boat is owned by non-EU residents and where the boat will subsequently be removed from EU waters (Article 561). The permitted period, or temporary importation, applies to the entire EU area and therefore at the end of the period the boat must be sailed to a country outside the EU or VAT must be paid. The temporary importation period may be extended, at the discretion of local customs, for various bona fide reasons, such as if the boat is left unattended and unused, if the owner leaves the EU, or if the boat is left in the care of a boatyard for repair.

Those who wish to remain longer in any one EU country must deposit the ship’s papers with the local customs office, who will put the vessel under bond. The clock will then be stopped until the owner returns on board. During the period the vessel is in bond, the boat must not move from its berth, and the owner or crew are not allowed to sleep on board.

Non-EU boats remaining inside the EU for over the permitted period must be imported and VAT paid on the value of the boat.

https://www.ionianyachtsales.com/use...fo/vat-yachts/

[Montanan]

FYI:

Regarding registration of a vessel with the State of Delaware.
Delaware is a boat registration only state and does not issue boat titles.

Be aware:

https://oceanskies.com/yachts/guides...ion-a-warning/


Snipet:

It is not uncommon to encounter Delaware registered yachts cruising internationally and in the Eastern Mediterranean it is arguably one of the most commonly found ‘foreign’ yacht registrations.

The prevalence of so many Delaware registered yachts in these countries is often as result of the low costs of the system and the apparent ease of the process. The perceived strength of an attachment to and the support of one of the world’s leading superpowers is also attractive to many yacht owners.

Although the Delaware yacht registration is a popular system, both existing and potential users should be aware that a Delaware vessel registration is a State Registration which is a local registration applying only to vessels that are principally used within the coastal and inland waters of the issuing state’s jurisdiction.

Importantly US state registration does not grant US nationality to the vessel and thus does not automatically afford access to any international treaty rights, privileges or the protection of the USA.

Delaware regulations provide that a vessel is deemed to have its state of principal use in Delaware if it is to be used, docked, or stowed on the waters of Delaware for over 60 consecutive days.

Vessels registered in the State of Delaware are accordingly issued with only a credit card sized ‘State of Delaware Registration Certificate’, the reverse of which states the state of principal use is Delaware.

It is therefore possible for a foreign jurisdiction, or another State of the USA to declare the Delaware registration of a vessel to be invalid on the basis that a state registration is not valid for cruising outside US waters and/or the vessel is not used principally within Delaware waters.

If a vessel’s registration is declared invalid then the vessel itself is effectively stateless and in contravention of international maritime law [and can also be non-compliant with the registration laws of other States of the USA]

In January 2020 The State of Delaware introduced new procedures to crack down on the abuse of the Delaware yacht registration system by owners who are keeping their vessels outside the State of Delaware.

The new procedure requires owners to declare as follows:

“I declare under penalty of perjury that I / we am / are the legal owner(s) or agents thereof, of the vessel described in this application and that “DELAWARE IS THE STATE OF PRINCIPAL OPERATION” for this vessel.”

“I declare under penalty of perjury under the laws of Delaware that the forgoing is true and correct.”

“I also acknowledge that I must notify the Division of Fish & Wildlife within 15 days of the owner(s) change of address and/or if the vessel is sold. Destroyed, abandoned, becomes documented or IS NO LONGER PRINCIPALLY OPERATED IN THE STATE OF DELAWARE.”

The procedure also carries the following notice:

“FALSE STATEMENTS MADE HEREIN ARE PUNISHABLE BY LAW PURSUANT TO 11 DEL. C. § 1233.”

Making a false written statement under this law is a class A misdemeanour in the State of Delaware. The sentence for a class A misdemeanour in the State of Delaware may include up to 1 year incarceration and a fine, restitution or other conditions as the court might deem appropriate.

Awareness of the limitations of the Delaware registration system is growing amongst foreign port authorities and owners of Delaware registered vessels that are kept and primarily used outside the State of Delaware can expect increased scrutiny that may result in their vessels being controlled and potentially detained.

As the Delaware registration is not an internationally valid registration it follows that Delaware registered vessels that are operating primarily outside the State of Delaware can be treated as unregistered or stateless vessels meaning that local authorities can impose their own jurisdiction on the vessel which can effect the tax status of a vessel and the rules under which it must operate.

There are also adverse potentially issues in other areas such as the validity of a vessel’s insurance policy. Vessels that are invalidly registered give cause for voiding or not honoring of insurance policies.



The State of Delaware is not a nation state, thus the Delaware registered [non-documented] vessel is not accorded USA nationality and the vessel is not accorded the right to wear the USA flag in international waters or foreign countries and territories. Registration of a vessel by the State of Delaware is not a USA flagging of the vessel.

Registration with the State of Delaware or documenting the vessel with the USCG will have no bearing as to EU VAT or custom's duty.

[Montanan]

Originally Posted by itnem80

I searched the forum but I didn't quite find this situation.

- Seller is a EU resident who owns a BVI flagged boat in the EU and the boat is owned by a BVI LLC of which the seller is the only owner. The boat is under TI.

- Buyer is a non-EU citizen/resident (also EU citizen). Is the buyer a US citizen? If not an US citizen then documenting the vessel with a the USCG and thus US flagging of the vessel is not available. Reference: https://www.dco.uscg.mil/Portals/9/D..._IFJv_1A%3d%3d


Setting aside that the seller is technically liable for VAT if he gets caught.

Questions:
1) Can the buyer buy the company while the boat is in EU without triggering the VAT payment? My understanding is that buying the boat while in the EU would trigger the VAT payment, but I'm thinking maybe buying the company wouldn't.

2) If #1 triggers VAT payment, would it be advisable to close the transaction outside the EU and then sail back putting the boat under TI by the buyer?

3) Could this boat be flagged in an EU country (e.g. polish flag) and still be under TI? The EU residency status of the buyer [and / or operator] establishes whether TI / TA can be pursued. The flag of the vessel is not what triggers the VAT / Custom's Duty privilege tax. Neither the citizenship of the buyer, nor the nationality of the vessel triggers the privilege taxations.
The intention to reexport avails the temporary admission.

4) If the boat has in the past overstayed its 18 months but it wasn't caught, and now it has proof it was outside the EU less than 18 months ago, would the buyer have any risk for the past overstay?

Thanks!

Reference above.

[barnab]

Originally Posted by Montanan

A condition of Temporary Admission is that the boat is not offered for sale in the EU. A good must be imported before it can be offered for commerce within a country, including the EU.

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...

[letsgetsailing3]

I'm a little surprised the tax authorities aren't all over this.

[itnem80]

Thanks Montanan!! Lots of great information!

As I suspected this is a delicate situation and I should consult with a lawyer with expertise on the matter to avoid potential costly mistakes. Does anyone have any reference for a firm that could help here?

Based on the posts here it seems that the best best course of action, short of running away from the deal, would be:
- have the owner fix the TI status (his risk if that doesn't work as the boat is currently overstaying but once it's regularly within the 18 months, the past shouldn't be an issue)
- since the sale would be of the LLC and not the boat, maybe that could be done while the boat is in EU water. But I guess that if the seller wants to dissolve the LLC and own the boat directly, that transaction should happen while the boat is outside the EU.
- once the boat is on the buyer name, polish flag should work and allow for legal TI

The main risk/complication I see is how to move the boat from the current BVI LLC to the seller name without having to pay VAT or other sales taxes.

[itnem80]

Originally Posted by letsgetsailing3

I'm a little surprised the tax authorities aren't all over this.

Me too, the seller says that where the boat is used no ones cares and this is common practice...I know in many other cruising grounds this is not the case and in the last few years the police has been doing lots of controls to catch these type of situations

[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.

[itnem80]

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...

This has been clear from the beginning.

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...

This is where I'm not so sure, if any boat gets controlled about its TI status, do they check the entire history of the boat? I doubt any owner has records of the boat history before their ownership. It seems reasonable that all the authorities will check is if the boat is currently overstaying the 18 months, not if 5 years ago and 2 owners ago the boat overstayed and it wasn't caught.

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.

I thought I was clear, the buyer is a EU citizen (EU passport holder) and currently a non-EU resident (irrelevant here but also non-EU passport holder with dual citizenship).
With regards to the polish flag, my understanding from online polish registration services is that you do not need to be a resident of Poland or event the EU to register a boat there, that's one of the reason why it's such a popular flag.

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.

Agree that this seems the safest approach. Thanks!