In this article Rosemont Consulting presents a global patrimonial, legal and tax approach when purchasing or owning a yacht.
Place of acquisition and the yacht owner’s residency status
These two factors will determine the applicable tax and duties due upon the sale: VAT & any transfer duties. In general terms, any EU resident who buys a non-commercially registered yacht newly built by an EU shipyard or a previously owned yacht, on which VAT had not been paid at the time of its purchase, shall pay VAT in this EU country at the home VAT rate unless the buyer acquires the yacht for commercial purposes or on a leasing scheme.
An analysis of the operational tax and flagging issues will be necessary taking into account the nationality and the residence of the intended users of the Yacht, the cruising waters, and any potential chartering activity.
Global tax review in the country of residence
As for all valuable assets, structuring a yacht ownership needs to be done taking into account all the potential tax impacts in the residence country of the yacht owner, or the Ultimate Beneficial Owner (UBO) who owns the yacht through a company.
This tax residency is paramount, especially for issues related to taxation on any income generated by the yacht, wealth tax, capital gains tax upon the resale and inheritance tax in case of demise.
These taxes will vary depending on how the yacht ownership is structured.
In addition, relevant dispositions of applicable double tax treaties should be taken into consideration as some of them have special rules for the taxation of the profits derived from Yacht operation.
Some countries, like France, apply a wealth tax that could be levied also on the yacht value should the owner appears to fall within the French residency criterion. Other countries may tax the use of a corporately owned yacht as a benefit-in-kind.
It is also important to check the CFC rules in the residence country of the UBO who owns the yacht through a company which could result in various tax constraints. These anti avoidance rules exist in nearly all countries nowadays and need to be considered before choosing how the yacht should be purchased. Russia has introduced since a few months new CFC legislation which should be considered for all assets outside of Russia, including yachts, owned by Russian residents.
CRS and disclosure of beneficial ownership
A yacht owner also needs to consider the effects of the new Common Reporting Standard (CRS) rules with respect to the exchange of tax information. Due to the lack of clarity still surrounding the implementation of this legislation, there is uncertainty today about the nature and quality of the information that will be reported to the home jurisdiction tax office in respect of the UBO of yacht owning structures. The UBO should determine what information is held on file by any relevant Financial Institution, how they have identified and classified the relevant reportable persons and Controlling Persons, and what account balances will be reported prior to reporting taking place. UBOs need to be aware of the transparency developments in various jurisdictions which might lead to the public disclosure of the UBO of a yacht owning structure.
Asset protection and estate planning
Like for other types of assets, for a yacht the main question regarding these issues is the determination of the applicable inheritance law to the Estate. The inheritance law is determined by the application of the conflict of law rules which depend on the jurisdictions involved in the settlement of the Estate.
As soon as another jurisdiction is involved, conflict of law rules may arise, and then this issue must be carefully considered before the demise, mostly when organising Wills or other arrangement such as trusts.
In the case of movable assets, as Monaco applies “renvoi” conflict of law rules should not happen for Monaco residents.
One illustrative example is a yacht owned by a Russian citizen resident in Monaco. From a Monaco standpoint, Monaco conflict of law rules submit movable assets to the national law of the deceased (Russian law), but as Monaco applies “renvoi” to movable assets, Monaco inheritance law will finally apply. Russian conflict of law rules designate the law of the state of the deceased’s last habitual residence as the applicable law to movable assets.
Common law jurisdictions generally allow complete freedom of disposition, while others and particularly civil law jurisdictions impose forced heirship rules which limit the freedom of a testator to dispose of their estate.
As a yacht is a very valuable asset, special precautions should be taken to choose the most suitable tool in view of your personal and family situation and estate planning: will, life insurance, pre or post nuptial contracts, gift, and business succession plan.
This article is published in issue 19 of MONACO БИЗНЕС (Monaco Business) Magazine -
Rosemont Consulting SARL assists clients to achieve their estate planning objectives through other alternative legitimate compliant structuring of their assets. Please feel free to contact us.
For further information on Rosemont Consulting SARL and services provided please visit www.rosemont.mc
For further advice on tax and estate planning issues from the point of view of the yacht owner please contact Cecile Acolas of Rosemont Consulting Sarl at firstname.lastname@example.org
For advice on the operational tax issues for yacht ownership please contact Janet Xanthopoulos of Rosemont Yacht Services at email@example.com