Applicable VAT
Exemption based on European Community Law
Under the terms of article 148 paragraphs a, c and d of the Directive 2006/112/EC of 28 November 2006 ("VAT Directive"), Member States exempt the following from VAT:
deliveries, alterations, repairs, maintenance, chartering and leases of ships allocated for sailing on the high seas and providing paid traffic for passengers or exercising a commercial, industrial or fishing activity as well as ships providing sea rescue and sea assistance plus the deliveries, leases, repairs and maintenance of items embedded in these ships or used for their operation;
deliveries of goods aimed at victualling as well as services provided for the direct needs of these vessels and their cargoes.
Implementation into French law
The provisions of the VAT Directive were implemented into French law through article 262 II (2) and (3) of the CGI under whose terms the following are exempt from VAT:
delivery, repair, alteration, maintenance, chartering and lease operations relating to:
commercial sea vessels allocated to sailing on the high seas (draft introduced by article 29 III of the bill to correct the budget for 2010);
ships used for exercising an industrial activity on the high seas;
ships allocated for professional fishing activities;
ships used for sea rescue and sea assistance;
delivery, lease, repair and maintenance operations relating to items to be embedded in these ships or used for operating them at sea.
Case of a recreational vessel exercising a commercial activity (yachts)
Any vessel registered as a commercial vessel on the official registers of a French or foreign administrative authority that has a permanent crew and that is allocated to meeting the needs of a commercial activity is deemed to be a commercial vessel for application of the exemption provided in article 262 II of the CGI (Inst. 22 October 2003, 3 C-4-03, no. 7). Recreational vessels which fulfill these three conditions simultaneously can enjoy exemption from VAT. Instructions from Customs from 17 May 2004 text 04-048, BOD 6603) provided commentary on the methods for applying these three conditions: The vessel must be registered for commercial activities: compliance with this condition must be attested by presenting a certificate for registration in this category or any document equivalent to an attestation of registration for commercial activities under the laws of the country under which the vessel is registered;
The vessel must be used exclusively as part of a lease or chartering contract: users of the vessel are asked to keep a copy of the contract on board and to record this in the log book (term, name of the lessee(s)); the individuals holding all or part of the ownership of the vessel can also use it on the express condition that they do so as lessees, i.e. by paying a rent at market price; the vessel cannot be used for private purposes subject to a few limited exceptions;
The vessel must operate with a permanent crew: compliance with this condition is checked by presenting a crew role or any document evidencing the allocation of a professional crew under the laws of the country where the vessel is registered; when the vessel has docked, this condition is fulfilled as soon as at least one crew member is assigned to its service.Please note: In a letter dated 17 January 2011 sent to the shipping companies’ association Armateurs de France, the Tax Law department (division D - office D2) provided the interpretation that the administration intends to apply in relation to the amendment of article 262 II (2) of the CGI provided by article 29 III of the budget amendment act for 2010 (see section 4.2). According to this letter, three criteria are used in order for commercial vessels to benefit from the provisions of article 262 II (2) of the CGI as provided by instructions 3 C-4-03 and 3 A-1-05, i.e. the vessel involved must be registered as a commercial vessel on the registers of either the French or a foreign administrative authority, it must have a permanent crew and it must be assigned to commercial activities. "This position was confirmed by an advance ruling (RES no. 2011/2 (TCA) from 22 February 2011) which constitutes a formal interpretation of the tax law and is therefore enforceable against the administration in applying article L 80 A of the French book on tax procedures, meaning that the new version of article 262 II (2) of the CGI which results from the budget amendment act for 2010 should not have any negative impact on the VAT system applicable to recreational vessels registered with the French Flag RIF". |
Case of a recreational vessel exercising a Charter activity
Since the Directive 2008/8:EC from 12 February 2008 was implemented into French law (article 259 of the CGI) amending Directive 2006/112/EC, the location for the provision of services that are provided to a natural person or legal entity who/that is not subject to nor is registered for VAT is the place where the service provider has set up the registered office for its economic activities. It is therefore French VAT at the standard rate (19.6% at today’s date) which will be applied to "Charter" operations which are defined as the lease of a recreational vessel provided with its rigging, crew including the skipper responsible for vessel maintenance and steerage, the catering equipment required for a sea journey and, in certain circumstances, the full board of passengers provided by a service provider established in France. NB: this VAT system set out by article 45 of Directive 2006/112/EC amended by Directive 2008/8/EC is applicable in principle in all Member States of the European Union. However, when the recreational vessel concerned fulfills the three conditions laid down by the administrative instructions cited previously and in accordance with the interpretations of the provisions of article 262 II (2) of the CGI (as amended by article 29 III of the budget amendment bill for 2010) used by the tax law department (DLF) in its letter to Armateurs de France dated 17 January 2011, then it should enjoy the exemption from VAT applicable to vessel provision operations under the conditions covered by the previous paragraph which resemble those for a time charter. |
Evidence to be provided by the persons/entities subject to VAT carrying out exempt operations for the needs of commercial sea vessels
The service providers concerned must comply with certain special invoicing rules and must retain documentary evidence that supports their bookkeeping activities. As such they must:
specify the name of the vessel on their invoices along with the references related to its commercial registration (registration number, with the administration having issued the registration or registered the subscription when it is a recreational vessel flying a foreign flag or for vessels flying French flag, the vessel name, the numbers and date of the deed of registration under French flag);
retain a copy of its certificate of registration in the category of commercial vessels or of any document that attests to its registration for commercial purposes in accordance with the law whose flag the vessel flies when it is a foreign vessel as supporting evidence of its bookkeeping.
Ships used for industrial activities on the high seas
Vessels used for an industrial activity at sea beyond the outer limit of the territorial sea are the only ones that can enjoy the VAT exemption provided by article 262 II of the CGI. This is understood to be up to a limit fixed at 12 nautical miles from the baselines, i.e. from the low-water marks as well as the straight baselines and the bay closing lines determined by decree.
Source: study carried out with the assistance of Stéphane Salou and Alain Gautron of Stephenson Harwood - Paris