Since last January 1, 2021, the UK has been outside the European Unión (EU) and, therefore, deemed to be a third country from an EU perspective. But this is only a partial view of Brexit, given that it also means that the UK is outside the Union Customs Territory (UCT), VAT and Excise duties territory, besides being outside the Schengen area, which is not new as it was also outside before Brexit.
Brexit implies very relevant effects and considerations to bear in mind for yachts intending to sail either privately or commercially in EU waters, especially from a VAT perspective. Some questions come immediately to mind: what is the VAT status of UK flagged yachts in the EU? What about UK owned yachts? What is the situation of yachts currently in EU waters or those wanting to enter or return to EU waters if British VAT was paid on acquisition while the UK was still an EU country?
The answer to the questions above may be surprising as the VAT status of yachts does not depend at all on its flag, ownership or where VAT was paid on acquisition. Only the customs status of the yacht is relevant to answer any of the above questions so that we will have Union status yachts and third country yachts.
If a yacht was acquired in the EU-28 before January 1, 2021 and paid VAT in any EU country, including the UK, the yacht will be considered a Union status yacht and, therefore, will be in free circulation within the EU, even if the yacht is British flagged, British owned and used by British citizens.
Notwithstanding the above, proof of Union status will depend on where the yacht was at the end of the Brexit transition period, that is, on December 31, 2020 at 00:00 hours:
- Yachts remaining in the EU-27 on such date are presumed to be Union status yachts.
- Yachts that were outside the EU-27 (e.g. UK or any other third country) but had been in the EU-27 before such date, will be eligible for the so-called ‘Returned Goods Relief’ (RGR), therefore recovering their Union status when back in the EU, provided that they meet the conditions laid down in the Union Customs Code (UCC), i.e.: reenter the UCT within three years from departure, under the same ownership and with no major refits performed.
Note that yachts that paid British VAT before January 1, 2021 but have never been in the EU-27 will not be eligible for the Returned Goods Relief’ and cannot acquire Union status unless imported in the UCT and paying the relevant VAT.
What happens with those yachts that, having paid VAT are not eligible for the RGR and wish to enter EU waters? Or those that were outside EU-27 on December 31, 2020 and do not meet the conditions of the RGR? They could enter EU waters under the so-called ‘Temporary Admission’ (TA) customs regime provided that they meet the following conditions: non-EU flag (e.g. British), non-EU owner and non-EU user. Under TA the yacht is allowed to enter EU waters for a maximum period of 18 months, before which deadline the yacht must reach a port outside the UCT (e.g. Melilla or Gibraltar) and will then be allowed to reenter for an additional 18 month period.
It could also happen that a yacht that had paid VAT in the EU-28 before December 31, 2020 and was outside the EU-27 on such date meets both the conditions to enter EU waters under both the RGR and TA regime. In this case it will be optional for the yacht owner to choose the regime, always following the proper customs procedures. This choice must be carefully analyzed in so far as it will determine the regime of any further exit or reentry from/to EU waters and also and among many others, the possibility to perform yacht VAT exempt refits in the EU under the so-called ‘Inward Process Relief’ customs regime.
The above positions were discussed with the European Commission last March 30, 2021 through the ‘European Boating Industry’ (EBI) and also personally, as tax and legal advisor of the ‘Spanish National Yachting Association’ (ANEN), with the Spanish tax authorities in Madrid on April 28 and May 11. 2021.
Last but not least, we should let you know that British flagged yachts under 14 meters wishing to charter in Spain or the first time will not be able to do it based on internal Spanish regulations restricting such activity to EU flags. Notwithstanding this, having considered the situation of those UK flagged yachts that had already been chartering in Spanish waters before January 1, 2021, the Spanish General Directorate of Merchant Marine (DGMM) has decided to allow yachts demonstrating such circumstance to continue chartering in Spain. Such decision, already communicated to all Spanish Harbor offices, is absolutely welcome and is an example of how law can be implemented in a flexible and generous way if there’s a will, already communicated to all Spanish Harbor offices.
