VAT handling for the EU

The Rivercafe has arrived in Europe. After almost 6000 km, Rivercafe – after an orca attack – enters the Mediterranean Sea today at noon through the Strait of Gibraltar.

In fact, Tarifa in Spain is at the narrowest point, but the honour of naming it goes to Gibraltar. From the Azores it is about 1,200 nm (2,200 km) to the Strait of Gibraltar. To the destination in Cartagena, it is a total of 1,450 nm. A distance of 10 days. Funny, because by plane it takes 2.5 hours from the Azores to the Iberian Peninsula.

First we have to pay the entrance fee

Before we can legally sail the EU-Mediterranean, we have to pay VAT when “importing” the Rivercafe. EU vessels and owners are subject to VAT. It is due in the first EU country of call and is calculated on the value of the vessel and the local VAT rate.

As the Rivercafe has never been in the EU, we have to pay VAT. E.g. 21 % in Spain or 23 % in Portugal on the value. And the process can be as sluggish as a match of the German national football team. It is not unusual for a vessel to be seized by a country’s customs, i.e. held until the matter is cleared up. That may take a while.

Our alternative was to sail straight on to Montenegro, because that is not an EU country. Another additional 1,600 nm. But then we wouldn’t have been allowed to call at Spain, Italy or Greece. Not even in the following years. That was not an option.

The long road through bureaucracy and with service providers

Finding a sensible solution took me 9 months of research and communication. We were offered a lot of nonsensical and absurd solutions. Many of the solutions offered worked at first glance. But when we dug deeper, they ended up being more expensive or did not meet the legal requirements. Both would lead to unpleasant and very expensive surprises for the owners. And we are talking about sums of money between limousines and noble sports cars. No room for error.

Our first thought: we pay 16 % VAT to Luxembourg. Luxembourg citizen, vessel with Luxembourg flag, easy peasy. So I contacted the tax authorities, who referred me to customs. After months and multiple enquiries, I received the answer that we would have to “present” Rivercafe in Luxembourg. My question as to whether the official, who was certainly not badly paid, had ever taken a look at the map, was not answered. We would definitely be the first ship with a 22 m mast in Luxembourg’s history on the river Moselle. And there are no draw bridges at all. After 5 months of exchange, it was clear Luxembourg didn’t want our money. Strange, with our last boat it worked without a hitch and that was also not a minute in Luxembourg. So what.

Tax-saving models

The “models” were entertaining. There are companies that offer yacht owner solutions in Malta or Jersey. You set up a company that takes over the vessel and converts it from private ownership to corporate ownership. This may be interesting for mega yachts, but they are all owned by a legal entities anyway. I calculated the models and came to the conclusion that all solutions only relieve the burden in the short term, but in our case after 5 years they became more expensive than a VAT payment. Many hidden costs made the whole thing less sensible for sailing yachts. And finally, the problem is not solved if you sell the vessel to an EU citizen who then has to deal with the matter.

Flagging out

Specialists were also very active in flagging vessels in offshore locations. Bahamas, Virgin Islands, Cayman, Marshall Islands and many more. All cool solutions that would free a ship from EU VAT. I also looked into Delaware and Florida in the USA. Small catch – and nobody told us this: if the owners are EU citizens, it will then become an audit case in an EU country.

So if you enter Greece in a good mood with a Bahamas flag and the local customs officer is in a bad mood because his football club lost, he can seize the vessel and check the process. Under certain circumstances, this can be a very leisurely process and you can’t use the boat for that long. This is said to have happened over many months. And what are you supposed to do with a vessel that you can’t use?

That was also too hot for us. We wanted a clean tax solution so that we could call at EU countries as we pleased.

The solution

In the end, we were left with two sensible options. On the Azores, part of Portugal and thus of the EU, the tax rate is 16%. On Malta it is 16-18 %, even though it is advertised as 5.4 %. That is still 5 % less than in Spain. In Malta, an expert appraises the vessel value. In the Azores, the value is a matter of negotiation, there is no valuer. We chose the Azores. I contacted the authorities and after only 6 weeks I got an answer in Portuguese. Not my language. That was not promising. If the processing also takes so leisurely, the Rivercafe would probably still be in the Azores in the autumn.

Finally we found an agency in the Azores that handled everything completely. We sent papers, invoices, inventory and an estimate of value in advance. We announced our arrival and on the first morning at 10.00 a.m. customs was waiting for us. Towards afternoon we had the approval and after the payment we could leave the next day. We had planned for 3 days and instead we were cleared after one day. We could not have imagined a more perfect solution.

In the next few days we will receive the documents and then we have a tax-free time in the Mediterranean ahead of us. Anyone who would like to have this contact is welcome to contact me.

So our Mediterranean season can begin in a fortnight. Probably with plenty of repair after a sometimes nasty North Atlantic Crossing. / Holger Binz