After some delays, last Wednesday October 30th the Spanish Official State Gazette (BOE) published Law 16/2013, of October 28, 2013, adopting measures regarding environmental tax issues and other tax and financial measures. That Law modifies the matriculation/registration tax exemption established by the Spanish Excise Duties Law (Law 39/1992) for vessels effectively and exclusively engaged in the charter activity, eliminating the reference to the maximum length of 15 meters that was required under the previous wording of the Law in order to benefit from the tax exemption.
The legal process has been tedious as the legal modification had been announced by the Council of Ministers of the Spanish Government on June 28, 2013 and, after a long and somewhat confusing amendments period, has finally been approved and published. The resulting modification of the tax exemption is the outcome of the efforts of many people and nautical industry associations that have spent long time dealing with the tax and maritime authorities, as well as with other members of the political groups involved.
The Preamble of the Law itself recognizes that this measure will bring the Spanish tax regulations closer into line with those of other European countries, strengthen the Spanish yachting industry (owners, yacht managers, yacht brokers, shipyards, marinas, berths, maintenance, refit, etc.) and produce a revitalizing effect in other productive industries, with the consequence of increasing the capacity to generate wealth and employment. In addition, it will facilitate and make operating charter yachts in Spain more attractive to those who have been avoiding it mainly for tax reasons. It will also help Spain in the diversification, deseasonalization and deconcentration of traditional tourism, which has also been on its agenda for a long time.
Nevertheless, we should bear in mind that the matriculation tax itself has not been abolished and that the modification made does not entail a case of non-applicability of the tax but merely extends the scope of the applicable tax exemption to all charter yachts, whatever their length is. This means that the tax benefit continues to be subject to the fulfillment of the required conditions. In this respect, please note the following relevant aspects:
• The matriculation tax is charged at the rate of 12% on the market value of the vessel.
• The taxable event of the matriculation tax is: i) the first matriculation of a charter vessel in Spain and ii) the use or circulation in Spain of charter vessels. In the case of EU flagged vessels, this latter taxable event is coherent and in line with EU legislation and EU Single Market principles as there is no obligation to register under the Spanish flag.
• The tax exemption does not apply automatically to any of the aforementioned taxable events but needs to be applied for by filing the relevant tax form with the Spanish tax authorities.
• The conditions and requirements for the yachts to benefit from the tax exemption are basically that they must be effectively and exclusively engaged in the charter activity (no private use is allowed).
• Based on precautionary measures, the tax exemption will not be applicable where the owner transfers the use of the vessel (e.g., to a company resident in Spain or abroad) and he or any related parties are the final users.
In view of all of the above, it will be necessary to carefully analyze on a case-by-case basis the specific circumstances surrounding the yacht and the owner in order to determine the best way to operate in Spain from a tax standpoint, considering not only the matriculation tax but also income tax and VAT. In this respect, operating through a Spanish management company, a permanent establishment or a branch office in Spain, or even performing transient charter in Spanish waters, can involve different tax obligations and consequences.
Another issue that should be addressed by the nautical industry in the near future is the prohibition of any private use in order to benefit from the tax exemption. In the air navigation sector, for example, Spanish law allows the aircrafts chartered to air navigation companies to be used by the charterer (generally the owner) or related parties up to a maximum of 5% of the flying hours within the last 12-months period. We have always defended the view that there seems to be no reason why yachts could not have the same tax treatment.
Moreover, we should not forget that the European Commission already stated in May 2011 that the Member States were free to levy a matriculation tax like the Spanish one. Nevertheless, it was also noted that, based on the principle of freedom to provide services, if the tax exemption does not apply, the tax should be proportional to the degree of use of the vehicle in Spain. As a result, on October 27, 2011, the Commission initiated an infringement proceeding against Spain, requesting that it amend its legislation governing the matriculation tax to bring it into line with the principle of proportionality and stating that, if it fails to do so, the matter would be referred to the Court of Justice of the European Union. On March 23, 2013, the Commission issued a reasoned report (confidential) and it appears that conversations are still being held.
Sadly, Spain has not yet amended its legislation and the Commission has not yet referred the matter to the European Court of Justice. It would also be desirable to resolve this matter as soon as possible in order to provide the industry with legal certainty. It is also important to note that most Spanish regions require obtaining a charter license before commencing the charter activity in their territories. Lastly, we would just like to say that there is much to talk about in relation to the yacht charter business from a tax and legal point of view but, as you can imagine, the space and purpose of this article is limited. On a further occasion we can talk about VAT, the need to register for VAT purposes, the place where the charter and other related services are deemed to be supplied, how to determine the taxable amount, etc.
Miguel Ángel Serra Guasch
Lawyer - Economist