EU VAT Unveiled: The Art of Luxury Assets and the Intricacies of Value Added Tax

The transfer of an Asset for a consideration (paid or payable) generally falls within the scope of EU VAT. However, this is dependent on various aspects namely, the status of the parties involved (whether a taxable or non-taxable person), the status of the yacht or aircraft (whether new built or second-hand and VAT paid or not), the intended use of the yacht or aircraft (whether for commercial or private use), and the jurisdiction in which the supply shall be deemed to take place (including whether within or outside the EU Community).

Similar to the above, the place where a transaction involving the hiring of a means of transport takes place, may vary depending on the status of the lessee (whether a taxable or non-taxable person), the term of hire (whether its long or short term) and the status of the Asset (whether it’s a pleasure boat or otherwise).

It follows that, in principle, the hiring of an Asset is treated as a taxable supply. However, an exemption may apply where the Asset is hired to another taxable person who would be using the Asset himself to carry out commercial hiring operations.

The term “VAT Paid” is not defined in the VAT legislation however, the general understanding is that it represents the status of an Asset that is allowed to roam freely within the EU Community without being subject to further Customs formalities. An Asset is solely deemed to have a “VAT Paid” status to the extent that VAT was paid in full on the purchase price of that Asset in an EU Member State without the possibility of it being recovered or refunded. Additionally, such status must be preserved over time. It follows that the “VAT Paid” status can easily be forfeited if the Asset is exported outside the EU Community and re-enters the EU Community beyond a period of 36 months, even if returned by the same person or if the Asset is exported outside the EU Community and re-imported by a person other than the one who had exported it.

An Owner of an Asset can prove such status through documentation such as a VAT Paid Certificate[1], tax invoice / fiscal receipt, Customs import documents, confirmation of payment to the Tax Authorities.

[1] The VAT Paid Certificate is a document issued by Tax Authorities of certain Member States which certifies that VAT on a particular Asset was paid.

If the Asset is used and enjoyed within the EU Community, the Owner is required to immediately pay VAT upon acquisition or importation of that Asset. However, a VAT deferral solution on the importation of the Asset may exist in line with European jurisprudence, and which may permit the non-immediate payment of the VAT to the extent that the Owner undertakes to commercialise the Asset via a specific practical leasing arrangement and to the extent that certain criteria are satisfied. Likewise, input VAT recovery may be possible on the intra-Community acquisition of the Asset insofar as the Owner commercialises that Asset.