The term ‘VAT paid status’ frequently appears in discussions surrounding luxury assets, especially high-value goods which are mobile and can easily cross borders, typically including yachts and private jets. For buyers, sellers and owners of these assets it is essential to understand the meaning of the term ‘VAT paid status’, as it plays a vital role in financial planning and legal protection. This article delves into the significance of this status, how to achieve it and the steps to maintain it overtime.
To begin with, the term ‘VAT paid status’ is not explicitly defined in any EU VAT legislation. Nevertheless, it is widely recognised and used in different EU Member States and implies that the appropriate VAT has been paid on an asset to an EU Member State without any possibility of it being recovered or recoverable. The VAT is generally paid as a result of an importation or an intra-Community acquisition of an asset. Furthermore, for second-hand assets, the ‘VAT paid status’ is often used as a bargaining tool by sellers or brokers to achieve and negotiate a desired price on the sale of that asset.
When an asset holds such status – assuming the appropriate proof is available – it essentially means that the owner has met their VAT obligations within the EU, allowing them the free movement within EU territorial waters or airspace, without becoming subject to further VAT consequences upon re-entry into a different EU Member State.
In terms of proof, the documentation that would bear testimony to the ‘VAT paid status’ of an asset generally includes a confirmation from the Tax Authority of an EU Member State that VAT was paid. The documentation may include; an official receipt, Customs import release documents, tax invoice / fiscal receipt from seller and a VAT Paid Certificate[1].
It follows, that the VAT paid and free circulation status are not perpetual and can be forfeited in various situations, namely, where the asset is exported from the EU and re-imported by a different owner. Even if the asset is re-imported by the same owner, the ‘VAT paid status’ can still be lost if the asset had been outside the EU for more than thirty-six (36) months.
In conclusion, situations involving VAT paid assets vary and must be assessed on a case-by-case basis, particularly if the asset has a long history and has undergone multiple shifts in ownership. Additionally, having a ‘VAT paid status’ is not necessarily the only way on how a yacht or jet can move freely in EU territorial waters or airspace. With proper planning, VAT optimising solutions can be sought however, the best course of action always depends on the owner / buyer’s intentions for the asset.
[1] The EU VAT legislation also, does not include nor provide any definition of a “VAT paid Certificate” and as such it not a legally binding instrument for EU Member States (other than Malta), which are free to either recognise it or disregard it. Nonetheless, this is generally accepted.
