If there is a single concept which has revolutionized the car industry in recent years, it is the idea of leasing a vehicle rather than owning it. Nowhere has this been seen more dramatically than in the business sector where leasing is now the standard for car ownership.
Leasing for boats has been available in Europe for several years, but it is a purchasing option that is little understood by the boating community in general, and particularly in the UK, despite the fact that it can offer significant VAT advantages whether the vessel is used for private or commercial use. The two most popular schemes are those used in Italy and France.
At the time of their introduction, both countries were suffering a decline in yacht manufacturing. In an effort to halt this decline, both governments introduced incentives for yacht owners to buy their vessels under leasing schemes, which provided significant VAT reductions. In addition, the schemes were based on the concept that the larger the vessel then the greater the saving, thus encouraging owners to buy larger boats.
The growth of yacht manufacturing in the Italian market in recent years has been spectacular, with a proportionate increase in leasing which was up 32% in Q1 of 2005, and now represents nearly 6% of all yacht financing.
Before explaining the details of these schemes, it is important to understand some of the concepts behind them, which should help to clarify some of the relevant issues.
Firstly, in simple terms, a lease involves a bank or finance house, buying the asset and then effectively renting it back to the client for an agreed period at an agreed price. This is defined as a transfer of services. At the end of the lease, the client has the option to buy the asset which then becomes a transfer of goods. For VAT purposes a yacht lease is a supply of services and is deemed to take place where the person who makes the supply is established: i.e. French bank in France, Italian bank in Italy etc.
Secondly, they are simple to set up and administer and can be in individual, joint, or company names. Finally, it is important to understand that there can be two VAT elements, namely the VAT on the purchase price and the VAT on the leasing repayments.
If we take the Italian scheme as an example, the Italian law states that VAT has to be applied to leasing repayments, only in relation to the time spent within EU waters. Given that it is impossible to determine this accurately, the Italian Revenue Agency (along with the French & Maltese) has agreed that an assumed period can be applied to a leasing contract, based on certain criteria. Under the Italian scheme this is a combination of vessel type and size, so for a motor vessel over 24 metres in length, a rate of 6% VAT applies (30% of the standard Italian VAT rate of 20%)
In other words it has been assumed that a vessel of this size (24 metres plus) would spend 30% of its time in EU waters (ie the European summer for example) and outside EU waters for the remainder of the year (the Caribbean for example) The table below shows the various rates which have been agreed under the Italian leasing scheme:
Motor or sailing over 24 metres in length VAT: 6%
Sailing between 20.01 – 24m VAT: 8%
Motor between 16.01 – 24m VAT: 8%
Sailing between 10.01 – 20m VAT: 10%
Motor between 12.01 – 16m VAT: 10%
Sailing up to 10m VAT: 12%
Motor between 7.51 -12m VAT: 12%
Motor up to 7.5m VAT: 18%
Category D (protected waters only) VAT: 20%
The French leasing scheme is very similar and is based on the same principles of assumed time in EU waters. Their categories are based on the Class of vessel as shown in the Certificate of Registry. The French VAT base rate is 19.6%, and the minimum payable under the French system is 9.8% for a Class 1 vessel (50% of 19.6%)
The most recent country to introduce a leasing incentive is Malta, and with a lower VAT base rate of 18%, their rates vary from a minimum of 5.4% to a maximum of 18%.
Having covered the basic principles of what a leasing scheme is, and how it works, we can now consider the mechanics of acquiring a vessel using a European lease as follows:
Example – Individual Purchase Of A New Boat From UK Broker/ Manufacturer
1.The client chooses the boat and agrees a price with the dealer/broker or manufacturer. 2.The client agrees a deposit and lease period with the bank. 3.The bank pays for the boat. 4.The boat is leased to the client who pays installments at the reduced rate depending on the scheme, vessel type and size. 5.At the end of the contract the bank sell the yacht to the client at the agreed 1% residual value. Full rate VAT applies to this payment as this is a transfer of goods. 6.The boat is now VAT paid.
The above example is for an individual (or group of individuals) purchasing a boat using a European leasing scheme. In two cases it is possible to have a VAT free lease as follows:
• A charter business buying a vessel which is used 100% for chartering in EU waters.
• An individual buying a vessel for use 100% outside EU waters
Detailed below are some of the main features of the leasing schemes:
• Leasing facility available from 300,000 euros ( no maximum )
• Initial deposit between 20% and 50%
• Lease maturity from 3 to 8 years
• Residual value 1%
• Available for both private and company ownership
• Available for both new and used boats
• Registration in virtually any country and any flag
• UK flag is available under the scheme
• Chartering is permitted within the lease agreement
As a specialist marine financial services broker, we are receiving an increasing number of enquiries from both the UK and Europe to arrange leasing schemes with our European banking partners. The schemes are straightforward to arrange and administer, and can offer significant savings in VAT. As a company we also offer a wide variety of more conventional marine mortgages as we believe that whilst leasing offers many advantages, this may not be appropriate for all our clients.