Now, France's efforts to seek a VAT exemption have failed, as the European Court of Justice has ruled the French tax exemption for commercial vessels is illegal.
What does the ruling mean?
With the majority of Mediterranean yacht charter vessels in France registered as commercial vessels, the VAT exemption these yachts have enjoyed for years will end. Luxury yacht charter customers will now find the yachts they rent subject to VAT, and this expense will almost certainly be passed on by the yacht owners to the charterers.
On March 21, the European Court of Justice (in European Commission v. France; C-197/12) held that French legislation providing a VAT exemption for some commercial vessels used for navigation on the high seas that carry passengers for remuneration or are used for commercial activities, "…does not comply with Directive 2006/112/EC (the VAT directive), specifically with article 148(a), (c), and (d)."
With the approach of the summer charter season at hand, yacht managers and owners are scrambling to make sure all paperwork is in compliance with the ECJ's ruling.
Consequences for non-compliance may go from large penalties to even seizing the yacht.
For more background and detailed analysis of the ruling, click on