YACHT FINANCE, REGULATION AND TAX: WHAT TO EXPECT IN 2017 IN FRANCE, GREECE, CROATIA AND SPAIN?

Opportunities in Superyachts, Malta, Quaynote Seminar 23.02.2017

Janet XanthopoulosROSEMONT YACHT SERVICES Head of the Yacht Department

A Rosemont International company 1

PLAN

Part 1• WHAT’S NEW IN SOUTH OF FRANCE.

Part 2• WHAT’S NEW IN GREECE.

Part 3 • WHAT’S NEW IN SPAIN AND CROATIA.

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PART 1

WHAT’S NEW IN FRANCE.

Janet Xanthopoulos

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I. Duty free fuel and Transport Contract.A. End of duty free fuel for commercial yachts.

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No more duty free fuel form commercial yachts chartering in French waters since 1 October 2016.

Change comes following pressure from the European Commission and ECJ case since 2011.

Why?: commercial yachts operating under a MYBA contract cannot be considered as “yachts used exclusively forcommercial purposes by their end users”.

Current situation: Fuel in France is subject to two taxes, TICPE (Domestic consumption tax on energy products) and VAT.

To continue to benefit from the VAT exemption: commercial yachts need to comply with the 5 cumulative conditionsapplicable to the FCE.

To continue to benefit from the Excise Duty exemption: commercial yachts need to be used exclusively for commercialpurposes by their end user.

If the above conditions are fulfilled and supporting documentation can be provided, commercial yachts may refuel duty-freeup to 72 hours before a charter starts and up to 96 hours after it is terminated.

Consequences: Destroying impact for the French Yachting Industry especially when neighbour countries like Italy continueto propose duty free fuel ECPY, MYBA, French Associations, Yachting professionals and French Customs started to thinksince 2014 about a new way to operate yachts: The Transport / Service Contract.

I. Duty free fuel and Transport Contract.B. Transport Contract.

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Why?Under a Service or Transport Contract, the owner is not putting a yacht at the disposal of a charterer for recreationalpurposes, but offers a service to passengers; therefore the final use of the yacht could be considered as a commercial activityin accordance with ECJ rulings.

Main characteristics of the Contract:

• Broker becomes travel agent, owner / carrier, provider of a cruise and charterer / passenger.• All-inclusive contract which includes transport with predetermined route, accommodation, food (minimum), fuel, pre &

post delivery, berthing fees and port taxes, etc…• Yacht should be controlled by the Captain or the owner and NOT the charterer but addendums are possible.• Freedom to chose the law applicable to the Contract (arbitration in London not compulsory).• Brokers need to register as travel agents and take the necessary extra insurance and financial guarantee to cover their

extra liabilities.

Main advantages:

• positive impact on the VAT applicable to the Contract: between 10% to 0 % in case of International voyage, prorata basis ifthe yacht sails in International waters without touching another country;

• Duty free fuel available;• Better protection and indemnisation for the “ex charterers” considered as passengers (International Conventions and EU

Directives and Regulations applicable to Transport of Passengers).

Yachts could chose to continue using exclusively or not the MYBA Contract.Contract still under review, not fully ready yet. Static and in principle day charters are excluded.

II. Withholding Tax.

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MYBA and ECPY members have recently been subjected to French tax inspections in their capacity as Stakeholders.

In compliance with Article 182B of the French General Tax Code, French Fiscal Authorities wanted to apply a 33%withholding tax on charter funds held by Stakeholders based in France, in relation to charters made in France, when charterfunds were transferred to Owning Companies or Yacht Owners which did not have a permanent professional establishment(business) in France and based in jurisdiction which do not have signed double tax treaties with France.

MYBA and ECPY decided to seek the official position of the tax authorities at the ‘Direction de la Législation Fiscale (DLF) inParis. Position: Stakeholders are not the debtors of the tax on charter revenues realised in France but only intermediaries.

First reply unfavourable but MYBA and ECPY lodged an appeal for a second interpretation by the National College. The DLFhas now replied favourably, indicating that “the Stakeholder is not liable to pay the withholding tax provided for underArticle 182 B of the General Tax Code”.

Great success but first stage and now MYBA and ECPY need to ensure that this national decision is implemented at locallevel for the ongoing cases.

Who is next? Fiscal Representatives?

III. Social Security.A. Cabotage Declaration.

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No more Cabotage Declaration for commercial yachts validly operating under the French Commercial Exemption.

After pressure from several associations led by ECPY and MYBA and common actions taken following the publication andenactment in November 2015 by the French Government of the “Décret d’ Etat d’Accueil” N° 2014-881 of August 2014,commercial vessels below 650 GT that operate between French ports will not need anymore:

• to complete a ‘Declaration of Activity’ 72 hours prior to a charter;• provide evidence of affiliation with national social security institutions or affiliation to French Social Security Regime;• provide seafarers with contact details of the French Labour inspection office;• translate documents into French including pay slips and amend Seafarers Employment Agreements accordingly.

as long as the relevant yachts can demonstrate that they comply with the new 70% criteria required to benefit from theFrench Commercial Exemption.

So no changes for commercial yachts imported and / or operating under the French Commercial Exemption regime, as longas they can prove that they do more than 70% of their trips outside of French territorial waters.

? For commercial yachts which do not comply with the FCE rules. For private yachts?

III. Social Security.B. French or National social security scheme.

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Lot of fuzz these last months about French Ministry of Labour & Employment wanting to render compulsory the affiliation ofcrew members navigating in French waters, towards either French Social Security or another National Social Security regimein line with the provisions of the MLC 2006 Convention:

• French resident crew members, working on board French registered yachts navigating in France, would have to subscribe to the French Social Security regime;

• French resident crew members, working on board foreign flagged yachts navigating in France, would have to prove thatthey are registered with another national social security regime, otherwise they would have to subscribe to the FrenchSocial Security regime as well;

• Employers would have to provide a guarantee or a deposit to ENIM for the payment of the contributions (TBC).

Art 31 of the Social Security Financing Act for 2016 has already been adapted in that sense. These measures should have beenmade compulsory since 1.01.2017 but we are still waiting for the Application Decree to enter into force. Another ongoingbattle for ECPY and other French Yachting Associations!

The problem though is retirement, pension and above all unemployment which cannot usually be privately covered and MLC2006 regulation 4,5 states in short that seafarers are entitled to benefit from social protection which cannot be lessfavourable than the one enjoyed by shoreworkers residing in the same country.

To be closely monitored as these measures will have a major impact / costs implications for the yachting industry, and mightlead to yachts avoiding France and French resident crew members.

IV. French Law and Employment law issues.

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In accordance with Rome I (Regulation EC 593/2008) the law applicable to contractual obligations are by order of preference:

1. Law chosen by the parties;2. Law of the country where the Employee habitually carries out his or her work;3. Law of the country where the Employer is established.

Nevertheless the choice of law cannot deprive an Employee of the mandatory protection he would have been granted in theevent of absence of law chosen by the parties.

In principle: the law chosen is the law of the flag state of registration but there is a clear tendency for French Courts to linkthe law applicable to the Contract to French Law in the event the activity of the seafarer is mainly carried out in France(residence of the crew member, yacht main location, main ports of embarkation and or disembarkation, winter works, placeof signature of the contract, repatriation clause, payment of salaries etc…).

Consequence:

1. Increase of Employment Disputes being heard in French Courts and yacht arrests;2. Crew claiming mandatory application of French Law and damages (termination procedure with obligation to summon

Employee for an interview prior to termination / delays / written notice of termination, termination for serious andmotivated grounds, paid leave, social security following hidden employment, damages calculated on the basis of sixmonths of gross salary, extra hours…)

PART 2

WHAT’S NEW IN GREECE.

Janet Xanthopoulos

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I. Charter Licence: the principle.

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New Law 4256/2014 14 April 2014 “Touristic yachts and other provisions” (commercial / private yachts and commercialtouristic day trip boats) was enacted in 2014 which included the below main points:

• End of the necessity to obtain a Greek charter licence to be able to embark and disembark passengers in Greek waters.• Abolition of the 10% Luxury Tax imposed on Pleasure Yachts.• EU commercial flagged yachts and non-EU commercial flagged yachts of over 35m (providing they are larger than 35m,

built of metal or GRP and can carry over 12 passengers) can charter from Greece (embark and disembark passengers) byregistering on the online « Registry of Touristic Yachts and Small Vessels » and submitting an application to the Ministryof Mercantile Marine and Aegean.

• For commercial yachts a declaration shall be made to the port of embarkation 48 hours prior to departure and charteragreement submitted.

BUT: Online Registry of Touristic Yachts and Small Vessels has never been activated.SO: The Charter licence is still therefore required until the online Registry works and /or Fiscal Representation possible.

EU yachts still need to obtain a DEPKA and non EU yachts a Transit Log which are delivered for one year.

II. Charter Licence: the practice…

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Available options today -which are only for EU companies / EU flagged yachts- to obtain a Charter Licence and be able toembark and disembark guests from Greek ports are based on a mixture of the old and new regime:

1.Open a Branch Office in Greece:

• Only possible for EU companies. Isle of Man not accepted at the difference of Spain and Croatia;• Necessity to have local office, obtain a Greek VAT number;• Necessity to keep accounting books, file quarterly VAT returns, annual accounts;• Charter income will be taxed as per Greek tax law taking into account the double tax treaties in place.

2. Establish a NEPA / MCPY (MARINE COMPANY for PLEASURE YACHTS):

• Option followed by the majority of the Greek flagged commercial yachts;• At least 51% of the shares must belong to an EU company or EU resident person;• No income tax however the company representative will have to pay National Insurance and Pension contributions to

TANPY -OAEE (which applies to shipping/yachting agents).

II. …Charter Licence: the practice.

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Applicable to both options:

• Duty free fuel and supplies in exemption of VAT (TBC) / VAT on charters at 24% / 12% or 9.6% if navigation in the highseas.

• Minimum days of charter to do over a three years period as per the conditions set in the New Law:(a) 105 days for yachts (on bareboat charter)(b) 75 days for yacht chartered with crew(c) 25 days for the Greek traditional yachts (irrespective of whether they are bareboat chartered)

The above thresholds may be reduced by:

(a) 5% for yachts at least 5 years old(b) 10% for yachts at least 10 years old(c) 15% for yachts at least 15 years old(d) 20% for yachts at least 20 years old

• As long as the Charter Licence is required necessity to observe Greek Social Security Regulations and insure the crewwith the Greek Seamen Merchant Fund (I.A.O.). The only exception is for yachts of over 650 GT which can apply theregulation of their Flag State.

III. VAT on charters.

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Since 1 June 2016, Greek VAT increased from 23% to 24%. This is the sixth VAT increase in six years.

Vessels chartering for a period of 48 hours or less are not entitled to any VAT rebate anymore and are therefore subject tothe full 24% VAT rate.

For vessels chartering for a period exceeding 48 hours we have to distinguish between:

1. Category I vessels: which are vessels that have been granted permission to perform international cruises, which areentitled to a 60% VAT rebate. Therefore, the VAT rate applicable to these vessels is now 9.6% instead of 9.2%; and

2. Category II vessels: which are vessels permitted to perform long range cruises within Greek waters, which benefit froma 50% VAT rebate. Therefore the VAT rate applicable to these vessels is now 12% instead of 11.5%.

Above rates apply to Greek yachts or foreign EU registered yachts operating under a Greek charter licence. No proper andperfectly legal solution exists yet for foreign companies starting a charter in Greek waters, to pay VAT in Greece byappointing a Greek fiscal representative like in other EU countries (ie: France, Italy, Spain, Croatia).

PART 3

WHAT’S NEW IN SPAIN AND CROATIA?

Janet Xanthopoulos

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I. What’s new in Spain.

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Withholding tax

Current approach of the Spanish tax agency: charter income derived from Spanish charters is classed as a business profit inaccordance to the OECD International tax convention. Therefore, in absence of a double tax treaty in place between Spain andthe jurisdiction where the yacht owning entity is established, the income of Spanish source might be subject, in addition toVAT, to a 24% withholding tax (ie: Cayman Islands, British Virgin Islands, Guernsey, Isle of Man, etc).

Relief in the Spanish non-resident income tax law: for the Spanish source income deriving from the hiring of bare boatcharter yachts engaged in international navigation, independently of whether there is a double tax treaty in place with thejurisdiction where the yacht owning entity is established or not.

This was studied and confirmed to Tax Marine Spain (Alex Chumillas) following a binding enquiry submitted to the SpanishDirectorate of Taxes.

Requirements to be eligible for the exemption:

1. Bareboat Charter Agreement in place without crew and charterer responsible to bear the operating costs of the charter;2. International navigation so charter needs to end outside of Spanish Waters.

This could be an alternative route to the Maltese Bareboat agreement one.

II. What’s new in Croatia.

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1. Appointment of a Croatian agent mandatory for vessels over 45m otherwise no clearance documentation will begranted (extension of the European Union’s Directive 2002/59/EC that previously only applied to commercial vessels inCroatia).

2. Intensification of random inspections on board commercial yachts in Croatian waters

Aim is to detect mainly:

Yachts which operate fraudulently under Temporary Admission having EU Ultimate Beneficial Owners; Yachts which operate legally under Temporary Admission but which have stayed in EU waters in excess of 18 months; Yachts operating commercially but mainly used by their owner.

CONCLUSION

The future will tell us how these measures will be applied in practice, whether they will have areal impact on the charter business and whether we will manage to speak with one single voiceto defend our Industry in order that the Med does not lose its “prestige”…

In the meantime GET PREPARED

I just have two last words to tell you: BON VOYAGE!

THANK YOU FOR YOUR ATTENTION.

Rosemont Yacht Services :

Yacht ownership, registration and administration experts

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Janet XanthopoulosLegal AdviserYacht Ownership & Administration Dpt Manager

Rosemont Yacht ServicesLes Villas del Sole47-49, boulevard d’ItalieMonaco

Tel. +377 97 97 21 41Fax. +377 97 97 21 51email: j.xanthopoulos@rosemont-yacht.comWeb site: www.rosemont-yacht.com

Yachting Services provided by Monoeci Management SAMA Rosemont International company, www.rosemont-int.com

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