Update on Italian VAT for Yacht Charters & Leasing

Domenico Rinaldi of law firm PG Legal provides an update on further legislative changes to Italian VAT on yacht charters and leasing concerning the new 'proof regime' described in the Italian VAT Code (Italian Presidential Decree no. 633/72).

Background

On 27 December 2019, the Italian Budget Law for 2020 (Law no. 160) amended the rules regulating the application of Italian VAT on short term yacht charters (within 90 days), specified in Article 7 of the Italian VAT Code (Italian Presidential Decree no. 633/72). 

Specifically, paragraph 725 of Article 1 of the Budget Law recognises “the delivery of the services” of the short-term lease or charter of yachts outside the European Union (VAT exempted) only if sailing outside the EU is adequately proved. 

Otherwise, the “lump sum VAT criteria” (6.6% VAT for the charter of yachts over 24 meters) will no longer be applicable, and the ordinary VAT rate of 22% will be due. 

These rules should have applied to lease contracts, and other similar short-term contracts executed after 15 June 2020.

On 15 June 2020, the Italian Tax Authority - Agenzia delle Entrate - issued clarification (Provision n.234483) on how sailing outside the EU can be adequately proved. 

Legislative Amendments

New applicability date
With the entry into force of Legislative Decree 16/07/2020 N.76, the changes to the rules described above will apply to contracts executed after 1 November 2020.

Leasing and long term charters
Article 48, paragraph 7 of the Decree, has extended the rules described above to include long term charters and leasing of yachts, financial leasing included (Article 7 of the Italian VAT Code - Italian Presidential Decree no. 633/72).

Proof regime
PG Legal are of the opinion that the specified means of proof will also apply to long term charters and the leasing of yachts.

In summary
Beginning with contracts executed after 1 November 2020, the ordinary VAT rate of 22% will apply on fees for short and long term yacht charters and also for yacht leasing (financial leasing included), unless sailing outside EU waters (according to the rules of Agenzia delle Entrate Provision n.234483) can be adequately proved in order to validate VAT exemption.