Charter of vessels and VAT implications
- VAT on Bareboat Charter
Based on the Greek VAT legislation, the bareboat charter of a vessel, where the owner is alienated from the vessel, is a service that qualifies as a “lease of means of transport”, whereas the crewed, time charter of a vessel is a service that qualifies as a “transportation service” of either goods or persons depending on the case.
Based on article 14 of the Greek VAT Code:
– The place of supply of the short-term lease of a means of transport (i.e. less than 90 days for vessels) is Greece, if the vessel is put at the disposal of the customer in Greece (article 14 par. 12).
– The place of supply of the long-term lease of a means of transport (i.e. more than 90 days for vessels) to a non-taxable customer is Greece, if the non-taxable person is established or has his permanent residence/usual abode in Greece. By derogation, the place of supply of the long-term lease of a pleasure vessel to a non-taxable person is Greece, if the vessel is put at the disposal of the customer in Greece and the service is provided by a person established in Greece (article 14 par. 12).
– By derogation, if the place of supply of supply of the short-term lease of means of transport or the long-term lease of means of transport to a non-taxable person as per above is outside the EU, however, the use and enjoyment is in Greece, then the place of supply is shifted to Greece (article 14 par. 15).
– Similarly, by derogation, if the place of supply of the short-term lease of a commercial pleasure vessel is in Greece, however, the use and enjoyment is outside the EU, then the place of supply shifts, to this extent, outside the EU (article 14 par. 15).
– The long-term lease of the vessel to a taxable person falls under the general B2B rule, which means that it is taxable at the place of establishment of the recipient of the services under the reverse charge mechanism (article 14 par. 2a).
Where Greece is the place of supply, based on the above provisions, further rules are examined as to whether the supply may be exempt from VAT or taxable to a certain extent.
Based on the above, the place of supply for the bareboat charter of a vessel by an EU owner to a Greek company (bareboat charterer) would be in Greece and it would be in principle taxable under the reverse charge mechanism, provided the Greek company is a taxable person subject to VAT that carries out activities subject to VAT or exempt from VAT with the right to deduct input VAT), unless a VAT exemption applies.
In this respect, based on article 27 of the Greek VAT Code, the lease (charter) of a vessel is exempt from VAT provided the following conditions are met:
a) The vessel itself is eligible for the VAT exemption; in specific, according to article 27 par. 1 case (a) subcase (aa) of the Greek VAT Code, a VAT exemption is provided for vessels falling under the below categories (and excluding vessels for private use intended for recreation or sport):
aa) vessels intended to be used in high seas navigation and which carry out passenger transport for a fee or with which commercial, industrial or fishing activities are carried on,
bb) coastal fishing vessels,
cc) vessels intended for dismantling,
dd) warships and State vessels,
ee) lifeguards and other maritime assistance vessels.
In relation to vessels that are intended to be used for navigation on the high seas and which carry passengers for a fee or which are used for the purpose of commercial, industrial or fishing activities, they must cumulatively meet the following conditions:
- they have been designed for navigation on the high seas, namely seagoing vessels having a hull of an overall external length of not less than 12 meters and which fall within the combined nomenclature (CN) codes 8901 10 10, 8901 20 10, 8901 30 10, 8901 90 10, 8902 00 10, 8903 91 10, 8903 92 10, 8904 00 91 και 8906 90 10 of the EU Common Customs Tariff (Regulation No 2658/87).
- they are used for carrying out activity mainly on the “high seas” (defined as the sea area beyond 6 nautical miles from the natural coastline of the mainland or island country – the width of the coastal zone of Greece).
The terms and conditions and every necessary detail for the implementation of the provisions of the above sub-case (ii) are defined by joint decisions of the Ministers of Finance and Shipping and Island Policy.
b) The chartered vessel is intended to be further on used for carrying out activity that is subject to VAT or exempt from VAT with the right to deduct input VAT.
- VAT on time charter for transportation of goods
Based on article 14 of the Greek VAT Code the place of supply of a time charter that qualifies as transport services relating to goods (i.e. a transport of goods) is determined as follows:
– The place of supply for the time charter to a non-taxable person is Greece for the part of the distance that takes place within Greece (article 14 par. 6).
– The place of supply for the time charter to a non-taxable person for an intra-community transport is the place of the departure of the transport (article 14 par. 6).
– The place of supply for the time charter to a taxable person is the place of establishment of the recipient of the services (general B2B rule-article 14 par. 2a). By derogation, if the place of supply based on the B2B rule is Greece but the whole transport takes place outside the EU, then the place of supply is shifted outside the EU (article 14 par. 15).
Based on the above, if the customers of the Greek company are taxable persons, the time charter will be taxable for VAT purposes outside of Greece (i.e. no Greek VAT will apply on the time charter fare).
Moreover, this activity will give the right to input VAT deduction, since, if it would be taxable in Greece, it would give the right to deduct VAT (article 30 par. 2 of the Greek VAT Code).
- VAT on purchase of goods/receipt of services relating to vessels
Article 27 of the Greek VAT Code provides for various exemptions in relation to goods or services that relate to the vessels that are eligible for the VAT exemption (as those vessels are indicated above).
In specific, the following supplies/imports are VAT exempt:
– Goods and materials that are intended to be incorporated or used in the eligible vessels; these refer to goods/materials that are incorporated in the vessels for the purposes of construction, conversion, repair, maintenance etc. or which are necessary for the exploitation of the vessel.
– Fuel, lubricants, food supplies and other goods intended for the supply of the eligible vessels (in the case of vessels of inland commercial navigation or other inland exploitation, as well as for fishing vessels fishing in Greek territorial waters, the exemption is limited to fuel and lubricants).
– Services that serve the immediate needs of eligible vessels, such as towing, navigation, mooring, rescue, expertise, the use of ports etc. The exemption also extends to the provision of services relating to the cargo servicing of these vessels.
It should be underlined that the above exemptions are granted on the condition (among others) that the supplies of the goods or the services are made directly to the person that is beneficiary of the VAT exemption, namely to the person who has the exploitation of the vessels, e.g. to the ship-owner or to the bareboat charterer or, under conditions, to the management company (where full management has been assigned to the latter, including the right to enter into purchase contracts in its own name), and not to other taxable persons that may be involved in previous stages of the supply chain.
Moreover, for goods that are exempt from VAT (and other taxes, such as excise duties) as supplies made to eligible vessels, the customs procedures for export must be followed as a means of evidencing the supply to the vessel, regardless of the actual destination of the vessel.
It is also noted that the above are a general description of the VAT exemption rules and that application of the VAT exemptions requires meeting the conditions of the law but also following various procedures and documentation that are specified in detail by relevant Ministerial Circulars and other administrative guidelines, depending on each case.
Moreover, article 24 of the Greek VAT Code provides also for other VAT exemptions that relate to exports such as the provision of transport services and other auxiliary services as well as the provision of services by intermediaries acting in the name and on behalf of others, on the condition that they relate to exports of goods.
* The information is accurate to the best of our knowledge as at the time of writing. We have no obligation to update it. We accept no responsibility against any third party who is not a client of the firm and has not signed the terms of our engagement.