VAT Planning
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VAT Planning
VAT and yacht ownership
If an owner intends chartering the yacht to third parties,and the yacht owning company is properly based and managed on the Isle of Man, the company may register in the Isle of Man for VAT purposes. This would ensure that the company could recover VAT payable on the acquisition of the yacht (for which the owner would otherwise be liable as an EU/EEA-based principal user). The company could also reclaim VAT on qualifying VAT related expenses (fuel, maintenance & parts, administration fees, etc.).
Relative to other EU structures, the Isle of Man is particularly attractive as it is possible to "import" the yacht without physical delivery of the yacht to the United Kingdom or Isle of Man.
The reclaim of the VAT is covered by the EC 8th Directive, the full text of which can be found below.
Note that although the Isle of Man is not a member of the EU, it is included with the UK for VAT purposes and hence this directive applies.
VAT PLANNING - Triangulation
This is one area where the Isle of Man's reciprocal "membership" of the EU, through the UK Customs and Excise Agreement, has actually been beneficial to the Isle of Man.
Under the terms of the Customs & Excise Agreement of 1979 with the UK. The current Customs and Excise Agreement covers customs duties and many other (but not all) indirect taxes. The Agreement, which is backed by both UK and Manx legislation, means that for VAT, customs and most (but not all) excise duty purposes the two territories are treated as if one. Most of these indirect taxes and duties are pooled and shared. This negates the need for customs barriers between the two countries. Manx legislation exists which mirrors the equivalent UK law where required.
The basis of triangulation concerns the movement of goods within the EU and the place of supply rules. Goods are considered to be supplied where they are physically located at the time of sale, so without the provisions of triangulation an intermediary company would be obliged to register somewhere in the EU where the supplier or customer "belongs".
So to consider a specific example:
Company A located in Spain
Company B located in IOM
Company C located in Germany
(the companies have to be located in different countries for it to be triangulation, only three parties can avail themselves of the reliefs for triangulation - it does not work for a chain of transactions).
Goods are supplied by A to B and from B to C. Invoices follow the same route, but the goods go directly from A to C. All parties must be registered for VAT in their own jurisdictions, and the VAT number of the customers must be quoted on the supplier's invoices in each case. No VAT is charged, and effectively C accounts for VAT under intra community supply in Germany.
Company A issues an invoice to B (quoting B's VAT number) and provided the goods leave Denmark (and A has evidence of this) no Spanish VAT is charged. B in turn issues and invoice to C (again quoting C's VAT number) provided the invoice also states "VAT: EC article 28 Simplification Invoice" then no IOM VAT is chargeable. C then account for German VAT in the normal manner, presumably the reclaiming it such that the VAT is not a cost.
The IOM company is required to complete a VAT return, but details of the triangular transaction are not reported on the VAT return (neither sales or purchases). Also B is required to complete an EC Sales list which is a statistical return detailing the VAT registration number of the customer (including country code) and the value of sales to that customer in the period.
In terms of enabling B to register, IOM Customs require that books and records be maintained on the Isle of Man, that invoices be issued and received here and that the main trading bank account is here. Also, there should be someone on the Island with a working knowledge of the business being conducted. Clearly there are varying degrees of how these conditions are satisfied, but the registration will only be permitted if the answers seem correct!
Care must be taken as to transfer pricing provisions in this type of structure, and the direct tax implications of this have not been considered, both of these areas need specialist advice and we have advisors we would be pleased to introduce in this area.
HL Fiduciaries Limited can assist in setting up a structure to facilitate this, subject of course to compliance with the necessary due diligence requirements, and our sister company Harding Lewis accounting practice would be happy to help with the VAT registration formalities and any book keeping and accountancy services required.
VAT - IOM GRANTED ITS OWN VAT ELECTRONIC PROCESSING UNIT ("E.P.U").
The Isle of Man Treasury Minister recently revealed that the Isle of Man is in the unique position of being chosen to operate the only VAT Electronic Processing Unit or "E.P.U". outside the U.K.
‘We have concluded a number of detailed negotiations flowing from the renegotiation of the revenue sharing arrangements, within the Customs and Excise Agreement. One of these is the creation in the Isle of Man of an Electronic Processing Unit, which will allow traders to file and pay V.A.T. and Customs Duty on imports using electronic means. The U.K. has centralised its administration of taxes on imports to just one location and it is a great achievement for us to have negotiated a second one for the Isle of Man.’
‘If the E.U. moves towards standardising import and export systems comes to fruition then the Island will be able to offer traders the ability to account for all E.U. transactions through our E.P.U. It is also important that we could offer these facilities to Isle of Man businesses".