Yacht chartering in Italy

Italy is certainly one of the most attractive destinations for what is known as nautical tourism, and there are several tax implications associated with the performance of nautical charter activities by nautical charter operators.

First of all, it must be said that charter services are subject to VAT at the ordinary rate of 22%. Moreover - and perhaps even before that - it is important to clarify that sailing in Italian waters under a charter contract does not necessarily require the application of VAT in Italy. Indeed, on the basis of Article 7-quater of Presidential Decree No. 633/1972 for VAT purposes, the activity of yacht chartering is considered to be carried out in Italy - with the application, therefore, of the Italian VAT - in the hypothesis that the yacht (i) is made available to the client in the territory of the State and is used in EU waters or (ii) is made available to the client outside the territory of the EU and is used in the territory of the State.

Therefore, trying to give an example, if a charter contract provides for a yacht to be made available in Spain and then to be brought to Italy, the relevant service will not be relevant for VAT purposes in Italy. If, on the other hand, the yacht is made available in Italy and it is decided to spend part of the contract term in French waters, the entire charter service will be relevant for VAT purposes in Italy. On the other hand, if a charter contract provides for the yacht to be made available in a non-EU country and part of the sailing is carried out in Italian waters, Italian VAT will be applicable only to the latter part of the sailing.

For these purposes, the flag of the vessel involved in the charter contract, or the country in which the charter service provider is established, is irrelevant. With regard to the latter, it is however important to specify that said charterer, if it is a non-Italian entrepreneur, must obtain a VAT registration number for the purposes of the possible application of VAT in the cases referred to in the aforementioned Article 7-quater (except in the case where the client is a VAT operator established in Italy, which will apply VAT through the so-called reverse charge system). In particular, if the operator is a European subject, he may obtain a VAT number by identifying himself directly pursuant to Article 35-ter of the aforementioned Presidential Decree or by appointing a fiscal representative pursuant to Article 17 of the same Presidential Decree. On the other hand, in the case of a non-European operator, the latter may obtain a VAT number only by appointing a tax representative in Italy, with the additional obligation - introduced by paragraph 7-quater of Article 35 of Presidential Decree No. 633/1972, already commented on in one of our previous publications - of providing an appropriate guarantee. In this way, the VAT operator will also be able to deduct any Italian VAT charged on purchases made in the exercise of his business.

With regard to the methods for identifying the place of use of the recreational craft inside or outside EU waters and the time during which the use took place in national, EU or non-EU waters, Revenue Agency Order no. 341339 of 29 October 2020, established a series of criteria that can be used by the parties involved both for the purposes of determining the amount of the consideration to be subject to Italian VAT and in the context of possible interlocutions with the tax authorities to which the correctness of their actions from a tax point of view must be demonstrated.

The present analysis cannot be concluded without further consideration of the possibility that the foreign operator may be found to have a permanent establishment in Italy through which it carries out its charter activity, with the consequent taxation in Italy of the income deriving from that activity. Often the problem does not arise as the period of stay in Italy of the operator does not exceed the minimum term of three months established by the domestic reference legislation (Article 162 of the Income Tax Consolidation Act), which is often extended by the provisions of double taxation treaties. However, it cannot be ruled out that the problem may theoretically arise and, therefore, a specific analysis should be carried out for this purpose, especially by those who exceed this period of permanence or in the event that the operator has a fixed office in Italy through which it carries out promotional activities and signs charter contracts with new clients.