Millions in tariffs steer U.S.-built yachts out of Med charter season

Feb 25, 2019 by Dorie Cox

By Dorie Cox

M/Y Laurel has had to cancel its summer charter season this year. Faced with a tax bill of at least $12 million to enter the 240-foot U.S.-built yacht into the Mediterranean, Capt. Roy Hodges and the yacht’s owner decided to cancel the Atlantic crossing and forgo a handful of expected charters.

“You could never make that make sense,” Capt. Hodges said of paying the tax to charter during a phone call in mid-February. “I think we will go to New England with the boss this year.”

The tax is a 25 percent tariff that the European Union has imposed on the value of U.S.-built yachts that want to charter in region. The tariff is the EU’s response to the United States’ additional duties for steel and aluminum imports that went into effect last March. The EU retaliated with its tariff in June.

As the season approaches, the tariff is raising more concern among the charter fleet. Private yachts visiting for pleasure are not subject to the tax.

As Capt. Hodges and Laurel’s owner looked at the numbers, their lawyers, managers and agents looked for exemptions and options to avoid paying the fee. But charter guests can’t wait.

“If you are chartering a yacht – we’re $525,000 a week – you tend to plan in advance,” Capt. Hodges said.

And the financial impact is immense.

“It’s going to cost the yacht owner millions in lost revenue,” he said. Not to mention the average weekly tips of $3,000 each of his nearly 20 crew earn on charter.

“That’s a big hit for crew counting on tips,” he said.

Lawyers for owners, charter companies and management companies have been working to understand the tariff and how it applies, but most are not yet confident that a U.S.-built charter yacht can escape it.

“We have been in contact with owners, brokers, management and customs, and the first thing we found is that there is a lack of awareness on this issue,” said Amélie de Franssu, a lawyer with the firm Ince & Co.

Several captains, managers and others who work with U.S.-built yachts said they plan to forgo the summer Med season this year, citing the tariff.

Few know of tariff; fewer have answers

Capt. Hodges began asking questions in November about how the tariff would apply to Laurel, but found few answers.

“I think it’s funny that so many people didn’t know about this,” he said.

In general, yachts entering the EU are subject to a value-added tax (VAT) and customs duties, but for U.S.-built boats this year, this additional duty of 25 percent is charged on top of the VAT, de Franssu said.

Items targeted by the additional duties are listed in government documents, but to find them, people have to know the customs codes.

“That is why this issue is not noticed by everyone,” de Franssu said.

“[The tariff] was taken as a retaliation measure against the unilateral decision by the U.S. to increase tariffs on imports of steel and aluminium products originating from the European Union,” de Franssu said. “The purpose with this E.U. regulation is to have the U.S. renegotiate the tariff.”

Many people interviewed for this article said they had hoped for such negotiations – and resolutions – by now. Michael Reardon, owner of Reardon Yacht Consulting, a yacht management firm in Fort Lauderdale, said he hoped for clarifications months ago, as most yacht charter trips are planned well in advance.

“We’re waiting, but my sense is that nothing will change,” he said. “The EU has too many other worries. And how many yachts are impacted? Maybe 50, or 100 if you really stretch.”

Other U.S. manufacturers impacted include Trinity, Christensen and Westport. Reardon recommended that yacht owners impacted by the tariff skip Europe this year, suggesting yachts go to Alaska instead.

Transport delays may shorten season

Yacht transporters that must book boats in advance of the cruising season have received many questions from clients concerned about the tariff and if it applies to them.

“The tariff affects all U.S.-built boats except for visiting U.S. yachts, that means non-chartering yachts,” said Simon Beck, customs manager with Peters and May in the U.K. “Generally speaking, if it is American-built and wants to come into the EU for reasons other than pleasure, the tariff is going to apply.”

Although Beck does not have a lot of answers, he explained that this affects all boats built in the United States, no matter where they ship from.

“That is one thing many people have been confused about,” he said. “It affects them whether the ship is coming from Dubai or anywhere. If it’s an Italian boat with a U.S. flag, no problem.”

Beck and his team also hope for a resolution or clear answers.

“We have superyachts who would normally run a dual charter season who cannot risk being hit with the new tariff,” he said. “Until this is resolved, they cannot commit to shipping.”

The yacht transport business waits, he said.

“Even if this were resolved immediately, we still need proper planning and cradling, which typically needs about three weeks at the minimum to arrange shipment of a superyacht,” Beck said. “The problem is the main purpose to charter is to make money, and as they hesitate, the season gets shorter.”

U.S.-built tenders included

As the Mediterranean cruising season approaches, the full effect of the EU tariff on U.S.-built yachts is still being studied.

De Franssu warns yacht captains that U.S-built yacht tenders may be subject to the duty as well. This could apply to tenders on all yachts no matter the main yacht’s build.

“In the case of origin, meaning where the place of the build is with a U.S. shipbuilder (a clarification that we obtained from the French customs authorities), there are both yachts and tenders,” Ince & Co.’s de Franssu wrote in an email. She stated that tenders below 12 meters were already subject to 1.7 percent customs duties, and the regulation imposes an additional charge on U.S.-built tenders.

“It’s important as people have forgotten that their tenders are affected,” de Franssu said. “We are challenging many points that are not yet clearly defined in the E.U. Regulation.”

Lawyers at Ince have asked the EU: How is origin defined? How do exemptions apply? Do yachts have to pay every time they enter the EU? Does the YET (Yacht Engaged in Trade) scheme allow yachts to benefit from a customs duties exemption?

“And how do they define the value of the yacht: according to the purchase price, or should a survey be carried out?” de Franssu said. “Can the value on the insurance certificate be used? Yachts can decline in value over the years.”

Each yacht’s situation can vary by length, use, itinerary, flag registry and more. On top of that, each EU member country interprets rulings differently, which makes cruising through several countries even more challenging.

At press time in late February, charter yacht management companies including YachtZoo in Fort Lauderdale offered their best interpretations and suggestions as clients continue to wait to make decisions.

“We have been seeking to clarify the effects of this tariff on chartering in the Med, enlisting the support of respected maritime attorneys to advise,” said Jackie Guenther, charter fleet manager with YachtZoo. “It appears possible for some U.S.-built vessels to successfully charter through the Yacht Engaged in Trade (YET) certification. This is not a widely utilized program, so there are still questions and conflicting information circulating out there.

“We are trying to be patient in understanding some details are still being determined in response to the tariff, while also being sensitive to the ever-changing nature of charter regulations in the Mediterranean,” she said. “I think due diligence is important in this case for all of us charter professionals, in order to protect the best interests of the owners, charterers and captains alike.”

IYC is also following the situation closely but recommends clients seek their own legal and tax opinions, according to Yacht Management Director Sean Cassidy.

“While there still lacks a definitive statement from EU customs authorities of the exact effect of this directive, most legal opinion is interpreting the following as being in effect for this year: U.S.-built yachts registered for private use and entering the EU on a Temporary Admission will be exempt from this duty; U.S.-built yachts registered for commercial use that are re-importing into the EU for free circulation this summer will have the 25 percent duty imposed on the value of the hull; and U.S.-built yachts registered for private use which can have a Yacht Engaged in Trade (YET) certificate issued may also be exempt, though this would only allow charters originating in France and this has yet to be made certain.”

Ince & Co.’s de Franssu recommends captains secure answers before arriving in the Med.

“Be sure of the information before you book the transport and sign charter contracts,” she said. “Possibly add a wording in the charter contract to protect the owner’s interests.”

And yacht captains continue to share information to help each other.

“I sincerely hope this is resolved,” Capt. Hodges said. “We’ve heard of some trying the Yacht Engaged in Trade, and we’ve heard a bunch of different things, but who knows until someone tries. Can you imagine some poor captain doing his first crossing and pulling into Palma or Antibes and being handed a tax bill for 25 percent of the value of the boat?”

Dorie Cox is editor of The Triton. Comments are welcome below.

Click here to read European Union regulation in Official Journal of the European Union.To follow information from the government in France, click here.


About Dorie Cox

Dorie Cox is a writer with Triton News.

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