By Dorie Cox
A European Union tariff has disrupted summer plans for a number of yachts that typically charter in the Mediterranean. These yachts have changed course to different destinations or altered how they enter Europe in an effort to avoid a 25 percent tax on the value of U.S.-built yachts that want to charter in the region.
Uncertainty and unclear interpretations surrounding the tariff have been at the root of many yacht owners’ and captains’ choices.
M/Y Mim is one yacht that turned back from a regular season in the Med. Capt. Scott Schipske said they heard talk of the tariff after it went into force in the EU in June 2018 in response to the United States imposing additional duties on steel and aluminum imports. They learned Mim would be affected as a charter yacht. Private yachts visiting the EU for pleasure are not subject to the tax.
The possibility of paying millions in tax on the 144-foot Burger prompted the decision not to return.
Early this year, at the Palm Beach International Boat Show in March, the owner chose to cancel nearly two months of charters. Canceling at later dates would damage the yacht’s good reputation in the charter industry and it was risky to consider going to Europe, especially since the yacht was on the market, Capt. Schipske said.
“Ours is for sale – we can’t pay a $3 million tariff with no refund,” he said.
Since then, they learned the yacht would have been grandfathered in to visit the EU and would have avoided the tariff.
“The boss spent a couple hundred thousand canceling charters,” Capt. Schipske said. “We are a tragic story.”
S/Y Columbia has a similar story. This 141-foot schooner, built by Eastern Shipbuilding in Panama City, Florida, decided to cancel its season of Med regattas and charters after Capt. Seth Salzman’s research revealed the U.S.-flagged yacht would have been subject to the tariff.
“I’m way too versed on the subject, and no one knew the answers,” he said of attorneys and others he reached out to for advice.
Columbia launched in 2014 and is a replica of a Gloucester fishing schooner launched in 1923 that foundered a few years later. Capt. Salzman and his crew were looking forward to having the yacht represent the U.S. in the Med this summer.
“We were invited by the Monaco Yacht Club as guests for the Monaco Classic,” he said. “We would have been the showpiece for America. … It’s a shame. It has big implications for the boat and on a world scale.”
Although the yacht could have raced in the Med as a private boat, the charters made it feasible financially. Without them, the equation did not make financial sense, Capt. Salzman said.
“We had a 12-day charter in Scotland,” he said, disappointedly. “I was so looking forward to it.”
The yacht also could have chartered with non-EU residents and outside of the EU, but that was a risk the yacht was not willing to take.
“We would have to assume we could get non-EU clients,” he said. “It seems like it would be no problem, but it’s not no problem.”
At least two U.S.-built yachts have used options that will allow them to charter in the EU this summer, according to Amélie de Franssu, a lawyer with the firm Ince & Co. in Paris.
“Two major new interpretations from the French customs authorities are very interesting, even for non-U.S.-built yachts,” she said. These are the possibility for yachts to charter either under the temporary admission regime or the returned goods regime. Both allow an exemption of the 25% tariff that should normally apply on a U.S. yacht’s importation in the EU, she wrote in an email in mid-June.
M/Y Ocean Club, a 164-foot Trinity, returned to the Med this summer under the temporary importation option, Capt. Herb Magney said.
“We fall under pre-tariff rules because they said you have already been imported,” Capt. Magney said by phone right before the yacht shipped on transport in May. “We’re like an airplane, not a can of corn. We are under temporary importation as a repetitive product, like an airplane or a car. We’re not meant to be here the entire time, we’re not owned by a citizen of the EU, we were already showing as imported from the year before with no change of owner or a major change to the boat.
“If we had done a huge change of the boat’s value, then it is considered a new boat and you have to pay tax,” Capt. Magney said. “But if it’s the same old boat and if ‘you promise to take it back where you found it,’ then we can go.”
There are requirements that yachts must follow to use the option. For the temporary admission regime, de Franssu reminded: “This requires a non-EU-established owning company (including the entire ownership structure), non-EU flag registration, non-EU resident user, and 18 months’ time period limit. Now any yacht (including U.S.-built yachts) can be imported in the EU under this regime without paying any duty on importation if she complies with the conditions of this regime.”
It is important to check compliance with these conditions in advance, such as if the vessel left the EU customs territory within the past three years, the yacht is owned by the same owner since it left the EU, and that no major works have been carried out on the yacht’s structure, she explained.
For yacht owners who want to use their yacht privately in the EU, commercial use could affect the situation, de Franssu wrote. “If the yacht was used commercially the year before, it could create potential VAT risk. It is important to organize the use and check on the consequences well in advance.”
These options have only recently been clarified, she stated, and meanwhile several yachts have canceled plans to charter in the EU this season.
“Yes, unfortunately,” de Franssu wrote.
And last summer, some “successfully imported their yacht in the EU after the entry into force of the regulation and should have paid the 25% tariff but they were not aware of it and the customs authorities did not claim it. They left the EU at the end of the summer. We recommend to avoid re-entering the EU because otherwise there could be a risk that, in case of control, the 25% tariff are claimed.”
As yacht owners, captains and industry businesses continue to test the waters for charters in the EU this season, de Franssu encouraged as much planning as possible.
“There are almost always solutions; it just needs time to put them in place because we need to make sure about the customs authorities interpretation and sometimes challenge it,” she wrote. “For such negotiations, the French authorities have even previously decided to ask for the EU Commission confirmation, and this takes even more time to obtain a reply.”
There is not a clear number of how many yachts may be affected, but many expect that it is limited when compared with the entire charter market. Anne Sterringa, senior charter broker with Camper and Nicholson’s Palma de Mallorca office in Spain, stated that the effect on their company is small.
“Last year, only two U.S.-built yachts had a license for Spain, and one of them spent the season elsewhere,” Sterringa wrote in an email.
On the western side of the Atlantic Ocean, Capt. Magney believes that marinas in the Bahamas, New England and Canada will reap benefits with visits from yachts that canceled Med seasons.
Several captains, including Sean Rinehart in Florida, agree. He has noticed “a growing number of yachts heading to New England and staying local to continue to charter out locally here, Bahamas and down island, as opposed to leaving the winter milk run for the Med. It is a costly expense.”
And de Franssu expects fewer boats in the Med, as well as other ramifications from the tariff.
“I think that there will be less U.S.-built yachts in the EU this summer than last summer,” de Franssu wrote. “Some of our clients were about to purchase U.S.-built yachts and have decided not to do so, some others had already signed the construction contract. Some yacht’s owners decided not to charter or use their yacht in the EU to avoid any risk because the yacht’s situation was already not clear and, in case of breach, the impact would be huge (25% tariff and also potentially VAT on the whole amount).”
But for the yachts that are affected and altering course, yacht captains do what they often do – solve problems. As of June, Capt. Roy Hodges and the crew of M/Y Laurel still hoped for a few charters to book. The yacht canceled its regular summer charter season in the Med at the beginning of the year to avoid a nearly $12 million tax on the 240-foot U.S.-built Delta. Capt. Hodges is grateful the crew has stayed on with the yacht, even though they may not make charter tips this season.
Capt. Schipske and his crew of M/Y Mim are in the same frame of mind.
“We’re just reorganizing our summer,” he said. “We’re making the best of things.”
Dorie Cox is editor of The Triton. Comments are welcome below.