To date, the current approach of the Spanish tax agency on yacht chartering operations in Spain is that this kind of income is classed as a business profit in accordance to the OECD international tax conventions. Therefore, in absence of a double tax treaty in place between Spain and the jurisdiction where the yacht owning entity is established, the income of Spanish source might be subject, in addition to VAT, to a 24% withholding tax. This is the case of yachts owned through many of the most employed off-shore jurisdictions such as the Cayman Islands, British Virgin Islands, Guernsey, Isle of Man, etc.
However, the Spanish non-resident income tax law laid down a relief from the tax for the income of Spanish source arising from the hiring of bare boats engaged in international navigation. This option is independent of whether there is a tax treaty in place with the jurisdiction where the yacht owning entity is established.
Tax Marine Spain has explored this alternative for yacht chartering operations in Spain with the Spanish tax authorities. In response to a binding enquiry submitted by Tax Marine Spain, the Spanish Directorate of Taxes clarified that when a commercial yacht, owned by an Isle of Man entity, was placed at the disposal of a charterer in the Spanish territory, the income obtained by the vessel owning entity was not subject to the Spanish withholding tax, provided that the requirements to benefit for that exemption were accomplished.
Requirements to be eligible for the exemption
As stated above, two criteria must be met:
I. The charter agreement must qualify as a bareboat charter agreement. This implies that the charterer is responsible to bear the operating costs of the charter. This does not seem to be a big problem as it is a common practice for the charterer to bear the operating costs via APA. In addition, necessary arrangements should be made concerning the yacht crew.
II. The second requirement is that the navigation (charter) must qualify as international navigation in the sense of the OECD international tax conventions. Therefore, the charter must start and end in two different countries. In other words, the charter must end outside Spain.If these conditions are met, the income obtained from chartering a yacht in Spain, even where there is not a tax treaty in place, will no longer subject to the 24% withholding tax.
The above conditions will probably not make the scheme appealing for every single yacht but it is an alternative worth considering that would probably fit in some cases, especially for the largest yachts.
For more information contact Alex Chumillas at : firstname.lastname@example.org