From 1 January 2021 there are two separate VAT and Customs territories, the UK and EU27. A hard border is now in place between the UK and EU meaning that the free movement of goods, services, people and capital hitherto enjoyed, is a thing of the past.
Trade within the EU27 VAT and Customs territories will necessitate a separate EU VAT registration; an Isle of Man or UK VAT registration no longer meets this requirement.
Having two separate VAT and Customs territories compromises the EU free circulation status of commercial yachts and business aircraft imported into the EU prior to Brexit. In other words, if a yacht / aircraft has been imported via one of the remaining EU 27 Member States it may no longer retain free circulation status in the UK / IOM. If a yacht / aircraft has been imported into the EU via the UK or the IOM prior to Brexit, after 1st January 2021 it will no longer retain free circulation status in the remaining EU 27 Member States. This is not good news for commercial yachts or business aircraft.
Commercial yachts that were imported into the EU via the UK / IOM may no longer be in free circulation in the EU and vice versa. Commercial yachts that sail to the UK or EU from 1 January 2021 need to be prepared to demonstrate their VAT status in either jurisdiction.
Owners of business aircraft previously in EU free circulation who fly to the UK or EU also need to be prepared. This will apply for aircraft flying to the UK or EU from outside of both of these territories, for example from North America. There will be no special treatment for aircraft that are not on a UK or EU registration and in addition, there is now the added complication that at 1 January 2021, the aircraft operator and the aircraft owner could now be located in different jurisdictions, one being in the EU and the other in the UK.
It seems clear post Brexit that yacht and aircraft owners / operators who have not validated their respective importation and free circulation status of their asset may potentially be facing a tax authority challenge that may result in a significant tax liability assessment and adverse reputational damage.
Please don’t make tax compliance assumptions or defer action until you have received a tax authority challenge - seek professional advice now.
Equiom Group can support yacht and aircraft owners / operators
It is important that owners / operators determine the current status and robustness of their asset’s importation status and confirm that this is still valid and understand any potential action that may need to be taken in order to maintain UK and or EU27 free circulation status as appropriate.
Scope of work
Equiom will discuss with yacht and aircraft owners / operators as soon as possible any plans they have put in place or any action they have taken to mitigate Brexit related risks to their importation status and free circulation entitlement. Equiom will in an efficient and non-invasive manner:
- Consider whether anything has changed with respect to the yachts or aircraft status, use and operations post Brexit which may compromise the importation status and free circulation entitlement
- Consider whether anything has changed with respect to the yacht tenders and any artworks on board the yacht / aircraft that post Brexit may compromise the status of these assets and their free circulation entitlement
- Define and review critical documentation/paperwork to ensure that nothing has occurred to compromise importation status and or free circulation entitlement
- Comment on a range of different mitigating options to suit all yacht / aircraft uses and operations should a potential tax risk be identified
- The above work will be presented in written form, inclusive of critical documentation (where available) to provide a first line of defence should a tax authority challenge arise
For more information on this topic, contact Mark A Hagan.
This article has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The article cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact Equiom to discuss these matters in the context of your particular circumstance. Equiom Group, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this article or for any decision based on it.