The Small Island with a Big Potential

by • July 24, 2013 • Boat Tax Issues, Yacht RegistrationComments Off320

The Dixcart Group recently highlighted the advantages of registration this beautiful island. Madeira is part of Portugal and has full membership of the EU. This enables yacht purchasers to fully comply with EU legislation.

The International Shipping Register of Madeira (MAR) is internationally recognised as a credible and competitive option in comparison to other shipping registers. MAR maintains the high quality and safety standards of an EU register. MAR is not regarded by the International Transport Workers’ Federation (ITF) as a flag of convenience and is included in the Paris Memorandum of Understanding (MOU) White List.

As MAR is an EU Register it allows full access to navigation in EU waters without any types of restriction for either commercial or private yachts. In addition, its EU standing has the advantage of providing substance to the VAT status of yachts registered in Madeira that operate within EU waters.

Advantages Applicable to the Importation of a Yacht in Madeira

There are a number of EU VAT rules relating to the importation of second hand yachts. Portuguese VAT is applied to the lower acquisition price. This is due to the fact that these rules allow for devaluation suffered by the yacht (deemed market value). This can lead to a significant reduction in VAT.

Advantages Applicable to Commercial Yachts in Madeira

Yachts commercially registered in MAR that are (i) used for navigation on the high seas and (ii) engaged in commercial/charter activities, benefit from a number of VAT exemptions:

  • the acquisition price of the yacht;
  • repair, modification and maintenance operations of the yacht;
  • fuel and oil supply;
  • the supply of goods for their provisioning; and
  • the supply of equipment to be incorporated therein.

It is important to emphasise that these exemptions are subject to the absolute condition that the yachts are being operated commercially on a regular basis. It is therefore vital that when a yacht is used by the owner, a charter agreement is in place, showing the payment of a charter fee in line with market rates. It is also important that the use of the yacht by the owner is not excessive, or the tax authorities may question the commercial status of the yacht.

In addition to the tax benefits mentioned above, the following operational advantages are available to commercial yachts registered in MAR:

  • There are no citizenship requirements for the crew.
  • The crew is exempt from personal income taxes.
  • The crew benefit from a flexible social security regime. Crew members are not obliged to contribute to the Portuguese social security regime, provided that an alternative pension scheme is guaranteed.

Advantages Available to Yacht Owning Companies in Madeira

The Madeira International Business Centre (MIBC), with its advantageous tax regime, provides a unique location for the establishment of yacht owning companies.

The MIBC offers a highly competitive package of tax benefits. Its reduced direct taxation, with effective corporate income tax rates ranging from 4% to 5% until 2020, combined with an exemption from withholding tax (providing the shareholders are resident in an EU jurisdiction) on payments of dividends, interest and royalties to non-residents of Portugal, makes it an attractive location for yacht operating companies.

Madeira companies also benefit from automatic VAT registration on incorporation and are instantly provided with a VAT registration number. This makes it easier for such companies to take advantage of the various benefits available.

Madeira yacht owning companies are exempt from the initial yacht registration fee and receive a 20% reduction in the annual yacht registration fee.

Withholding taxes on dividends can be eliminated by routing the investment in the Madeira company through an EU holding company such as Malta.

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