Miguel Angel Serra is a Lawyer and Economist Founding Partner of LegaLLey (a company associated with the Balearic Marine Cluster). In this article, Miguel analyses and proposes a solution to boost the competitiveness of the Spanish nautical market.
The reasons are undoubtedly found in the regulatory framework. Since 2013, the Spanish administration, together with the ANEN and AEGY associations, has made an effort to bring us closer to our European competitors. However, we are still far from being able to compete with them.
A quick recap on the Matriculation Tax History:
Before the summer of 2013, the Spanish yachting world was plagued by the Special Tax on Certain Means of Transport (IEDMT); better known as the Matriculation Tax. This is a tax of 12% of the yacht’s value, charged when the person or entity that uses the vessel is not resident or established in Spain – regardless of how long the boat is in Spanish waters.
On 31 October 2013, we achieved a fundamental change; the elimination of the dreaded Matriculation Tax. This was on the proviso that the boats were effectively and exclusively used for chartering in Spain. This Matriculation Tax does not exist in any other country of the European Union (EU). By the summer of 2014, this change made it easier for some yacht owners to run charter operations in Spain, but only if they were flying the Spanish or EU flag. Previously, the market for large yachts in Spain was non-existent.
The second major change came after the negotiations which, for the first time, allowed the chartering of non-EU flags; something that was already common practice in most EU countries. This was an important breakthrough as most large yachts are registered outside the EU, with the exception, perhaps, of Malta.
It was only in the summer of 2015 that owners of large yachts were able to consider chartering their vessels, albeit only in the Balearic Islands. This shows the youth of this niche market. Shortly afterwards, Barcelona, and finally the rest of Spain, adopted the path that we opened in the Balearics.
So what are we lacking to become the Mediterranean hub that our own customers want us to be? In my opinion, only two aspects would fundamentally change the situation:
Allowing commercial yachts to be imported into Spain.
Currently, when ships return from the Caribbean and cross the Strait of Gibraltar for their commercial season in the Med, they do not stop at our coasts and head directly to the south of France. This enables them to be imported through a mechanism called ‘reverse charge’. To save technicalities, this allows them to enter EU territory without incurring any financial cost for VAT. Also without the deductibility of import VAT quotas being questioned, given their status as entrepreneurs engaged in commercial charter activity.
This ‘reverse charge’ mechanism is provided for in the VAT Directive and also in our Value Added Tax Law (LIVA). But Spain does not allow the financial cost of VAT to be neutralized. And what is worse, it questions the deductibility of VAT quotas on importation on the grounds that the nautical charter are ‘private pleasure navigation’, thus ignoring the commercial leasing activity carried out.
All it takes is a minimum dose of political will and a desire to take advantage of our privileged geostrategic location. We are a gateway to the Mediterranean; there is no legal impediment whatsoever. To not do so is to squander our competitive advantage and slow down the development of an economic sector that boasts spectacular multiplier coefficients in terms of employment, production and gross value added.
Elimination or reform of Matriculation Tax (MT)
As mentioned above, the MT on recreational craft does not exist in any other EU country and consists of 12% of their value which, when added to the 21% VAT, represents a tax burden of 33% – the highest indirect taxation in the world.
However, we have mentioned that it is possible to apply for exemption from MT for those vessels, and recreational vessels dedicated effectively and exclusively to nautical charter in Spain. So, in order to operate in Spain, it should not be a major inconvenience to apply for and obtain this exemption prior to the start of the activity.
The possibility of applying for MT exemption, when effectively and exclusively dedicated to charter activity in Spain, should solve any inconvenience, but unfortunately, this is not the case. The poor drafting of the legal text has given rise to surrealistic interpretations as to the accrual, or not, of the tax. This has generated great legal uncertainty that keeps many responsible yacht owners away from our waters.
The MT is a state tax whose collection corresponds to the autonomous communities (e.g. The Balearic Islands). Recently, the Governing Council of the Balearic Islands, has approved a budget of €7,133 million for 2023, and our islands will collect only around €3 million from this tax on yachts. It is not worth maintaining the tax; the low revenue would be more than offset by the tax revenue from a significant increase in activity and employment in the marine industry.
Notwithstanding the above, it is clear that the removal of the MT carries a high ideological burden. It is, perhaps, more realistic to replace it with another tax which, while maintaining the current meagre tax collection of the MT, would work as a periodical tax (e.g. annually), i.e. distributed over the useful life of the yacht. This is similar to what happens with the tax on Motor Vehicles (better known as ‘Road Tax’).
The current one-off accrual of the MT gives rise to the total tax liability at a single, specific moment. Introducing a periodic accrual would reduce the initial tax burden and lead to a sustained tax contribution over time. In cases of temporary stay in Spain, the tax liability could be prorated for shorter periods (e.g. weeks).
In short, yachting and the nautical tourism sectors act as powerful drivers of the economy. They provide very high multiplier coefficients that impact the whole economy. They also contribute to the diversification, de-seasonalisation and de-concentration of traditional tourism. This is characterised by high purchasing power, high average stays, and low consumption of land; a critical factor – especially in our islands.
The potential for growth is formidable. We should not waste our unbeatable geostrategic position and our natural attraction for lack of fiscal competitiveness. Especially when the instruments for this are at our disposal and the effort to be made is reduced.
All we must do is want it and desire it.
Click here for more INDUSTRY INSIDER articles
