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The 70% rule and different charter scenarios May 2017
If I have not chartered before, can I qualify for the FCE?
If you did not charter in French or Monegasque waters last year but plan to do so this summer, you can qualify for the French Commercial Exemption “by anticipation”.
This means that you will automatically be granted a VAT exemption on the purchase of supplies and services in France and Monaco on the assumption that you will comply with all provisions of the FCE in 2017.
However, if your charter itinerary fails to meet the 70% rule, you will have to pay VAT on all supplies and services purchased duty-free in France and Monaco in 2017 and you will not be exempt from VAT in 2018.
If you do comply, you will be VAT exempt also in 2018.
So, if you intend to apply the FCE by anticipation (in addition to the administrative requirements), you must be sure your chartering schedule will allow you to meet the 70% rule.
What happens if I don’t meet the 70% rule?
Yachts with LOA under 15m or for those which do not comply with the FCE, can still charter. They simply do not qualify for any exemptions and the owning company must operate as any other business.
This means that the owning company will pay VAT on the supplies or services it purchases from other businesses (input VAT) and charge VAT on the supplies or services it sells to clients or other businesses (output VAT).
The idea is that the VAT paid and the VAT charged roughly equals out. Every month the owning company must file a VAT return computing input and output VAT. If it has paid more input than output VAT, it can claim the difference back from the authorities in its VAT returns.
With regards to importation, the yacht can no longer benefit from the customs relief scheme in France. However, it can be re-imported and released into free circulation in the EU, including France, under an alternative customs relief scheme in another EU Member State. Typically, importation will entail, at least, movements of cash flows.