Spain in general and the Balearic Islands in particular are the preferred destination for customers who rent large boats (yacht charter). However, this does not mean at all that Spain is the leader in nautical tourism in the Mediterranean being widely surpassed, among others, by markets such as France and its popular Côte d’Azur, Italy or emerging destinations such as the Adriatic coast, which is attracting much of the market.
The reasons lie undoubtedly in the regulatory framework applicable in both countries, which, in the case of France for example, certainly favours it for many reasons. The Spanish administration, together with the National Association of Nautical Companies (ANEN) and the Spanish Association of Large Yachts (AEGY), has made an effort since 2013 to bring us closer to our main European competitors, but we are still far from being able to compete or, quite simply, to facilitate activity and allow the market to flow towards its preferred destination.
On 31 October 2013 we achieved a fundamental change: the elimination of the maximum length of 15 metres to be eligible for exemption from the IEDMT (Special Tax on Certain Means of Transport, better known as Registration Tax), provided that the boats and vessels were effectively and exclusively used for chartering (nautical charter) in Spain. The IEDMT on pleasure boats and vessels does not exist in any other country of the European Union (EU), but this change facilitated, already by the summer of 2014, that, for the first time in Spain, some shipowner dared to rent his boat larger than 15 metres in Spain, but only if it flew the Spanish or EU flag. Prior to this milestone, the market for large yachts in Spain was non-existent.
The second major change came after the negotiations that ANEN and AEGY held with the General Directorate of Ports and Airports which, at that time, was headed by Mr. Antonio Deudero and which culminated in the Circular 1/2014 of 26 August, allowing for the first time the chartering of non-EU flagged vessels, a matter that was common in the vast majority of competing EU countries (e.g. France or Italy). The importance of this change stems from the fact that most large yachts are registered outside the EU, perhaps with the exception of Malta. Therefore, it was really only from the summer of 2015 that most large yachts were able to consider chartering their vessels, albeit… only in the Balearic Islands, which shows the youth of this niche market. Shortly afterwards, Barcelona and, finally, the rest of Spain, ended up adopting the path that we opened in the Balearics and which, fortunately, took root in the legal system of our community through Decree 21/2017, of 5 May, which regulates the rental activity of pleasure boats and vessels.
So what are we lacking in order to be the Mediterranean hub that our own customers want? We could go into detail on many points of improvement but, in my opinion, only two aspects would fundamentally change the panorama:
1. Allowing commercial vessels to be imported into Spain
Currently, when ships return from the Caribbean and cross the Strait of Gibraltar for their commercial season in the Mediterranean, they do not stop at our coasts and head directly to the south of France to be imported through a mechanism called ‘reverse charge transactions‘. To save technicalities, this allows them to enter EU territory without incurring any financial cost for VAT and without the deductibility of import VAT quotas being questioned, given their status as entrepreneurs engaged in the commercial activity of yacht charter.
This ‘reverse charge transactions’ mechanism is provided 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 neutralised and, what is worse, questions the deductibility of VAT quotas on importation on the grounds that nautical charters are ‘private pleasure navigation’, ignoring the commercial leasing activity that they carry out. In this way, vessels are prevented from coming to Spain, absurdly losing the generation of income and employment in our country, which is why, ironically, my French colleagues congratulate me and beg me to maintain our fierce defence of their interests.
The mere comparison of the criteria adopted and applied by France to Spanish regulations would make Spain the epicentre of sailing in the EU. All that is needed is a minimum dose of political will and a desire to take advantage of our privileged geostrategic position as a gateway to the Mediterranean. The only applicable rules are the VAT Directive and the Customs Code of the Union (CAU), both common to all EU countries, and there is no legal impediment to this.
Not doing so means wasting our competitive advantage and slowing down the development of an economic sector that enjoys spectacular multiplier coefficients on employment, production and gross value added. As an example, for every job generated in the marine industry, 4.2 additional jobs are generated in the Spanish economy as a whole (the average for the Spanish industrial sector is less than 1.4).
2. Elimination or reform of Registration Tax (IEDMT)
As we have already mentioned, the IEDMT on recreational boats and vessels does not exist in any other EU country and consists of no less than 12% of the value of the boat, to which, logically, 21% VAT is added. If you want to buy or import a boat over 8 metres in length, whatever flag it flies, be prepared to face a tax burden of 33%, by far the highest indirect taxation in the world.
However, we have mentioned that it is possible to apply for exemption from IEDMT 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 for them to apply for and obtain this exemption, prior to the start of the activity.
has given and continues to give rise to surrealistic interpretations as to whether or not the tax is payable, generating a great deal of legal uncertainty that keeps many responsible shipowners away from our waters.
To give you an idea, a foreign shipowner who wants to operate his boat or commercial vessel on charter in Spain during the summer months cannot use them for a single minute, even if he pays the same rate as a third party client and, of course, the applicable 21% VAT, which will be paid into the public coffers. Until 28 March 2014, he could use it without any problem, logically paying a market price and the corresponding VAT (remember that it is a commercial vessel). What has changed in the regulations to bring about this essential change of interpretation by the Directorate General for Taxation? I will tell you: not a single comma.
On other occasions, it has been considered that a foreign shipowner should not pay IEDMT because he only has a second private residence in Spain, although it is not advisable for him to obtain a holiday rental licence, as in that case he would have to pay IEDMT. Nor would I recommend that he set up a subsidiary of his German parent company in Spain because, if he were a shareholder and administrator of this subsidiary, he would become the owner of the disastrous ‘establishment’ in Spain and would then also have to pay IEDMT (hurrah for the principle of free movement of capital!). And the same if he owned a hairdressing or clothes shop, since the concept of ‘establishment’ – not ‘permanent establishment’, although we have also seen changing interpretations of this – is clearly defined (ironically enough) as a ‘place from which all or part of an economic activity is carried out’, and this gives rise to all sorts of arbitrary interpretations. You may ask, but what does a clothes shop have to do with the payment of the IEDMT on a boat? I share your concerns and I find it completely absurd.
The IEDMT is also a state tax whose collection corresponds to the autonomous communities. In 2021, with a budget of 6,397 million (recently the Consell de Govern has approved 7,133 million for 2023, the highest in history), our islands will collect about 3 million for this concept (boats). Is it worth maintaining this tax? Clearly not. The low revenue would be more than offset by increased tax revenue from a significant increase in activity and employment (skilled and therefore well paid) in the marine industry. It is what the Anglo-Saxons call a ‘win-win scenario’.
Notwithstanding the above, it is clear that the removal of the IEDMT carries a high ideological burden, so it is perhaps more realistic to replace it with another tax which, while maintaining the current low collection of the IEDMT, would be levied periodically (e.g. annually), i.e. distributed over the useful life of the vessel, similar to what happens with the Tax on Motor Vehicles (better known as ‘Road Tax’). Unlike the one-off accrual of the IEDMT, which causes the total tax liability to arise at a single, specific moment (one-off accrual), the annual periodic accrual would reduce the initial tax burden and would entail a sustained tax contribution over time. In cases of temporary stay in Spanish waters, the tax liability could be prorated for periods of less than one year (e.g. months, weeks).
In short, the nautical industry and nautical tourism are sectors that act as powerful drivers of the economy, with very high multiplier coefficients that have an impact on the economy as a whole and contribute to the diversification, deseasonalisation and deconcentration of traditional tourism, also characterised by high purchasing power, a high average length of stay and low land consumption, a critical factor especially in our islands.
The potential for growth is formidable and 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 have to do is want it and desire it.
Miguel Ángel Serra Guasch
Founding Partner of Legalley | Yachting · Aviation · Real Estate
Lawyer – Economist
Legal and tax advisor to ANEN
Head of the Legal Affairs Committee of BMC