In what cases can boats allocated to nautical chartering be used privately?

Spain - 

Various pieces of legislation and also rulings of the Directorate General of Taxes clarify the effects of the use by the owner of the boat for private purposes.

For the conduct of commercial activities on board a pleasure boat of between 2.5 and 24 metros meters in length in Spain it is essential to register the boat in the General Ship Register, as required by Royal Decree 1027/1989, of July 28, 1989, on flagging, registration of vessels and the maritime registry, on one of the two available lists: List 6 for pleasure boats for profit, and List 7 for not-for-profit pleasure boats.

However, once a boat is registered on List 6, since it is allocated to nautical chartering, does this mean that it cannot be used privately by the owner?

The answer is yes, the boat can be used privately, since the above-mentioned Royal Decree 1027/1989 does not prevent a boat that is registered on List 6 from being used by its owner on a private basis, although that private use could have implications in relation to the Excise Tax on Certain Means of Transport, known as Registration Tax (IEDMT).

In this respect, article 66.1.g) of Excise Taxes Law 38/1992, of December 28, 1992, establishes the exemption from Registration Tax of the first definitive registration or, where relevant, the sailing or use in Spain of pleasure boats and vessels exceeding eight meters in length, which are actually allocated exclusively to rental activities.

This exemption is subject to the restrictions and to the observance of the requirements established for the rental of vehicles, contained in article 66.1.c) of the Excise Taxes Law; i.e. (i) that the vessel is not assigned to the assignor or to persons related to the assignor in the terms provided for in article 79.Five of the VAT Law; nor (ii) assigned, for a period exceeding 3 months, to the same person or entity, in a period of 12 consecutive months. The exemption will not apply either if the assignor or person related to him receives, on any basis, a right of full or partial use over the aforementioned boat or over any other owned by the assignee or a person related to the assignee.

The Directorate General of Taxes (DGT), in binding ruling no. V3209-19, confirmed the impossibility of applying the exemption provided for in article 66.1.g) of the Excise Taxes Law for the case of a boat that was going to be rented to third parties and, occasionally and sporadically, to a company related to the assignor, since the restriction provided for in article 66.1.c) of the Excise Taxes Law relating to the assignment of the vehicle to related persons applied. This is so although the performance by the owners or shareholders-directors that allocate the vessel exclusively to the rental activity, of tasks complementing the nautical chartering activity, such as moving the boat from the base port to other ports looking for customers, periodic checks to calibrate the instruments before making the boat available to the customer, bringing the boat back to the base port, maintenance and fueling and providing water, do not constitute a private use and/or enjoyment of that boat by such persons (DGT, binding ruling no. V0368-10).

Therefore, only if the above requirements are met, and none of the above-mentioned cases of exclusion apply, the owner of the vessel or boat can seek the tax benefit of exemption from IEDMT from the Tax Authorities. In that case, when it operates in Spanish territorial waters, he must actually and exclusively allocate it to nautical rental, and cannot use it privately, since the effective consolidation of the exemption depends on the fulfillment of that condition.

However, the Directorate General of the Merchant Navy (DGMM), in a ruling dated October 5, 2020, regarding the interpretation of private use of rented boats points out that, once the exemption has been requested, when four years have elapsed from the taxable event, the cessation of the nautical rental activity, either because the vessel or boat is going to be used sporadically for private purposes or due to any other circumstance, will not alter the circumstances of the exemption scenario. Therefore, that cessation will not give rise to a new accrual of the tax, provided that the boat or vessel in question has been actually allocated exclusively to the business activity of nautical rental for the above-mentioned four-year period from the occurrence of the taxable event.

Consequently, in the opinion of the DGMM, the private use, sporadically, of vessels or boats allocated to nautical rental or chartering in Spanish territorial waters, by their owners or shareholders-directors resident in Spain or owners of establishments located in Spain, is possible (i) from the commencement of the activity, if IEDMT has been paid, or (ii) from four years from the first definitive registration in Spain, or (iii) if the vessel or boat is flagged elsewhere, from four years from the commencement of the activity in Spanish territorial waters.