Yacht taxation in Thailand
Navigating in the red ocean of Thailand’s tax laws and cross-border compliance rules
Investors in Thailand‘s luxury goods base their investment structure and tax planning to a large extent on the non-binding recommendations of traders and brokers. These stakeholders have large and long-standing experience from a wide range of similar cases. Although it is very valuable to exchange opinions and strategies, they can only assess the final result and not on what tax basis it was created. In supposedly comparable cases, things may have been fine for a long time only by luck. Unsuccessful developments are normally treated confidentially, only the success is published. The tax authorities can audit structures for tax evasion retrospectively for the last ten years, although the normal tax audit has shorter audit periods.
BEPS: The new guidelines of the OECD (Base Erosion Profit Shifting) are slowly but steadily seeping into the daily practice of Thailand’s Revenue Department. Circumvention cases are increasingly being taken up. The naive approach of not attaching great importance to legally binding contracts is playing into the hands of the tax authorities. Investors in luxury goods should not expect puppy protection. This is especially true for foreign investors who fit into the looting scheme of tax investigators.
Pre-owned, repossessed: This applies in particular to luxury goods which are not produced in Thailand and are not imported by one of the major trading houses to Thailand’s domestic market. Pre-owned (repossessed) luxury goods, typically purchased through foreign brokerage firms, imported and handed over in a tax-free port, have a difficult position in this respect. If there are points of attack, these will be taken up sooner or later. This only requires a general official announcement by the more and more tax-hungry government.
Legal aspects of acquiring and owning a yacht are described at “Superyachts and vessels: Maritime legal support in Thailand“. The yachting industry has its own regulatory framework, nautic vocabulary and maritime legal issues.
Tax planning for the acquisition phase
Completion, delivery, hand-over: There are various tax aspects to use a tax-free area when the deal is done. To complete the deal, deliver the goods, hand-over the asset in a tax-free zone has its advantages. Above all, it avoids that the seller is deemed to be the importer for Thai VAT purposes.
Avoidance of VAT: Import VAT can’t be paid under the deferred system of monthly VAT returns, but is due immediately to the customs authorities when the goods are imported. The buyer under the sale and purchase agreement (MYBA-MOA or similar) is the importer and responsible for the 7% tax payment.
Visiting boat schemes: As a general concept, the transport does not qualify as import, if a local temporary importation regime is applicable. The EU’s temporary admission procedure (Art. 250-253 UCC) has significant importance but is obviously not applicable in Thailand. To do the same in Thailand as a visiting boat has to be carefully prepared with respect to the boat ownership structure, usage of the asset, the timeframe, location, documentation, and applications. To add to this scheme a renewal after one or more nautical border-runs have been made is an even more challenging task. In the worst case, this might result in the original VAT burden plus penalties and interest plus criminal liabilities.
Refund of paid VAT: To successfully reclaim paid VAT needs a comprehensive tax structuring of the investment in a luxury good. It requires that the buyer is registered under Thailand’s VAT system. Other requirements apply, especially the proper documentation. Also, it has to be examined whether the asset is truly and fully commercially exploited and used within the VATable business operations of the company. A cash-refund adds complications to the whole process. If the yacht is “re-exported” later, the owner has to apply in order to get compensation for the import tax that had been paid before.
Commercial exploitation: The tax-efficient operation of the pleasure yacht
PE: It is an obvious question whether a foreign-flagged yacht, operating in Thai waters, creates its own taxable permanent establishment. Thai tax legislation, as well as tax treaties, have to be researched. A yacht that navigates in international waters or within one or more states is not fixed and does not, therefore, constitute a fixed place of business. When discussing OECD tax treaties, it is accepted that even the mooring of the yacht in a foreign country does not per se constitute a permanent establishment. Whether this viewpoint counts under Thai laws in case of an offshore structure without the tax treaty protection, should be decided on a case-to-case basis.
Leasing: For certain tax aspects it is relevant that the asset fulfills the requirement to be commercially used. A typical element in international ownership structures is to lease or charter the vessel to the beneficial owner for a fee below market-rate. However, this might under arm’s length principles not be deemed as the full commercial exploitation of the yacht. As a result. the whole structure might be qualified tax-wise as a sham which results in taxes, interests, penalties, and discussions about criminal aspects.
VAT on lease rates: Thailand’s VAT legislation is not fully comparable with the Sixth EU Directive VAT regime. For the calculation of VAT payments, it has to be considered, that the yacht will operate partly within and partly without the kingdom. The captain’s logbook, a GPS tracker, the leasing agreement or other tools might be used to quantify the foreign-quota. Also, existing lump-sum VAT regimes should be examined.
Profit maximization: As a general aspect, it can be said that the yacht is under the general suspicion that it was acquired and is subsequently operated for the beneficial owner. Any waiver of profit maximization at any time in favor of the actual possibility of use by the beneficial owner opens up the possibility for the tax authorities to question the structure.
Thai VAT in international waters: The provision of international transport services by sea-vessels enjoys a zero-percent VAT rate (Sect. 80/1 No. 3 VAT Act). For the supply of goods for the fuelling, provisioning, modification, repair, and maintenance of the vessel used for navigation on the high seas and carrying passengers for reward or used for the purpose of commercial, industrial or fishing activities or for rescue or assistance at sea, Sect. 81 Thai VAT Act has to be observed.
Professional yachting tax services from Bangkok
PUGNATORIUS Ltd. is the Bangkok-based specialist provider of legal services and tax advice on foreign investments in Thailand’s manufacturing and service industries as well as property acquisitions and developments. Sophisticated solutions in a complex business environment. Serious legal and tax advice in the land of smile.
The yacht is tax-wise a high-risk asset. The acquisition of superyachts and vessels without experienced legal and tax counsel on board is a reckless decision. PUGNATORIUS Ltd. is pleased to provide to buyer or seller side a meaningful offer for professional services in this special niche industry.
TYBA: PUGNATORIUS Ltd. is a member of the Thai Yachting Business Association, formerly the Thai Marine Business Association. The TYBA is a non-profit marine leisure industry association, serving yacht builders, yacht charter operators and brokers, marinas, yacht repairs and refitters, yacht management, and other yachting related companies throughout Thailand.
Yacht acquisition, sale, and repossession, the charter agreement, etc: The scope of professional work in the maritime and yachting sector is described at “Legal and tax advice in Thailand’s maritime and yachting industries”.