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Avoiding VAT

Container Ship Passing Marina
Photo by Jack Tyler
Let’s assume you are cruising Europe and find you must make one or more costly purchases ‘back home’.  Why would that be, you ask?  You might need to make the purchase from outside the EU for one or more of the following reasons:

a) the European price is significantly higher for the same item, even with shipping costs, or

b) there is no European distributor who can provide the item you need, or

c) there is a European retailer but s/he can not provide the item promptly (or leaves you feeling the order may not be filled altogether), or

d) there are language difficulties that makes getting the exact item you need ‘iffy’, perhaps in part because there’s no local dealer you can meet with; and finally

e) the EU-stocked items may be European versions and not the North American ones you need or want (such as injectors for the N American version of your Yanmar diesel, a carburetor for your N American Yamaha outboard, or a laptop on which you want to run your North American software).

Whichever of these apply, one additional reason you will have is the desire to avoid paying VAT (Value Added Tax) that is added to the retail price.  How significant is VAT?  We’re in Italy right now, where VAT ranges from 12% to 35%, depending on the category of the goods.  Whatever that new laptop’s retail price would otherwise be, it will be more because VAT (or IVA as it’s often called in Europe) will be added to the purchase price.  Portugal (which includes the Azores & Madeira) has a rate of 21%.  Most other EU countries have a rate in the 17-18% range.  (Malta has the reputation for having a very low VAT rate but, with some exceptions, their rate now appears to be 18%).  And a country outside the EU may still have a sizeable VAT rate – “VAT” is not exclusively an EU concept.  For example, boats cruising Thailand will often move to Langkawi, a duty-free port, to make VAT-free purchases.  Non-EU Norway assesses VAT in much the same way as its Scandinavian EU neighbors, Sweden & Denmark.

 How is VAT Assessed?  It’s now the norm within Europe to price most items with VAT included.  Often, you won’t even see VAT itemized but rather just rolled invisibly into the item’s price.  If you enter a chandlery to buy your new foul weather jacket, the price is the price.  Sometimes VAT is assessed on labor because larger vendors are VAT registered and so they are required to charge VAT on the full cost, while with small vendors who are not registered, it is illegal for them to assess VAT on labor.  (It takes a European sense of humor to fully appreciate some of this…).

 Let’s say you order something from North America and have it shipped over.  If you buy outside the EU, the goods will typically go through a clearance process via the local Customs House near (but perhaps not terribly near…) where you are having it delivered.  One possibility is that the goods may be held there awaiting your payment of VAT.  Keep in mind that duty may also be applied.  (‘Duty’ may be charged if the EU goods can’t compete with the imported goods and the EU has chosen to ‘protect’ the EU manufacturer).  If that is true for your shipment, then VAT is applied to the total value of the goods, both the original cost (to include shipping) & duty.  Alternatively, the N American shipper may have an arrangement with that country wherein these fees are identified at the time of shipment and rolled into your bank card charge.  So e.g. when DHL delivered an autopilot to us in Germany, the VAT was already paid by the shipper (actually, us – in the bank card charge) and we only had to request its delivery from the Customs House.  A third scenario is that you are having the package delivered to a local business (let’s say the boatyard where you are hauled out, or the marina office where you are berthed) and this vendor has an arrangement with the local shipper to pay these fees on delivery, which then must subsequently be paid by you to the vendor (boat yard or marina) to obtain the item.  We have experienced all these scenarios at one time or another.

Opposing Views on VAT:  Not surprisingly, your belief you should be excused VAT won’t be shared by Customs officers.  As non-EU citizens with a non-EU boat who plan to take that new purchase out of the EU at a later date, you will believe VAT should not be applicable to you.  Imagine buying a sail that will remain with the boat for years to come and ultimately will be sold with the boat outside the EU.  How can VAT be justified, you wonder. However, the local Customs officer would point out you probably plan to use this item inside the EU for some time to come while you move along from one EU country to the next.  Why should a Spaniard be charged VAT for his sail while you pay no VAT, when you both sail in the same EU waters after having purchased sails from the same loft?  And non-EU Customs officials (e.g. in Turkey or Croatia) aren’t going to feel any differently; you bought it inside their borders just like their resident citizens, so why should you not be taxed while their citizenry is?

 Of course, there is a traditional view that a ‘Yacht in Transit’ should be excused taxes on goods to be directly exported, which is also why all those duty-free shops exist at international airports.  And this loophole – let’s use the words “traditional practice” - provides the first small cracks in the VAT wall through which you might be able to slip.

First Method to Avoid VAT – Check with the Local Customs Official:  Generally speaking, many countries understand that allowing yachts in transit to avoid VAT assessments on imported items is, in the broader scheme of things, good for their economy because it supports a healthy yacht services industry in their country.  As an example, you will find there is an established procedure in Trinidad & Tobago – a cruising crossroads - which allows duty-free importation of goods provided it is being imported to a foreign vessel that has been properly cleared in.  This is the kind of arrangement we read about in the cruising books…but it seems to be getting less common these days.
In Europe this option looks quite different.  In EU countries, it is usually more administratively burdensome, provides for a refund of VAT rather than exemption from paying it up front, and will only apply to goods – imported or locally purchased – which are acquired within a short period before departing both that country and the entire EU.  So e.g. if you purchase a liferaft in the UK just before departing for Norway or the Channel Is. (the destination you claim to the Customs official), you will need to apply for a refund with the last UK customs facility open to the public before you leave the EU.  Of course, there may be no “local” public customs facility near your port of departure and you may find you need to visit an international airport to access Customs (who will not be accustomed to clearing out yachts, which will bring its own challenges).  There will be paperwork to complete and in some cases retailers will have specific forms on which they declare the VAT to be returned to you and which you’ll need to provide to Customs.  As you can imagine, the devil’s in the details and the effort required won’t inspire you to seek a VAT refund on small purchases.  Your best bet is to speak with the customs officials where you hope to be arranging the refund, exercise patience and be persistent until the procedure is fully outlined and understood.  Some EU countries have Customs websites in English which thoroughly discuss these arrangements, Sweden being an excellent example.

Second Method – an Understanding Vendor:  If you are purchasing marine goods, another option is to find a marine retail vendor inside the EU who is already familiar with the ‘Yacht in Transit’ concept and whose national Customs authority permits this arrangement.  Such vendors will know the Customs rules for foreign vessels being exempted from VAT and will offer VAT-exempt prices on orders delivered to foreign vessels.  To my knowledge, this probably boils down to you looking for a British vendor (in England, Wales or Scotland) for fulfilling your order, although perhaps there are other countries where this may be possible (assuming the language barrier can be hurdled).  Your goal here is to use a two-step process to avoid VAT:  you order from a EU retail vendor (who may or may not in turn need to place the order with the N American distributor or manufacturer), and then have the order forwarded within the EU from the vendor to you.  Typically, the vendor will need details on you & your vessel (country of registration, registration number, home port address, etc.) so they can justify not applying VAT to their Customs authority.  There may be multiple shipping charges applied to the order if the vendor must order parts from the distributor or manufacturer but you are likely to find these to be less than the cost of VAT (and doubly so if duty and/or handling fees are added).  On the other hand, keep in mind you may find shipping charges being added to any order you place locally within the EU if the item is not normally in stock and must be shipped in.

 This might be your most workable option if you find you need something right now, so here’s an example of how it worked for us.  We found we needed Westerbeke engine parts while in Portugal.  There is a European Westerbeke distributor and even a Westerbeke dealer near our location, but there was no European warehouse where parts were stocked so the parts would need to be ordered from Westerbeke in the USA.  Portugal does not make VAT-exempt ordering feasible and also has large ‘handling fees’, so we contacted the British Westerbeke dealer (Watermota in Devon – wonderful folks, by the way).  Watermota was familiar with Yacht-in-Transit rules allowed by HM Customs in the UK and had routine parts shipments weekly from Westerbeke; our order could be rolled into their next shipment.  On arrival in Devon, our VAT-exempt parts were then shipped (from inside the EU) overnight to Lisbon and delivered to the shipyard. Because both shipping costs were known by Watermota, as well as the parts cost, our one bank card charge reflected the entire cost of the parts as delivered to us.  There was no VAT, duty or administrative fees added by Portuguese customs because the shipment arrived from elsewhere inside the EU.

Third Method – an Understanding North American vendor with EU “Connections”:  This may be an unlikely option but I will mention it because it was the perfect solution for us when our venerable 8-year old refrigeration system needed a new compressor and water pump.  We were in Portugal at the time, which did have an Isotherm distributorship and a local dealer was even nearby in Lisbon.  However, there were problems:  replacing just the failed parts (vs. ordering an entire new unit) seemed to be a challenge, the price was breathtaking, and no one could tell us how long before – or even if – it would arrive.  Eventually, I found my way back to the USA distributor we had worked with when buying the original unit and explained our problem.  She was understanding because she’d previously lived abroad and suggested she contact a fellow distributor inside the EU (Sweden, as it turned out) to see if they could fulfill our order.  Sure enough, the parts were available and shipped from Sweden (inside the EU so no Customs formalities applied on their arrival in Portugal) and, because the parts were being moved over land vs. being flown in, they could be trucked inside one week for a very small fee.  I wouldn’t think you could expect this arrangement from most retailers back in N America as their ‘network’ won’t normally include vendors from other countries.  However, contacting a distributor if the product is marketed in Europe may be worth the time and cost of a phone call.

Fourth Method – Hand Carrying:  This refers to airline travel back into the EU or elsewhere in Europe and may apply to a friend or family member who is flying in to meet your boat or to you when returning from a home visit.  This is like joining an exclusive club as you – along with the rest of us – will have your own unique stories about how you lumbered your new sewing machine, wind generator or sail into one airport, out of another and eventually – somehow – onto the boat.  The tall tales may include references to tiny taxis, large ferries, overnight trains and/or using the Metro or Tube (how long do those automatic doors stay open!?) and are fun to share along with Sundowners but can also be trying at times.

 Because this is such a common (most would say ‘inevitable’) practice, here are a few things we’ve learned over time that might prove helpful to you:

  1. Carry one or two semi-indestructible large (really large!) duffle bags on the boat. Aside from using them for inland travel, one bag can go in the other along with your clothes when returning home and they can also be used to unload the boat (pilots & charts no longer needed, parts to be repaired, “essentials” that proved not to be, etc.).  When on the boat, they can be crushed down and stowed easily.  We found some excellent ones at L. L. Bean – heavy gauge nylon, rubber lined, webbing reinforced, shoulder strap included and about $40.
  2. This is just another reason to carry a collapsible dolly, as hand carrying many large bags through airports and train terminals is awkward and exhausting.  We purchased one from Boater’s World rated for 100# (which we have reluctantly exceeded on occasion), cost $50, has large wheels to deal with the inevitable European cobblestone streets & sidewalks, and folds into a slim, easily stowed package.  It also works well when jugging fuel or water, doing a big grocery run or moving bags of laundry.  When used with the luggage, a few bungees will keep the duffles and other bags semi-attached but I’ve noticed that ‘balance’ is everything.
  3. Occasionally when home, we will visit thrift shops looking for cheap luggage.  Samsonite seems the most commonly recycled brand altho’ I prefer canvas luggage with internal framing because it tends to be lighter and more ‘forgiving’ of odd shapes.  (When using duffles, I find helpful to have at least one semi-rigid piece of luggage for some items).  We’ve paid between $1 and $5 per bag, stock up with a few, and then draw them down one per return trip since that’s when we need the extra capacity.  At the other end, we donate them to a local church or charity shop, sometimes adding our wornout clothes inside.
  4. As one more way for airlines to reduce costs while increasing revenues, checked baggage weight allowances have been reduced (from 70# per bag to 44# for U.S. airlines on international flights, as I recall).  European carriers are much tougher and some not only have 20 Kg/person baggage limits on European flights but also restrict the weight of carry-on baggage, previously the ‘escape clause’ for those of us who found we couldn’t do it all with the checked baggage allowances.  When I say “limits” I of course don’t mean you can’t check more weight than allowed; it’s just that you will be charged for it.  (The last in-Europe flight we took, the charge was 5€/Kg which ends up being a bit less than $1 USD/pound).  This reality has a lot of spin-off effects.  Light duffle bags weigh little, heavy Samsonite and similar cases much more.  Shopping for flights now isn’t just about lowest fares and number of connections but maximum baggage allowances, especially if that last leg is on a Euro carrier.  Some low-cost airlines even charge for ANY checked baggage, altho’ the charges tend to be small and they offer more forgiving carry-on weight allowances.  As always, read the small print before you book the flight and, if in doubt, call the airline.  There’s a lot more to be considered about this issue, including which carry-on items are exempt from the weight limits (purse almost always; laptop sometimes).  I’ll leave it to you to dig further.
  5. Given finite luggage capacity and lowered weight allowances, one is often invited to do a cost-benefit analysis about what to buy locally during the off-season (even if at higher prices) vs. what to bring back with you.  I’ve had a replacement for my chart table swivel seat sitting at home for some time now; it was much less expensive than having an upholsterer redo our existing seat…but the replacement is still at home due to its bulk.  Marine and other electronics offer big cost savings when carried back and make small demands on luggage (but need to be bubble-wrapped if inside those duffles).
  6. Those experienced in this adventure will already notice I’m omitting something quite important – customs clearance into EU on the inbound flight.  Yachties will compare notes on international airports and their customs procedures before booking flights because they will want to maximize the odds they can wheel their luggage monolith through the ‘Nothing to Declare’ customs portal without uninvited Customs inspection.  (Heathrow remains my favorite way to enter the EU).  In any event, it’s important to carry your ship’s papers, as the U.S. boarding agent may not let you complete your round-trip flight into a foreign country unless you can prove you are rejoining your own vessel.  With these papers and your passport, you might be able to claim ‘Yacht in Transit’ status if your baggage is inspected by Customs on arrival.  (I wouldn’t count on it).  Also, some value of imported goods is always allowed duty-free so you might find it helpful to carry an inventory of items that “should” be declared along with their stated values, as this will help limit the duty & tax liability if it comes to that.  (So e.g. you would not list on your inventory the new camera, batteries, laptop, foul weather gear, etc. you are bringing back since these should be considered personal effects rather than imported goods…but you probably should list the sewing machine and wind generator).
Fifth Method – the “Exceptions”:  Some things are considered exempt from VAT on their stated value (and other duties) because of their specific category.  One example is “books”, which as a rule seem to incur neither duty nor VAT.  I have used USPS Global Priority (not Global Express) in the U.S. a number of times when shipping things from the USA into Europe with success, even when VAT and duty would otherwise seem warranted.  USPS Global Priority has three different weight/size categories and this won’t work for large, heavy items but consider it for pilots, reference books, spare parts and the like.  When Kent on JACK IRON was nice enough to loan us his Imray pilots, I sent them all to Portugal using USPS and they passed right through (infamous) Portuguese Customs with no charges assessed.  My favorite “exceptions” category is the one used by Julia of CRÈME BRULEÉ.  Because she’s lived both in England and Amsterdam but traveled extensively, she’s discovered that any package mailed back into the EU and marked “Personal Items Left While on Vacation” are exempted from Customs levies.  Now let’s see:  After visiting family, I thought I had packed my solar panels like I always do, but…
Sometimes it “pays” to pay VAT:  You can’t always fight City Hall and win.  Turkey seems to be a good example, as I’ve yet to hear a single sailor endorse buying and shipping things into Turkey to save money, let alone hassle.  ‘Best to buy or order locally, or do without,’ seems to be the general view.  (And anyway, it’s not like the Customs officials haven’t already been there ahead of us, looking at how to keep commerce inside their borders or benefit financially when we try to take it elsewhere).  Some things will be so heavy or bulky that there’s a ‘convenience factor’ which needs to be considered, let alone baggage allowances or shipping costs.  Some things might be embargoed from hand carrying due to airline regulations, like the grey epoxy paint I’d like to bring back for my bilges since it matches what I’ve already painted.  And sometimes the thing is simply on the shelf where you are, you can install it, also return it locally if it doesn’t work, and you can then be off and on your way.  Surely that’s worth something.  What I’m trying to suggest is to not be penny wise and pound foolish.  ‘Easy’ sometimes has a lot going for it.
Private Shipping in Today’s Post-9/11 World:  Especially when wintering over somewhere and time was not a pressing issue, a favorite option was to ship things from N America by surface carrier (aka: ship).  Typically quoted for delivery in some number of weeks depending on embarkation & arrival ports, this was especially useful for heavy things and it can be relatively affordable.  A freight forwarder was often required as your stuff has to be included with other smaller shipments into a container bound for your particular port.  For more urgent shipments, air freight was often used – expensive perhaps, but fast and not outrageous.  For what it’s worth, on my last extended stay back in the USA I researched shipping some bulky things (remember that replacement nav chair?) using both these methods and it was just not feasible.  One freight forwarder explained to me that one change after 9/11 was that forwarders and shippers had to go through a more extensive screening & authorization process in order to keep using common carriers like ships and planes.  For those of us ‘private shippers’ who haven’t done this, we can not ship on passenger carrying aircraft departing N America, at all.  This forces us onto freight carriers where the retail rates can simply be extraordinary.  (I spec’d one shipment for DHL into Lisbon from Florida at 25 Kg and ‘space weight’ dimensions of 1 cubic foot and was quoted a price of $350 USD.  This was after I had received a quote from a forwarder for a 50 Kg package of similar dimensions for $500).  And shipping companies really don’t want my little one cubic foot package anyway; it’s too cumbersome to deal with when they typically work on a pallet and container basis.  Although a busy commercial port Gibraltar might be, but I couldn’t find a single shipper who would accept anything less than a pallet of goods bound there.

© Jack Tyler – September, 2006
WHOOSH, currently lying Porto Malfatano, Sardinia