VAT on Yachts: What the Bacino Ruling Changed and Why It Still Matters

There is an old belief in yachting that a charter on the high seas escapes VAT. It does not. A European court settled that sixteen years ago, and owners still get caught by it.

The case is Bacino, decided by the Court of Justice of the European Union in 2010.

The ruling was narrow and it was clear. The VAT exemption for vessels applies to ships used for genuine commercial passenger transport, for industrial activity, or for fishing. A yacht chartered to someone for private leisure is not doing any of those things. Distance from shore does not change that.

That is the whole holding, and it is worth being precise about it, because the case gets stretched in both directions. It does not say charter income is always taxable everywhere. It does not create a rule about how far a yacht must sail. It says leisure use does not buy you the commercial exemption.

Why it still bites is that the structure often says one thing and the use says another.

A yacht is registered commercially. A charter agreement is signed. The paperwork looks like a business. And the charterer is the owner, or the owner’s family, on holiday. Under Bacino that is private use, however it is documented.

So the question at inspection is never what the contract says. It is what the yacht did.

Here is where the rates now sit across the Mediterranean.

Spain charges 21%, with no reduction for time on the high seas. Greece charges 24%, with limited reductions by vessel category. Croatia charges 13%, applied pro rata for time in Croatian waters. Cyprus charges 19%, with a leasing scheme producing effective rates of roughly 1.9% to 3.4%.

Malta’s standard rate is 18%, among the lowest in the EU. Qualifying short-term commercial charters are taxed at 12%. Those conditions are narrow: a maximum of 90 days, the charter must start in Malta, and it is limited to five weeks in any rolling twelve months.

Malta also has the leasing framework, which spreads VAT across a lease and reduces the base by the time the yacht is genuinely used outside EU waters. That relief was reformed in 2020. The old flat percentages based on hull length are gone, and the reduction now has to be proved with real records, such as position data and the captain’s logs.

Which brings the two halves together.

Bacino decides whether the commercial exemption is available at all. The leasing framework and the documented use decide what the bill looks like when it is not. Both turn on the same thing: what the yacht actually did, evidenced well enough to show an inspector.

Owners who keep those records as they go have an ordinary conversation at inspection. Owners who reconstruct them afterwards have a different one.

For the compliance side of commercial operation, read our guide: The Commercial Yacht Code 2025: What Owners Need to Know.

Zenco Partners advises on yacht VAT, the leasing framework and the records that support it. To review a specific position, email info@zencopartners.com or message us on WhatsApp at +356 7921 2598.

This article is for informational purposes only and does not constitute legal, tax, or financial advice. Professional advice should be obtained before taking any action based on the contents of this article.