Luxembourg is also a relevant jurisdiction for yacht registration.
While Luxembourg is a land-locked nation located in the heart of Europe, its reputation as premier jurisdiction for alternative investment structures and solid legal and regulatory framework have made it an appealing domicile for private individuals and institutional investors alike.
Advantages of Yacht Registration in Luxembourg
- EU-wide VAT exemption for Luxembourg-registered yachts
- Unlimited anchorage in EU waters
- Tax-free fuel storage
- Prominent EU flagging
- Luxembourg’s merchant shipping financing status
- Favourable taxation rate on profits at 24.94%
- Ideal depreciation arrangements, in which normal lifespan of a watercraft must not be greater than 12 years
- Allow losses to be carried forward
- Sliding-scale depreciation arrangement is permitted
- Tax exemption on profits from the sale of a yacht that are reinvested to purchase a brand-new unit or modernizing another yacht
- Tax credits on investments
Following the Luxembourg Income Tax Law, yacht companies are not exempt from tax assessments. This is of utmost importance in relation to the double tax treaties and repatriation of dividends and profits.
The Types of Marine Vessels that can be Registered in Luxembourg
- Under the prevailing laws of the Luxembourg Parliament, all vessels of at least twenty five tonnes that are intended to be used for sea transport of individuals and things, commercial fishing, towing, and other profit-generating activities can be registered in Luxembourg.
- The law clearly defines the age limit of 15 years during initial yacht registration.
- Yachts and other marine vessels may be fully registered into Luxembourg’s public shipping registry once they meet all provisions under the 1974 International Convention on the Safety of Life at Sea.
- To be allowed registration in Luxembourg’s maritime register, a yacht should feature be more than 24 meters in length.
Authorized Parties for Yacht Registration
- Yachts with 50% of its ownership held by an EU resident or by institutions with registered offices in an EU member state, including Luxembourg.
- Yachts chartered by individuals and companies provided complete or partial management of the yacht will be held within Luxembourg territory.
Luxembourg Tax Regime in the Context of Yacht Registration
Corporate Income Tax
All revenues earned by a company from the operation of yachts are assessed with 22% income tax plus 4% of standard corporate income tax rate amounting to 24.94%.
Shipping companies are exempt from paying municipal business tax.
Net Wealth Tax
Yachting companies are subject to 0.05% net wealth tax.
Rules Governing Depreciation
Two kinds of depreciation are permitted in Luxembourg, namely:
- Linear Depreciation wherein the purchase price of a yacht depreciates over a minimum of 12 years or based on the percentage of the order of 8% its original purchase price.
- Accelerated Depreciation wherein a maximum rate of 24% is adopted until such time the purchase amount is written off. This is known to assess less than the amount applied in the linear depreciation method.
Carrying Forward Losses
A yachting company’s trading losses may be carried forward indefinitely. This approach is typically used to offset future profits. Rules related to major repair and maintenance services on yachts are fully deductible.
- Tax on Capital Gains on the Sale of Yachts
Tax treatment on capital gains on reselling a yacht owned by a Luxembourg-registered company for at least five years may be deferred. This is applicable only if sale proceeds are reinvested in fixed assets, including real estate, participation shares, yachts within two years.
Tax on Dividends Received
Under the EU-Parent Subsidiary Directive, all dividends received by a Luxembourg company or distributed by a foreign subsidiary are exempt from tax given the following conditions:
- Participation shares have been held since the beginning of a given year, at least twelve months, or a compromise has been made that participation shares will be held for one year from the acquisition date.
- Dividends must represent at least 10% of the capital of the other company or the acquisition price must be EUR 1.2M at least.
- Company paying the dividend is a Luxembourg resident company that is subject to local taw assessments or a non-resident company assessed with comparable tax to Luxembourg’s income tax rate, with at least 15% minimum rate as baseline.
Tax on Capital gains on Disposal of Participations
By rule, capital gains on disposals of participations in vehicles limited by shares will be exempt from tax under the following provisions:
- Participation shares represent at least 10% of capital, or acquisition price is set at EUR 6M.
- The company must commit to hold participation shares of at least 10% of the share capital to be sold for a period of at least 12 months.
- Subsidiary companies must be a Luxembourg resident company fully assessed with local tax, or a non-resident company assessed with comparable tax to Luxembourg’s income tax rate, with at least 15% minimum rate as baseline.
- Value Added Tax
Under Article 43/1 (f) of the EU Directive delineates that services rendered to the shipping industry are exempt from value added tax assessment.
Taxation on Seamen and Social Security
Tax rate assessed on seamen is set at a fixed 10% of 90% of their gross earnings, plus a lump sum abandonment of LUF 35,000 a month or LUF 1,400 a day throughout their employment term. This tax rate is only applicable to non-residents of Luxembourg. Social security is under the EU Directive 1408/71 or bilateral agreement on private insurance.
Domicile of Actual Management
In order for a yachting management company to be treated as a Luxembourg resident company and enjoy tax advantages under double taxation agreements, management operations must be held in Luxembourg. Meetings attended by the board of directors and shareholders’ manager, company accounts, and main headquarters must all be held in Luxembourg.
Dividends, Interest, and Royalties Received by a Luxembourg Company
All dividends, interests, and royalties received by a yachting company engaged in foreign trade are assessed with Luxembourg tax and may be assessed with limited withholding tax in their country of origin. In the absence of a double taxation agreement, withholding tax in the countries of origin are higher.
Dividends, Interests, and Royalties Paid Out by a Luxembourg Company
The Grand Duchy does not assess withholding tax on interest.
In the case of dividends, the standard withholding tax rate is 20%. For participation shares in a Luxembourg company of at least 25%, withholding tax rate varies between 5% and 10% based on various tax agreements.
Dividends paid by a Luxembourg company to its parent company located in an EU member state will not be subject to withholding tax if participation shares is at least 10% and is held for a period of 12 months.
Royalties paid out by a Luxembourg company to an international company, such as in the case of rental payments under a leasing agreement, will be assessed with 12% withholding tax. This rate may be reduced between 0% and 10% depending on prevailing tax agreements between Luxembourg and contracting countries.
As a member state of the European Union, Luxembourg flagged ships will benefit from arrangements and agreements concluded by the European Nation with other non-EU countries in relation to freight taxes and similar dues.
As a professional business consultancy firm, we at Damalion will be more than delighted to help you in yacht registration. We will help you decide the best flagging options for your marine vessel and provide consulting for your tax, insurance, leasing, financing, and refinancing needs. Utilizing our vast network of connections with experts in yacht incorporation, you can rest assured that our Damalion experts facilitate a smooth and hassle-free registration of your yacht company in Luxembourg. Reach out to a Damalion expert today to learn more about our full-suite yachting services in Luxembourg.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.