In response to the question raised by an Italian company (“Alfa Srl”), specializing in the rental and leasing of passenger vessels, the Italian Revenue Agency (“Agenzia delle Entrate”) has issued a crucial resolution (Risposta n. 1/2025) that allows to apply for VAT exemption on a yacht undergoing a “major refit”.
The resolution revolves around the company’s project to refit a private yacht and convert it into a commercial vessel, raising doubts as to when the VAT exemption under Article 8 bis of the VAT Decree may be applied.
This decision equates the tax treatment of such refit projects with that of newly built vessels, clarifying the conditions under which the exemption applies. In fact, as a general rule, this VAT exemption applies if the conditions for navigation on the high seas are verified, in the year in which it is used, except in the case of ships under construction. In the latter case, the exemption may also be applied for purchases during construction, while the verification of use on the high seas is postponed to the year in which the vessel begins to sail.
The question
The Italian company had purchased a private motor yacht registered as a pleasure vessel with the Italian Ship Registry. The yacht is currently located at a shipyard for significant modifications to meet the technical and safety standards required for commercial registration. These upgrades include structural changes, replacement of components such as engines, and installation of safety equipment necessary for commercial use. Once completed, the yacht will be certified as suitable for high-seas navigation and passenger transport and over 70% of its navigation will be expected to occur in international waters.
The main issue of the company’s inquiry was whether the VAT exemption under Article 8-bis of the VAT Decree may be applied before the vessel officially operates as a commercial yacht (i.e., before it starts sailing as a commercial yacht). The Italian company argued that such situation should be treated similarly to vessels under construction, since the refit presents a transformative nature.
The Decision
The Italian Revenue Agency agreed with the company, acknowledging that the scope of the refit effectively redefines the yacht as a new vessel for VAT purposes. Alfa Srl can enjoy VAT exemption on goods and services acquired during the refit. The verification of compliance with high-seas navigation requirements will occur only after the first full operational year as a commercial yacht.