Importation and Payment of VAT in the EU by a Non-EU Entity

In what circumstances can an owner of a Maltese-flagged pleasure yacht import their yacht into Malta and subsequently pay Value Added Tax (VAT) on that importation in Malta?

This article shall tackle this question and shall particularly focus on whether importations of pleasure yachts and VAT payments thereon, can be done by an entity established outside the customs territory of the Union. Of particular importance in understanding the rules applicable in this regard, are REGULATION (EU) No 952/2013 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 9 October 2013 laying down the Union Customs Code (recast) (hereinafter referred to as the “Union Customs Code” or “UCC”) and COMMISSION DELEGATED REGULATION (EU) 2015/2446 of 28 July 2015 supplementing Regulation (EU) No 952/2013 (hereinafter referred to as the “UCC Delegated Regulation").

This article shall start by examining how the UCC defines economic operators and persons other than economic operators and then moves on to determine whether entities established outside the customs territory of the Union may lodge a customs declaration within the Union. The article then shifts its focus on when an Economic Operator Registration Identification number (EORI) number would be required prior to filing such a customs declaration and subsequently explains how one can lodge such a customs declaration in practice. Finally, the article, examines whether following an importation, an entity established outsides the customs territory of the Union may pay VAT in the Union territory.

The Definition of an ‘Economic Operator’ and ‘Person’

A ‘person established in the customs territory of the Union’ is defined as follows:

“(a) in the case of a natural person, any person who has his or her habitual residence in the customs territory of the Union;

(b) in the case of a legal person or an association of persons, any person having its registered office, central headquarters or a permanent business establishment in the customs territory of the Union.”1

Therefore, persons established outside the customs territory of the Union; would be those persons that do not fall under the above-quoted definition.

In determining whether an entity established outside the customs territory of the Union can import a pleasure yacht and pay VAT thereon, one would need to first determine the manner in which the Union Customs Code would define that particular entity, in particular, whether the Union Customs Code would treat that entity as an economic operator or otherwise as a person other than an economic operator.

The two operating definitions in this regard would be the Union Customs Code, Article 5 definitions of ‘economic operator’ and ‘person’. An "economic operator" is defined as a “person who, in the course of his or her business, is involved in activities covered by the customs legislation.”2 On the other hand, a “person” is defined as “a natural person, a legal person, and any association of persons which is not a legal person but which is recognised under Union or national law as having the capacity to perform legal acts.”3

In the present example, it is assumed that the entity is not importing the pleasure yacht in the course of its business, and it simply intends to import and hold the yacht to be used for non-commercial purposes. In view of this, in terms of the UCC, the entity would likely not be defined as an economic operator but would rather fall under the definition of a ‘person’ other than an economic operator. In any case, however, it should be noted that the Union Customs Code allows for both economic operators and persons other than economic operators, to be entities established outside the customs territory of the Union.

Can an Entity not Established in the Customs Territory of the Union Lodge a Customs Declaration and therefore import goods into the customs territory?

For an entity, whether it is an economic operator or a person other than an economic operator, to import goods into the customs territory of the Union, it must lodge a customs declaration before customs authorities. The Union Customs Code defines the term ‘customs declaration’ as:

“The act whereby a person indicates, in the prescribed form and manner, a wish to place goods under a given customs procedure, with an indication, where appropriate, of any specific arrangements to be applied”.4 (Emphasis Added)

Also noteworthy, is the definition of "customs procedure" in Article 5 of the Union Customs Code which states that customs procedure:

“means any of the following procedures under which goods may be placed in accordance with the Code:

(a) release for free circulation;

(b) special procedures;

(c) export.”5 (Emphasis Added)

When an entity wishes to place a pleasure yacht into free circulation in the EU, and therefore file a customs declaration to place the good under a given customs procedure it would be acting as an ‘importer’ of the said yacht. The question arises as to whether an importer can be established outside the EU for the purpose of lodging a customs declaration.

It should be here clarified that the Union Customs Code places a particular limitation on exporters whereby exporters can only be EU-established entities, however, no such limitation is placed on importers. In this regard, Article 1 of the UCC Delegated Regulation, defines an exporter as follows:

“(a) the person established in the customs territory of the Union who, at the time when the declaration is accepted, holds the contract with the consignee in the third country and has the power for determining that the goods are to be brought to a destination outside the customs territory of the Union,

(b) the private individual carrying the goods to be exported where these goods are contained in the private individual’s personal baggage,

(c) in other cases, the person established in the customs territory of the Union who has the power for determining that the goods are to be brought to a destination outside the customs territory of the Union.”6

The definition of exporter, therefore, requires that exporters be persons established in the customs territory of the Union. It is here emphasised, that the UCC Delegated Regulation limits this obligation to exporters and in no manner extends the scope of this limitation to importers. On the contrary, the Union Customs Code, guides entities not established in the customs union on the manner in which they may import goods into the customs territory.

In this respect, reference is made to article 9 of the Union Customs Code which determines the instances where registrations for Economic Operator Registration Identification numbers (EORIs) would be required. Article 9 provides as follows:

“1. Economic operators established in the customs territory of the Union shall register with the customs authorities responsible for the place where they are established.

2. In specific cases, economic operators which are not established in the customs territory of the Union shall register with the customs authorities responsible for the place where they first lodge a declaration or apply for a decision.
3. Persons other than economic operators shall not be required to register with the customs authorities unless otherwise provided.

Where persons referred to in the first subparagraph are required to register, the following shall apply:

(a) where they are established in the customs territory of the Union, they shall register with the customs authorities responsible for the place where they are established;

(b) where they are not established in the customs territory of the Union, they shall register with the customs authorities responsible for the place where they first lodge a declaration or apply for a decision.

4. In specific cases, the customs authorities shall invalidate the registration.”7

From a reading of article 9, it is noted that paragraph 2 of Article 9 caters for instances where economic operators are not established in the customs territory of the Union; and paragraph 3 (b) of Article 9 caters for instances where persons other than economic operators are not established in the customs territory of the Union. It results, therefore, that economic operators or persons other than economic operators not established in the customs territory of the Union may indeed register with customs authorities for the purposes of obtaining an EORI number and subsequently lodging a customs declaration, or otherwise may lodge a customs declaration whilst benefitting from the exemption of obtaining an EORI number, depending on the circumstances applicable.

When is an EORI Required prior to Lodging a Customs Declaration?

Primarily, under the UCC Delegated Regulation, an EORI number is defined as follows “an identification number, unique in the customs territory of the Union, assigned by a customs authority to an economic operator or to another person in order to register him for customs purposes.”8 Therefore, for an EORI to be assigned one need not be an economic operator, but may also fall under the definition of ‘person’.

In instances where one is defined as an economic operator, Article 5 of the UCC Delegated Regulation states that an economic operator not established in the customs territory of the Union shall register for an EORI Number before lodging a customs declaration in the customs territory of the Union, this subject to certain exceptions.

In instances where the entity is defined as a person other than an economic operator, one would need to examine Article 6 of the UCC Delegated Regulation which states that:

“1. Persons other than economic operators shall register with the customs authorities where one of the following conditions is met:

(a) such registration is required by the legislation of a Member State;

(b) the person engages in operations for which an EORI number must be provided pursuant to Annex A and Annex B.

By way of derogation from paragraph 1, where a person other than an economic operator only occasionally lodges customs declarations, and the customs authorities consider this to be justified, registration shall not be required.” 9(Emphasis Added)

Taking into account the present example, it is likely that the derogation from paragraph 1 in article 6 would apply such that the entity, when defined as a person (not as an economic operator) would be exempt from being required to file an application for registration for an EORI.

In line with the regulations at Union level, should an entity be defined as an economic operator by the Maltese customs authorities, the conditions set-out under Maltese law for the purposes of registering for an EORI are as follows:

“Economic operators established in this country

It is only obligatory for export declarations for Economic operators to be registered with the VAT department before they intend to apply for an EORI number.

 For registration in EORI, economic operators have to present the filled-in EORI application form and supporting documents…

 Economic operators not established in the EU

Same procedure as above applies with the addition that it is obligatory to have a Maltese representative…

If relevant: other persons than listed above

 Private persons who have non-commercial transactions.

One common assigned number is used for this purpose; no EORI application form is needed.

Non-profit-making organisations (embassies, charitable institutions, social clubs, NGOs, etc.):

 These will be individually registered in our national EORI system. They apply directly to customs by sending an email addressed to the Director with all the necessary information to be issued with a Customs assigned number.”10

 From an understanding of the applicable rules examined above, both in terms of Maltese law11 as well as in terms of paragraph 1 of article 6 of the UCC delegated Regulation, it transpires that in instances where an entity is defined as a ‘person’ not as an ‘economic operator’, an EORI would not be required. Having said that, irrespective of any such applicable definition, the only legal obligation imposed on entities to obtain an EORI is that they must fill in the EORI application form and also have a Maltese representative. Therefore, an economic operator, whether established in the customs territory of the Union or otherwise, filing an application for an EORI simply requires the appointment of a Maltese representative for the purposes of lodging a customs declaration before the customs authorities in Malta.

Lodging a Customs Declaration

Having established that entities not established in the customs territory of the Union may lodge customs declarations for the purposes of importing goods into the Union territory, one would then need to determine how such a customs declaration may be lodged.

Importantly Article 170 of the Union Customs Code regulates the manner in which customs declarations may be lodged in practice. Article 170 provides as follows:

“1. Without prejudice to Article 167(1), a customs declaration may be lodged by any person who is able to provide all of the information which is required for the application of the provisions governing the customs procedure in respect of which the goods are declared. That person shall also be able to present the goods in question or to have them presented to customs.

 However, where acceptance of a customs declaration imposes particular obligations on a specific person, that declaration shall be lodged by that person or by his or her representative. 

2. The declarant shall be established in the customs territory of the Union.

3. By way of derogation from paragraph 2, the following declarants shall not be required to be established in the customs territory of the Union:

(a) persons who lodge a customs declaration for transit or temporary admission;

(b) persons, who occasionally lodge a customs declaration, including for end-use or inward processing, provided that the customs authorities consider this to be justified;

(c) persons who are established in a country the territory of which is adjacent to the customs territory of the Union, and who present the goods to which the customs declaration refers at a Union border customs office adjacent to that country, provided that the country in which the persons are established grants reciprocal benefits to persons established in the customs territory of the Union.

4. Customs declarations shall be authenticated.”12 (emphasis added)

In this respect, it is understood that a declarant filing a customs declaration must be established in the customs territory of the Union subject to the exception provided in paragraph 3 of Article 170. Paragraph 3 of Article 170 clearly states that by way of an exception, declarants are not required to be established in the customs territory of the Union if they are persons who occasionally lodge a customs declaration including for end-use or inward processing, provided that the customs authorities consider this to be justified.

In instances where the above derogation is not applicable, as provided for in paragraph 1 of article 170 and given the condition imposed by paragraph 2; the customs declaration may be lodged by the person’s customs representative acting as a declarant13 who must be established in the customs territory of the Union.

Article 18(2), similarly to Article 170(2) quoted above, further states that:

“A customs representative shall be established within the customs territory of the Union. Except where otherwise provided, that requirement shall be waived where the customs representative acts on behalf of persons who are not required to be established within the customs territory of the Union”.14 (Emphasis Added)

Therefore, the declarant appointed to represent the entity would be acting as a customs representative. Article 5(6) of the Union Customs Code defines “customs representative” as “any person appointed by another person to carry out the acts and formalities required under the customs legislation in his or her dealings with customs authorities”.15

In practice, the “declarant” or “customs representative” in these situations would invariably be a local customs agent, acting under a power of attorney whose details would need to be recorded in the customs declaration.

In addition, Article 18 of the Union Customs Code further provides that:

“1. Any person may appoint a customs representative.

Such representation may be either direct, in which case the customs representative shall act in the name of and on behalf of another person, or indirect, in which case the customs representative shall act in his or her own name but on behalf of another person.

2. A customs representative shall be established within the customs territory of the Union.

 Except where otherwise provided, that requirement shall be waived where the customs representative acts on behalf of persons who are not required to be established within the customs territory of the Union.

3. Member States may determine, in accordance with Union law, the conditions under which a customs representative may provide services in the Member State where he or she is established. However, without prejudice to the application of less stringent criteria by the Member State concerned, a customs representative who complies with the criteria laid down in points (a) to (d) of Article 39 shall be entitled to provide such services in a Member State other than the one where he or she is established.

4. Member States may apply the conditions determined in accordance with the first sentence of paragraph 3 to customs representatives not established within the customs territory of the Union.”16

In this respect, from a Maltese legal perspective, Legal Notice 14 of 2016 of the Laws of Malta, defines the term ‘customs representative’ and provides as follows:

“57. (1) Any person who is established in Malta may act as a customs representative in Malta, provided he fulfils all the requirements laid down in this Part of these regulations. 

(2) Such representation may be either direct, in which case the customs representative shall act in the name of and on behalf of another person, or indirect in which case the customs representative shall act in his capacity or his own name but on behalf of another person. 

(3) A customs representative shall declare whether he is acting as a direct or indirect representative in every declaration to the customs authorities. 

(4) A customs representative shall fill up the power of attorney in the Fourth Schedule, showing his empowerment by the person represented and also showing the type of representation which he chooses in every declaration to customs. 

(5) The customs authorities may require persons stating that they are acting as customs representative to provide evidence of their empowerment by the person represented.”17 (Emphasis Added) 

In conclusion, therefore, pursuant to article 9 and article 170 of the Union Customs Code, and the applicable rules under Maltese law, an entity not established in the customs territory of the Union, wishing to make a one-time importation of a pleasure yacht to be used for non-commercial purposes, may lodge a customs declaration before the customs authorities through the appointment of a representative.

An Entity not Established in the Customs Territory of the Union Paying VAT in Malta or the EU

Once it is established that an entity can lodge a customs declaration for the purposes of importing goods, the second question that arises is whether an entity not established in the customs territory of the union is able to pay VAT in Malta or otherwise elsewhere within the EU subsequent to the importation of those goods.

It is noted that COUNCIL DIRECTIVE 2006/112/EC of 28 November 2006 on the common system of value added tax (hereinafter referred to as the “VAT directive”) permits the payment of VAT by entities not established within the EU. Indeed, upon the importation of goods into the EU, subject to certain exceptions, VAT must be paid. In this regard, article 2 of the VAT Directive states as follows: “1. The following transactions shall be subject to VAT: (d) the importation of goods.”18 

What is an ‘importation of goods’?

Article 30 of the VAT Directive states that ‘Importation of goods’ “shall mean the entry into the Community of goods which are not in free circulation within the meaning of Article 24 of the Treaty.”19

Article 24 of the treaty states as follows “Products coming from a third country shall be considered to be in free circulation in a Member State if the import formalities have been complied with and any customs duties or charges having equivalent effect which are payable have been levied in that Member State, and if they have not benefited from a total or partial drawback of such duties or charges.”20

On the Importation of goods, Article 70 further states that “The chargeable event shall occur and VAT shall become chargeable when the goods are imported.”21

Article 62 of the VAT Directive states that a:

“(1) ‘chargeable event’ shall mean the occurrence by virtue of which the legal conditions necessary for VAT to become chargeable are fulfilled;

(2) VAT shall become ‘chargeable’ when the tax authority becomes entitled under the law, at a given moment, to claim the tax from the person liable to pay, even though the time of payment may be deferred.”22 (emphasis added)

Article 63 further states that: “The chargeable event shall occur and VAT shall become chargeable when the goods or the services are supplied.”

Therefore, once a good which has not been previously placed into free circulation within the EU, enters into the EU, is in compliance with customs regulations and undergoes customs procedures such that it is deemed to have been imported, then a chargeable event would have occurred and VAT becomes due.

Therefore, in the present example, once the pleasure yacht is duly imported; VAT must be charged.

Where is the Place of importation of goods?

Article 60 states: “The place of importation of goods shall be the Member State within whose territory the goods are located when they enter the Community.”

In the present example, for VAT to be due in Malta, Malta would need to be the place of supply, that is, the place where the importation into the EU takes place.

Who can pay VAT in Malta/EU?

Within the EU, VAT can be paid by a taxable person and Article 9 of the VAT Directive defines a taxable person as “any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.”

Therefore, the VAT Directive does not put any limitations on who a taxable person is on the basis of where such person is established – the law states any person. This definition clarifies that EU VAT rules cover taxable persons even if their activity is carried out or they are based (established) outside the EU.

Having established that VAT may be paid by any taxable person, there are instances where a non-EU company that wants to pay VAT will need to register the non-EU company as a non-resident economic operator by obtaining an EORI subject to certain exceptions.23

23 The applicability of the EORI requirements have been examined above.

The conclusion is therefore, that in the present example, once customs procedures are concluded the pleasure yacht shall would be deemed to have been imported into Malta, and therefore a chargeable event would have occurred, such that VAT would be due, and the authorities in Malta would be under a legal obligation to collect the VAT payment from the entity in question.

Conclusion

From the above examination it is concluded that an entity not established in the customs territory of the Union can lodge a customs declaration, import a good and pay VAT on that good without the need of obtaining a permanent address in Malta or the EU or otherwise becoming an entity established in the customs territory of the Union, subject to it appointing a Maltese representative, as applicable.

As a one-stop shop, CSB Group is one of the Malta-based specialists in shipping and yachting services with the necessary expertise to handle a variety of services including the importation of pleasure yachts into Malta as well as the payment of VAT thereon.

Should you have any questions or require any clarifications about any matter relating to shipping and yachting, get in touch with us on [email protected], so that Dr Rachel Pecorella Genovese and Dr Edward Meli, our Yachting Industry Experts, would be able to guide and advise you further.

About the Authors

This article has been authored by Dr Rachel Pecorella Genovese, Shipping, IP, and Commercial Manager and by Dr Edward Meli, Lead Corporate Services Advisor. For additional information kindly contact us on [email protected].

 1 Article 5 of the Union Customs Code

2 Union Customs Code, Article 5.

3 Union Customs Code, Article 5.

4 Article 5(12) of the Union Customs Code

5 Article 5 of the Union Customs Code

6 Article 1 of the UCC Delegated Regulation

7 Article 9 of the Union Customs Code

8 UCC Delegated Regulation

9 Article 6 of the UCC Delegated Regulation

10 European Commission’s Notice entitled ‘EORI National Implementation’ issued on the 28th of June of the year 2022, page 41.

11 In this regard the European Commission in its Notice entitled ‘EORI National Implementation’ issued on the 28th of June of the year 2022, page 41, provides as follows: “Are EORI numbers be assigned in accordance with Article 6 (1) (a) UCC-DA to persons other than economic operators? No…”

12 Article 170 of the Union Customs Code.

13 In this regard, the term “declarant” is defined in Article 5(15) of the Union Customs Code as:

“the person lodging a customs declaration, a temporary storage declaration, an entry summary declaration, an exit summary declaration, a reexport declaration or a re-export notification in his or her own name or the person in whose name such a declaration or notification is lodged”.

14 Article 170 of the Union Customs Code

15 Article 5(6) of the Union Customs Code

16 Article 18 of the Union Customs Code

17 Legal Notice 14 of 2016 of the Laws of Malta

18 Article 2 of the VAT Directive

19 Article 30 of the VAT Directive

20 Article 24 of the Treaty

21 Article 70 of the VAT Directive

22 Article 62 of the VAT Directive