Holding a yacht through a company gives neither a deduction of expenses nor recovery of VAT without real commercial operation. Article 39(4) of the French General Tax Code excludes yacht expenses, and since 2026 article 235 ter C taxes at 20% a year a boat held in a family holding company.
The question almost always arrives in the same order. The client has found the boat, negotiated the price, and someone has told him he should “go through a company”. Nobody has asked him what he intends to do with the vessel.
Yet that is the only question that determines the answer. A company that genuinely operates a yacht for charter is a normal tool, whose tax treatment is predictable. A company that holds a yacht for its shareholder’s use is a fragile tax object, whose real cost appears three or four years later, at the time of an audit or a resale. Between the two there is no comfortable grey area: there is a line that the tax authorities know how to draw and that is either documented or not.
What is sought, and what is obtained
The reasons for interposing a company are legitimate and well known: sharing ownership between several families, organising succession, isolating a risky asset from personal wealth, carrying bank financing, operating the vessel commercially, sometimes simply keeping the owner’s name off a public register.
What the company does not provide, on the other hand, should be said at the first meeting. It creates no right to deduct. It does not turn private use into an economic activity. It does not shield against the maritime regimes that target the registered owner and the operator. And it adds accounting, reporting and sometimes social obligations whose annual cost is never negligible on a boat that goes out fifteen days a year.
The first lock is not VAT
Discussions focus on VAT and forget the text that decides fastest. Article 39(4) of the General Tax Code in principle excludes from deductible expenses all costs resulting from the purchase, hire or any other transaction to obtain the use of yachts or pleasure boats, and from their maintenance. The tax guidance comments on it in BOI-BIC-CHG-30-20 and reserves one exception: a business that shows that its purpose is the sale or hire of yachts or pleasure boats, or the organisation of cruises for profit.
Read the exception carefully. It is framed in terms of actual purpose, not purpose stated in the articles. Writing “chartering of pleasure vessels” in article 2 of the articles of association costs nothing and proves nothing.
This is where most structures die, before any discussion of abuse of law, and without the tax authorities having to show any intent. The holding company does not only lose VAT: it loses the deduction of the vessel’s expenses and depreciation, that is most of the advantage sought.
Economic activity is proved by operation
For VAT, taxable person status requires an economic activity within the meaning of article 9 of Directive 2006/112/EC. The Court of Justice gave, in a motorhome case that transposes point by point to yachts, the grid that inspectors apply today.
In Enkler of 26 September 1996 (case C-230/94), the Court held, at paragraph 28, that the conditions in which the person actually exploits the asset should be compared with those in which the corresponding economic activity is usually carried out, and then, at paragraph 29, that the actual length of hire, the number of customers and the amount of income may be taken into account.
Translate that into documents for the file: an availability calendar, contracts with clients who are neither the shareholder nor his relatives, market-comparable rates, genuine marketing through a central agent, and income that does not boil down to a few weeks invoiced to the director himself. A company that hires out its yacht six weeks a year, four of them to its own shareholder, is not carrying on an economic activity: it is dressing up private consumption.
The other route to reassessment, and why it is not the same as the first
Many practitioners mix two lines of reasoning that the case law keeps separate.
In Halifax of 21 February 2006 (case C-255/02), the Court of Justice held that transactions meeting the objective criteria do constitute supplies of goods, services and an economic activity, even where they are carried out solely to obtain a tax advantage. The sanction therefore does not operate by denying taxable status, but by refusing the right to deduct on the ground of abusive practice, and by redefining the transactions so as to re-establish the situation that would have prevailed without the abusive transactions. To establish abuse, the Court requires an advantage contrary to the purpose of the Directive and a set of objective factors showing that the essential aim of the transactions was that advantage, taking into account the purely artificial nature of the arrangement and the legal, economic or personal links between the operators.
There are therefore two routes, and the right one must be chosen according to the facts: either there is no economic activity at all, and that is the Enkler reasoning; or there is one, but artificial in its arrangement, and that is Halifax. Combining them on the same facts is a methodological error that the tax authorities sometimes make, and that should be pointed out.
Domestic abuse of law, and a penalty detail that is overlooked
Article L. 64 of the Tax Procedure Code targets fictitious acts and those which, seeking the benefit of a literal application of the texts contrary to the objectives of their authors, can have been inspired by no other motive than avoiding or reducing tax. Article L. 64 A, applicable to acts carried out since 1 January 2020 and to reassessments notified since 1 January 2021, lowers the threshold: the motive need only be the main one, no longer the exclusive one.
A point of scope that is regularly forgotten in meetings: article L. 64 A does not apply to corporate income tax, as the tax guidance expressly states, article 205 A of the General Tax Code serving as the general anti-abuse clause for that tax. For a company holding a yacht, the inspector’s tools are therefore article L. 64, article 205 A and, more simply still, article 39(4).
The detail that matters when negotiating a settlement lies in the penalties. Applying article L. 64 entails the 80% surcharge of article 1729(b) of the General Tax Code, reduced to 40% where it is not established that the taxpayer took the main initiative for the acts or was their main beneficiary. Applying article L. 64 A does not automatically entail that 80% surcharge: only the ordinary penalties apply, 40% for deliberate failure or 80% for fraudulent practices, if the facts justify it. Better to know this before discussing a settlement.
Free use by the shareholder: the triple effect
The most common scenario is also the worst handled. The company holds the vessel, the shareholder uses it, and nobody invoices anything because, it is said, that would amount to paying oneself.
Three consequences follow. For corporate income tax, forgoing income for the shareholder’s benefit is an abnormal act of management, and the fact that the transaction falls within the company’s objects does not prevent this, as administrative case law regularly recalls. For the shareholder, the advantage granted falls within the deemed distributions of article 111(c) of the General Tax Code, which treats hidden remuneration and benefits as distributed income, whether or not taken from profits. For VAT, finally, the use of a business asset for the private purposes of the taxable person or its staff is treated as a supply of services for consideration where the asset gave rise to a right to deduct, the mechanism of article 26 of Directive 2006/112/EC transposed by article 257, II of the General Tax Code.
Hence a maxim I put bluntly to my clients: poorly calibrated payment almost always costs less than no payment. A written use agreement, with a market price, genuine invoicing and actual payment, can be argued. Free use of an eight-million-euro boat by the person who controls the company cannot be argued; it is reassessed.
What is new in 2026: a 20% tax on a yacht held in a holding company
Those still reasoning on yesterday’s structures must take into account a text passed this year. Article 7 of Act no. 2026-103 of 19 February 2026 created, in article 235 ter C of the General Tax Code, a tax on non-business assets held by family holding companies.
The mechanism is simple to state. A company subject to corporate income tax, whose total assets have a market value of five million euros, at least half of whose rights are held by a natural person or in which a natural person in fact exercises decision-making power, and whose passive income represents more than half of its operating and financial income, falls within its scope. The base is then its non-business assets, and point 3° of II.A expressly refers to yachts and pleasure boats with sail or engine, alongside vehicles not used for business and aircraft. The rate is 20%, the tax is not deductible from corporate income tax, and it is due for financial years ending on or after 31 December 2026.
An important correction moderates the whole: these assets are not taken into account in the proportion in which they have been used for an industrial, commercial, craft, agricultural or professional activity, or are the very object of such an activity. One finds, in different words, the same dividing line as in article 39(4) and in the Enkler case law. The legislator has simply stopped being content with refusing a deduction: it now taxes the asset itself.
Twenty per cent a year of the market value of a six-million-euro boat is one million two hundred thousand euros. No structure survives that for long. In my view it is the provision that will do most to shift holding structures in 2027, more than all the VAT reassessments of the last ten years.
The flag decides the corporate form, not the other way round
Here is the constraint that offshore structures discover too late. French registration (francisation) is governed by articles L. 5112-1-1 et seq. of the Transport Code. For legal entities, article L. 5112-1-6 requires a registered office or principal establishment in France, or in another EU or EEA State provided the vessel is managed and controlled from a permanent establishment on French territory. Article L. 5112-1-3 allows, besides ownership of at least 50% by eligible persons, a special approval from 25% with management conditions, bareboat charter by an eligible person, or nautical management from France. Article L. 5112-1-8 provides for automatic deletion as soon as the conditions are no longer met, subject to registered mortgages.
A British Virgin Islands company therefore cannot register a yacht under the French flag merely by owning it. It can fly another flag, and many do, which immediately reopens customs questions and the annual tax on maritime craft for personal use, articles L. 423-4 et seq. of the Code of Taxes on Goods and Services, payable by a user residing in France.
One must also acknowledge a tension that people prefer not to mention. The condition of management and control from a permanent establishment in France, laid down for the flag, gives the tax authorities a convenient set of indicators when they consider whether a permanent establishment exists for tax purposes. The two notions are distinct, with neither the same source nor the same purpose, but they feed on the same facts.
What the corporate veil does not protect
Maritime liability is not interested in the organisation chart. It is interested in the registered owner and in whoever operates the vessel.
Directive 2009/20/EC of 23 April 2009 requires insurance covering maritime claims subject to limitation for ships of 300 gross tonnage or more, and its notion of shipowner covers the registered owner and any other operator responsible, such as the bareboat charterer. Lack of a certificate exposes the vessel to an expulsion order from the port, the other Member States then refusing access to their own ports. The International Convention on Civil Liability for Bunker Oil Pollution Damage 2001, the Bunkers Convention, applies above one thousand gross tonnage.
Many large units cross these thresholds without their owner noticing. A 42-metre yacht is no longer a pleasure boat in the eyes of these texts: it is a ship, with the obligations that go with it, and a port State control that is not satisfied with an extract from the companies register.
As for the right to limit liability, organised by the 1976 London Convention and its 1996 Protocol to which the Transport Code refers, it benefits the owner and the operator, but it is lost in case of personal fault committed with intent to cause the damage or recklessly and with knowledge that such damage would probably result. A company does not commit personal fault on its own: its directors do, and it is through them that limitation falls.
Exit costs more than entry
A final blind spot. A company that deducted VAT on acquisition is subject to an adjustment period, five years for movable property, under article 207 of Annex II to the General Tax Code. Ceasing the activity, selling the vessel without VAT or reallocating it to the shareholder’s private use before the end of that period requires repayment of the corresponding fraction of the VAT deducted.
Add the latent capital gain, the treatment of shareholders’ current accounts and, where the vessel was acquired free of VAT under commercial status, the reassessment linked to the change of use. The structure rarely unwinds at a chosen moment: it unwinds when the bank, a divorce or weariness forces it, and that is precisely the worst moment to discover the bill. The file in which all this piles up looks like this, and I see a variant every year: a Luxembourg company formed in 2021 to buy a 30-metre yacht, VAT deducted in full on the basis of a charter business that never produced more than three weeks of hire a season, all invoiced to the shareholder’s friends at below-market rates, maintenance costs deducted for corporate income tax despite article 39(4), family use the rest of the year with no agreement or payment, and a sale decided in February because the bank demanded early repayment of the loan, so that the VAT repayment, the disallowance of expenses, the hidden distribution and the capital gain all fall in the same year, on a sale price that has, for its part, gone down.
My advice, in one sentence
If the boat is going to be genuinely operated, the company is the right tool, and it must then be given the means of its activity: a manager, marketing, separate accounts, contracts with third parties. If the boat is for the family, holding it in one’s own name, with good insurance and a management agreement, costs less than a company that will deduct nothing, will attract an audit and, since article 235 ter C, may be taxed every year on a fifth of the boat’s value. The rest is legal decoration, and decoration is always paid for twice.
For a complete picture, our practical guide Yacht tax and customs: which status to choose, and at what cost? sets out the three statuses side by side, with the documents that prove each one and the cost of leaving it; it can be downloaded free of charge. To have your own situation reviewed, contact the firm.
Frequently asked questions
Can a company recover VAT on the purchase of a yacht?
Only if it carries on a genuine economic activity. The criteria of Enkler of 26 September 1996 (case C-230/94) are applied: operating conditions compared with those of a market operator, actual length of hire, customers, amount of income. A company that mainly hires to its shareholder does not meet them.
Can the boat’s expenses be deducted for corporate income tax?
In principle no. Article 39(4) of the General Tax Code excludes the costs of purchasing, hiring and maintaining yachts and pleasure boats, except for a business that shows its purpose is the sale or hire of such boats or the organisation of cruises for profit. Purpose means actual activity, not the clause in the articles.
Which form of company should be chosen?
The question of form comes after that of use and after that of the flag. For a vessel intended to fly the French flag, article L. 5112-1-6 of the Transport Code requires a seat in the EU or the EEA and management and control from a permanent establishment in France. A structure outside that area requires a different flag, with the customs and tax consequences that follow.
Can the shareholder use the boat free of charge?
It is the worst solution. Free use exposes the company to a reassessment for abnormal management, the shareholder to taxation under article 111(c) of the General Tax Code, and the transaction to VAT on private use where acquisition VAT was deducted. An agreement at a market price, actually paid, is preferable.
Is there a new tax on yachts held by companies?
Yes, since the Finance Act of 19 February 2026. Article 235 ter C of the General Tax Code imposes an annual 20% tax on non-business assets, yachts and pleasure boats being expressly listed, held by a company subject to corporate income tax with at least five million euros of assets, at least 50% controlled by a natural person and whose passive income exceeds half of its income. Assets used in a genuine commercial activity are excluded in proportion to that use. The tax is due for financial years ending on or after 31 December 2026.
What is the risk in terms of abuse of law?
Depending on the basis used, the 80% surcharge of article 1729(b) of the General Tax Code, reduced to 40% where the taxpayer neither took the main initiative for nor was the main beneficiary of the acts. Applying article L. 64 A of the Tax Procedure Code does not automatically entail that surcharge: ordinary penalties then apply.
Does the company protect against accidents and pollution?
Not in the way people imagine. Insurance obligations and strict liability regimes target the registered owner and the operator, Directive 2009/20/EC applying from 300 gross tonnage and the 2001 Bunkers Convention above one thousand. The right to limit liability is lost through the directors’ personal fault.
Does selling a boat held by the company raise problems?
The five-year adjustment period of article 207 of Annex II to the General Tax Code must be checked, as must the treatment of VAT deducted and, if the vessel was acquired free of VAT under commercial status, the consequences of the change of use. Selling the shares rather than the vessel follows other rules and requires a due diligence of the company itself.
Hervé Guyader, avocat at the Paris Bar, doctor of law.
To audit a structure before 31 December 2026, the firm can be reached through its contact form.
On the same subject, the commercial regime: the four conditions customs checks; proof of VAT: a yacht without proof of VAT paid; operation: illegal charter and its consequences.