Is it possible to reduce the price of a vessel for a shipping company, or a yacht for an owner who wants to operate it on a commercial basis, through a financing structure? The answer is yes, and by a very significant amount, around 20 per cent of the market price.

The structure derives from the ‘Spanish tax lease’ scheme, which the European Commission declared in 2013 to be incompatible with the EU's internal market, on the grounds that it constituted illegal state aid. The regime was adapted to the Commission's requirements and, at present, through a relatively complex structure, it allows the reduction of around 20 per cent mentioned above. We will try to simplify it as much as possible in the following steps of the structure:

1) First, a shipyard signs a shipbuilding contract with a purchasing entity (shipowner) at the agreed normal market price.

2) This shipowner transfers the signed contract to a leasing entity (lessor) owned by a banking entity, which is the one leading the operation.

3) The lessor in turn signs a lease agreement with an ‘Agrupación de Interés Económico’ (AIE, ‘Economic Interest Grouping’ in English), a Spanish entity with its own legal personality which does not pay Corporate Income Tax (CIT), but charges directly to its Spanish partners, in proportion to their shareholding, all the tax items (fiscal transparency regime), essentially the tax deductions obtained for concepts mentioned below contained in the generous special tax regime in force in the Canary Islands.

The AIE is therefore established in the Canary Islands, where high tax deductions can be generated for investment in new fixed assets (that is the vessel), as well as R&D+i expenses with very high percentages on those investment and expenses. The members of the AIE, who will contribute proportionally to the payment of the financial leasing fees, are, in general, clients of the financial institutions with high tax benefits, who seek to optimise their taxation by investing in these tax leasing schemes, not because they are interested in shipbuilding, but because in this way they reduce their tax burden through the high tax incentives of the Canary Islands tax regime and the tax deferral allowed by the general Spanish leasing regime (CIT Law), which allows the lessee to amortise the vessel in advance, applying up to double the maximum depreciation coefficients allowed by the common Law. Both the above-mentioned deductions and the accelerated depreciation derived from the leasing are imputed directly to the investors, in proportion to their shareholding, which results in substantial tax savings.

The challenge is for interested European shipyards to convince the banks in their countries with a presence in Spain to implement this Spanish tax lease in their favour.

4)  Once delivered the vessel by the shipyard to the AIE, the shipowner will enter into a bareboat charter agreement until the end of the lease contract between lessor and lessee (that is approximately until three years from the beginning of the vessel building), at which time the lessee will execute its call option on the vessel.

5)  At this stage, the shipowner will acquire the AIE, already converted in a Spanish S.L. Company, this is, a Limited Liability, from the shareholders (the initial investors) at a reduced price (around 20 per cent less) compared with the initial shipbuilding contract, as the Sellers shares a significant part of the abovementioned tax savings obtained with the shipowner, within the context of the bank financing structure.

Since that moment onwards, the shipowner will be able to commence its own vessel’s operation which, in general, may be very advantageous under the so-called ‘Tonnage tax’ (optional), regulated within the framework of the Community guidelines on State aid to maritime transport, provided that the vessel is registered in a state belonging to the European Union or the European Economic Area. In the case of other Flags, there are also good solutions, but this would be the subject of another article.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                The curious thing about this Spanish structure is that it is in theory open to shipyards in other EU countries, irrespective of the shipowner's place of residence. However, market inertia and the control of the financial ecosystem by Spanish banks has meant that, in practice, it has only been applied in favour of Spanish shipyards. The challenge is for interested European shipyards to convince the banks in their countries with a presence in Spain to implement this Spanish tax lease in their favour. It is perfectly feasible, it only needs will, initiative, execution and a first case of success.

Click here to become part of The Superyacht Group community, and join us in our mission to make this industry accessible to all, and prosperous for the long-term. We are offering access to the superyacht industry’s most comprehensive and longstanding archive of business-critical information, as well as a comprehensive, real-time superyacht fleet database, for just £10 per month, because we are One Industry with One Mission. Sign up here.