Tax Residence of Seafarers in the Yachting Industry: Analysis of a Practical Case
Yachting taxation is a complex and specialised field of particular interest to yacht owners and maritime businesses, but also to seafarers and captains who find themselves facing conflicts of domicile or international taxation.
In our case, we examined the situation of a single French seafarer employed by a Hong Kong company to sail on a vessel flying the flag of a low-tax island. The taxpayer owns a main residence in France, to which he returns during his rest periods.
The central issue is the determination of his tax residence under French domestic law and international treaties, given that his professional activity is carried on mainly abroad and that he receives Hong Kong-source income.
Under domestic law, Article 4 B of the CGI provides three alternative criteria for establishing tax residence: the home or main place of abode, the exercise of a main professional activity, and the centre of economic interests. A single criterion is enough to establish tax domicile in France. In his case, the home criterion is decisive, because he keeps a dwelling in France that is at his disposal and to which he returns for each rest period. Although the taxpayer works abroad and receives Hong Kong-source income, his permanent home remains in France, thereby establishing his French tax residence.
The vessel's flag and its home port have no bearing on the determination of tax residence, as these factors are not taken into account by the relevant tax provisions. Only actual physical presence in each State's territorial waters counts in determining where the professional activity is carried on, but here again the many voyages made do not establish a presence of more than 183 days in any particular country.
In the absence of a permanent home in another State, and provided he stays fewer than 183 days in each foreign jurisdiction visited, no conflict of residence arises with a third State. Should such a conflict arise, international tax treaties (OECD model) provide subsidiary criteria to resolve it: the permanent home is the main criterion, followed by the centre of vital interests (personal and economic ties), habitual abode, and finally nationality.
As a French tax resident, there is a taxation conflict to resolve between the State of residence (France) and the source State of the income (Hong Kong). Under the France–Hong Kong treaty, salaries received for employment exercised aboard a ship operated in international traffic are taxable in Hong Kong under Article 14 of the treaty, but also in France if the taxpayer is tax resident there. This potential double taxation is neutralised by a tax credit mechanism under Article 22: France deducts from its tax the amount paid in Hong Kong, up to the corresponding French tax. The effective taxation therefore corresponds to that of the country with the higher tax burden.
The exemption provided by Article 81 A of the CGI for seafarers aboard vessels registered in the French International Register (RIF) does not apply in this case, as the vessel flies the Cayman Islands flag. However, a full exemption remains possible if the income is subject, in the State where the activity is exercised, to a tax at least equal to two-thirds of the French tax, or if the activity is carried on abroad for more than 183 days over 12 consecutive months in certain exhaustively listed sectors.
In conclusion, keeping a dwelling in France is the decisive factor maintaining French tax residence, regardless of the length of stays abroad, the source of income or the vessel's flag. Any change in this situation would require a full reassessment under the main-abode criteria and the applicable international treaties.
Eve d'Onorio di Méo
Lawyer, Certified Specialist in Tax Law
Member of the Marseille Bar (France) and of the Geneva Bar Register (Switzerland)
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