VAT Treatment of Yacht Leasing
The VAT Department in Malta has devised a structure that apart from offering a safe business solution to those individuals wanting to acquire a pleasure yacht with a VAT paid status, offers the added benefit of owning a Maltese VAT paid yacht under the Maltese flag through a Maltese company.
A financial leasing agreement in respect of a yacht is an agreement whereby the lessor (the owner of the yacht) allows the lessee (the person who leases the yacht) to use the yacht for a stipulated period in return for a consideration (the lease payment). At the end of the lease period, the lessee may opt to purchase the yacht at a percentage of the original price.
A supply of services is deemed to take place where the person who makes the supply is established. Given that the company would be deemed to be established in Malta, the place of supply would be deemed to be Malta and therefore, the Maltese company would have to charge VAT on the income derived under the finance lease. As a general rule, under Maltese VAT law, the actual leasing of yachts is taxed at the general VAT rate of 18%.
The VAT department guidelines have determined that VAT is only payable on that portion of the lease during which the yacht is in EU territorial waters. It is very difficult to trace the movements of pleasure vessels in order to determine the period that the vessel spends within the territorial waters of the EU and the time it spends outside the EU. In this respect, these guidelines have issued a “presumed” length of stay during which the yacht is presumed to have been in EU waters, and the VAT rates are prescribed as follows according to the type and length of the vessel:
Type of Yacht % of lease subject to VAT Effective Rate of VAT
Sailing boats or motor boats over 24 metres in length 30% 30% of taxable value x 18%
Sailing boats between 20.01 to 24 metres in length 40% 40% of taxable value x 18%
Motor boats between 16.01 to 24 metres in length 40% 40% of taxable value x 18%
Sailing boats between 10.01 to 20 metres in length 50% 50% of taxable value x 18%
Motor boats between 12.01 to 16 metres in length 50% 50% of taxable value x 18%
Sailing boats up to 10 metres in length 60% 60% of taxable value x 18%
Motor boats between 7.51 to 12 metres in length (if
registered in the commercial register) 60% 60% of taxable value x 18%
Motor boats up to 7.5 metres in length (if registered in
the commercial register) 90% 90% of taxable value x 18%
Craft permitted to sail in protected waters only 100% 100% of taxable value x 18%
The beneficial owner acquires the yacht via a Maltese company. The company is not required to obtain special status or any advance revenue ruling. The main object of the company would be to lease the yacht to the beneficial owner which could be a company or person.
The finance lease agreement should last at least one (1) year and cannot exceed three (3) years. At the end of the lease term, the VAT paid certificate is then granted upon payment of VAT dues in accordance with the scheme.
For the structure to be valid, the Maltese VAT Department has issued the following criteria all of which must be satisfied:
** The boat must come to Malta, possibly at the beginning of the lease agreement;
** The financial leasing agreement shall be between a Maltese company and any Maltese or foreign person or company;
** The transaction is reported in advance to the VAT Department;
** The Maltese company makes a profit of 5% on the transaction;
** The lease instalments shall be payable every month and the lease agreement shall not exceed 36 months;
** Any purchase at the end of the lease agreement shall not be less than 1% of the original value of the vessel, and this will be subject to the standard rate of VAT at 18%.
Example:
Vessel with a length of 22 metres Amount in €
Value 1,000,000
Est. profit @ 5% 50,000
Total value incl. profit 1,050,000
Down payment: Total VAT payments
€500,000*40% = 200,000
VAT= 200,000 @ 18% = 36,000 36,000
Instalments:
Balance of 650,000 – 18 monthly
Instalments of 30,555.55 *40% = 12,222.22
VAT = 12,222.22 @ 18% = 2,200 39,600.00
Redemption: 1% of value = 10,000
VAT = 10,000 @ 18% 1,800
Total VAT Paid 77,400
Effective VAT rate: 7.74%
PAYMENT OF VAT IN MALTA
In order to enable us to guide you accordingly, please inform us of the cost of the purchase of the yacht so that we will provide you with an estimation of the VAT to be paid. This amount is subject to a valuation by a recognised surveyor. If you consider the proposal to be favourable, then we suggest that you should start by submitting a valuation of the yacht (the surveyor must be approved by the VAT Department and therefore please also submit his C.V. in order to obtain the necessary authorisation) so that we will apply to the VAT Department to obtain the approval for the yacht to be registered under this structure.
