Yacht VAT -Malta
The Maltese VAT department has launched a scheme whereby a Maltese company purchases a pleasure yacht and enters into a lease-sale agreement of the yacht with a third party. The aim of the scheme is to allow paying VAT on a yacht calculated on the percentage of the time that the yacht is deemed to sail in EU waters. This will also result in a VAT paid certificate at the termination of the scheme, thus allowing the yacht free movement within the EU.
VAT Treatment of Pleasure Yacht Leasing Malta
The local VAT treatment regarding Pleasure Yacht Leasing makes Malta an attractive jurisdiction for interested yacht owners or potential ones. The Malta VAT Department published a set of Guidelines for the leasing of yachts to third parties by a Maltese company as a result of which, with careful planning, the effective VAT rate on the leasing services is reduced from the standard rate of 18% to a rate as low as 5.4%, depending on two main factors, namely the type of yacht (power or sailing) and its length.
In terms of the Guidelines, a leasing agreement of a pleasure yacht is an agreement whereby the lessor, being the Malta Company, contracts the use of the yacht to the lessee in return for a consideration. The lease payments shall be payable every month for a period which may not be less than 12 months or exceed 36 months and should amount in total to the cost of the yacht plus a reasonable profit. A longer lease period may be approved on a case by case basis at the discretion of the VAT Department. The leasing agreement may be entered into by a Maltese company and any Maltese or non-Maltese person or company. The yacht may be registered under the Malta flag or any other EU flag.
For VAT law purposes, when a Maltese company purchases a pleasure yacht and lease-purchases it to third parties (Maltese or non-Maltese person or company), the lease of the yacht is considered as a supply of services which is taxable only in respect of the portion of use and enjoyment of such craft within the territorial waters of the European Union (EU). In view of the difficulty involved in tracing the movements of a yacht, the Guidelines establish the percentage portion of the time the yacht is deemed to spend within the EU according to the type of craft, as per the table below.
|TYPE OF CRAFT||% of Lease Subject to VAT||Effective Rate of VAT|
|Sailing boats or motor boats +24 metres in length||30%||5.4%|
|Sailing boats between 20.01 to 24 metres in length||40%||7.2%|
|Motor boats between 16.01 to 24 metres in length||40%||7.2%|
|Sailing boats between 10.01 to 20 metres in length||50%||9%|
|Motor boats between 12.01 to 16 metres in length||50%||9%|
|Sailing boats up to 10 metres||60%||10.8%|
|Motor boats between 7.51 to 12 metres in length (if registered in a commercial register)||60%||10.8%|
|Motor boats up to 7.5 metres in length (if registered in the commercial register)||90%||16.2%|
|Craft permitted to sail in protected waters only||100%||18%|
Income Tax Implications
As a result of the lease arrangement as outlined above, the Malta Company would receive rental payments from the lessee with an approximate profit element of 10% The income received by the Malta Company would be deemed to be trading income since it arises from trading activities and would be subject to income tax at the rate of 35% in Malta. In terms of Malta tax legislation, the shareholders of the Malta Company may, following receipt of dividends, claim a refund of 6/7ths of the Malta tax suffered at company level on the dividends distributed from this income stream. The tax treatment of the dividend income and the corresponding refund in the jurisdiction where the shareholders are tax resident must however be verified by competent advisors in the jurisdiction of the shareholder. It is also possible to interpose a second Malta Company for this purpose, thus setting up a two-tier structure as a result of which the tax refund and dividends are received by another Malta Company.
Procedure – Yacht Vat Leasing
E&S is in a position to assist its client throughout the steps necessary to apply for the Yacht Leasing Scheme, including the setting up of the Malta Company, the preparation of the Lease Agreement, registration of VAT and other corporate and administrative compliance obligations.
• The yacht must come to Malta at the beginning of the lease agreement as the presence of the yacht in Malta is a condition imposed by the VAT Department and cannot be waived.
• Prior approval (request thereof submitted in writing) by the VAT Commissioner is required for the arrangement to be adopted. Each application is considered on its own merits and will require the following: (a) the lease agreement (b) proof of the value of the yacht whether through an invoice (if yacht is new) or through a valuation of the yacht carried out by a professional recognized by the VAT Department (c) Declaration by the Lessor in relation to the whereabouts of the yacht (if available) and requesting the Commissioner to apply the rate as per the Guidelines and (d) specifications of the yacht.
• The first lease payment shall be paid by the lessee to the lessor amounting to 30% of the total lease income.
• The Lease instalments shall be payable every month and the lease period shall be between 12 to 36 months. A longer lease period may be approved on a case by case basis at the discretion of the VAT Department.
• The lessor shall be expected to make a profit from the leasing agreement over and above the value of the boat. Such profit can be at approximate 10%, however the percentage of the profit is subject to the VAT Department’s discretion.
The acquisition of the yacht by the Malta Company attracts VAT upon importation. However, upon request, the Commissioner of VAT may grant a concession from the payment of the said VAT. The Malta Company may at this stage have the option to register the boat under the Maltese flag.
By way of illustration, a sailing yacht of 20 meters length, having the market value of Euro 250,000, would be presumed to have sailed in the EU waters for 50% of the time during which it was lease-purchased and therefore the effective rate of VAT would be 9%. Assuming the yacht is being leased to the lessee by a Malta company for a period of 36 months at a profit of 10%, the initial lease payment payable by the lessee at date of the contract amounts to 30% (+ VAT) of the total lease income. The lease payments for the remaining lease term shall be paid monthly to the Malta Company.
Yacht with 20 meter length at the value of Euro 250,000
a. Total Lease Income, assuming a 10% Profit, is Euro 275,000
b. First Lease Payment is equivalent to 30% of the total lease income plus VAT, which is paid at 18% but only on the 50% of lease amount, resulting in an effective tax rate of 9%, therefore Euro 82,500 x 9% = Euro 7,425 VAT
c. 35 instalments of Euro 5,500 each plus VAT, at an effective tax rate of 9%, therefore Euro 5,500 x 35 x 9% = Euro 17,325 VAT
As a result of the above, the total VAT to be suffered amounts to Euro 24,750 as opposed to Euro 45,000.
VAT Paid Certificate
Following the expiration of the lease period, the Company may request to be provided with a VAT Paid Certificate as a confirmation that all VAT has been paid.
In preparing this paper we are relying upon the relevant provisions of the Maltese VAT Act as amended to date, the regulations thereunder, the Guidelines and the judicial and administrative interpretations thereof as these are applicable as at the date hereof. These provisions and interpretations are subject to change and such changes could affect the notes above.