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 yacht owners. Only services rendered in the EU are subject to VAT as it is a European tax. However, the very nature of yachts makes it impossible to identify, with certainty, the time spent in EU waters. Therefore the Malta VAT Department, published a set of Guidelines with which one can know the exact extent of their VAT exposure. These guidelines assume the amount of time spent by yachts, of different types and sizes, in EU waters.
Therefore, the assumption is the larger the yacht the more time it spends outside EU Territorial waters. This presents an opportunity for yacht owners looking to optimize they Yacht VAT exposure. These guidelines coupled with a finance leasing could reduce the VAT rate on your new yacht to 5.4%. This depends on two main factors, namely the type of yacht (power or sailing) and its length.
How Does Yacht VAT leasing work?
Generally a leasing agreement of a pleasure yacht is an agreement whereby the lessor contracts the use of the yacht to the lessee. This lease must be done in exchange of financial compensation. In addition, the agreement grants the option to the lessee to purchase such yacht at the end of the lease period at a percentage of the original price. The lease instalments shall be payable every month for a period of not more than 36 months and should amount in total to the cost of the yacht plus a reasonable profit. The leasing agreement may be entered into by a Maltese company and any Maltese or non-Maltese person or company.
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 craft, 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
|Effective Rate of
|Sailing boats or motor boats
+24 metres in length
|Sailing boats between 20.01 to
24 metres in length
|Motor boats between 16.01 to
24 metres in length
|Sailing boats between 10.01 to
20 metres in length
|Motor boats between 12.01 to
16 metres in length
|Sailing boats up to 10 metres||60%||10.8%
|Motor boats between 7.51 to
12 metres in length (if
registered in a commercial
|Motor boats up to 7.5 metres
in length (if registered in the
|Craft permitted to sail in
protected waters only
Income Tax Implications
There are also tax implications to consider as a result of the VAT lease outlined above. The Malta Company would receive rental payments from the lessee (with an approximate profit element of 10% as explained above). This income received by the Malta Co. would be deemed to be trading income since it arises from trading activities (lease of the pleasure yacht). Consequently this income would be subject to income tax at the rate of 35% in Malta. However, the shareholders may claim a refund of 6/7ths of the Malta tax suffered at company level on the dividends distributed.
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. However, it is also possible to interpose a second Malta Company for this purpose (a two-tier structure). Consequently 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 and (c) specifications of the vessel.
- An initial contribution shall be paid by the lessee to the lessor amounting to 40% of the value of the craft.
- The Lease instalments shall be payable every month and the lease agreement shall not exceed 36 months.
- 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.
- Any purchase value at the end of the lease agreement shall not be less than 1% of the original value of the craft, and this will be subject to the standard rate of VAT at 18%.
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 and therefore the VAT, upon importation, is not paid. The Malta Company may at this stage have the option to register the boat under the Maltese flag.
Example of VAT Calculation on Yacht :
By way of illustration, a sailing yacht of 20 meters length having the market value of Euro250,000, the pleasure yacht will 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 contribution payable by the lessee at date of the contract amounts to a minimum of 40% (+ VAT) of the yacht’s value.
The lease payments for the remaining lease term shall make up for the balance of the value of the yacht plus the profit element for the Malta Company. At the end of the lease, the lessee may wish to purchase the yacht from the Malta Company at a price not less than 1% of the original price. The yacht may be then transferred in the name of the lessee. At this final stage, a VAT paid certificate is issued to the lessee provided that all VAT has been duly paid.
Worked Example Yacht VAT
Yacht with 20 meter length at the value of Euro 250,000
- Initial Contribution equivalent to 40% of Euro 250,000 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 100,000 x 9% = Euro 9,000 VAT
- Maximum 36 instalments of approximately Euro 4,900 each plus VAT at an effective tax rate of 9%, therefore
Euro 4,860 x 36 x 9% = Euro 15,750 VAT
- Redemption of the yacht (option) on the payment of 1% of value of yacht plus VAT at 18%, therefore
Euro 2,500 x 18% = Euro 450 VAT
As a result of the above, the total VAT to be suffered amounts to Euro 25,200 as opposed to Euro 45,000.
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.