VAT on Yacht Leasing

 

In 2005, the VAT Department issued guidelines on the VAT treatment of the leasing of yachts by a Malta company. The guidelines set out that the VAT rate on the lease payments will be reduced by a predetermined percentage depending on the size and means of propulsion of the yacht.

 

What is a leasing agreement of a pleasure boat?

 

A leasing agreement of a pleasure boat is an agreement whereby the lessor (the owner of a boat) contracts the use of the boat to the lessee (the person who leases the boat) in return for a consideration. In addition, at the end of the lease period, the lessee may opt to purchase the boat at a percentage of the original price. The final purchase is strictly an option which may be exercised at the end of the lease for a separate consideration.

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For the purpose of VAT, the lease of the boat is a supply of services with the right of deduction of input VAT by the lessor, where the right of input VAT applies. This supply of services is taxable according to the use of the boat, attributed within the territorial waters of the European Union (EU), provided that the lessor is a Maltese company which is leasing the boat to any Maltese or non-Maltese person or company.

 

Conditions for application of the Guidelines

 

In order to benefit from the yacht leasing guidelines a number of conditions must be satisfied, the first of which is that the owner of the yacht, i.e. the lessor, must be a company incorporated in Malta with a valid Malta VAT identification number. The lessee may, however, be a Maltese or foreign individual or company. In order for the guidelines to apply, the lessor and lessee must enter into a yacht leasing agreement for a period not exceeding 36 months. The agreement must provide for the first lease instalment to amount to 40% of the value of the yacht, and the lessor must effectively make a profit on the lease contract.

 

The VAT Department must give its consent to a yacht lease agreement in order for the guidelines to apply.

 

Income Tax Implications

 

The lessor may take advantage of the beneficial Maltese tax system, leading to a maximum effective Malta tax incidence of 5%.

 

VAT Implications

 

Acquisition of the Yacht

 

The VAT treatment upon acquisition of the yacht by the Malta Company will depend on whether the yacht is acquired locally, acquired from another EU Member State, or imported into Malta from a third country. In any of these three situations, VAT due would be refundable on the basis that the yacht is being used for the economic activity of the lessor.

 

Lease of the Yacht

 

The lease of the yacht is considered to be a supply of services taking place in Malta where the yacht is actually put at the disposal of the customer provided the lessor is established in that same place. Thus, where the yacht is put at the disposal of the customer in Malta, i.e. the same place where the supplier is established, the place of supply will be Malta.

 

“Effective VAT rate is reduced to as low as 5.4%”

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In view of the inherent difficulties in determining the exact period of time which the yacht spends inside and outside EU territorial waters, the yacht leasing guidelines provide that VAT will only be due on a percentage of the lease based on a presumption as to the time that a yacht is to be within EU territorial waters.

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Applicable VAT rates

 

The yacht leasing guidelines are subject to specific conditions in order to apply. However, provided these are fulfilled, the effective VAT rates on the lease payments would be as follows:

 

Type of Yacht                            Lease % subject to VAT             Effective VAT rate

Yachts > 24m                                           30%                                         5.4%

Sailing yachts: 20.01m - 24m                  40%                                         7.2%

Motor yachts: 16.01m - 24m                   40%                                        7.2%

Sailing yachts: 10.01m - 20m                  50%                                        9.0%

Motor yachts: 12.01m - 16m                   50%                                        9.0%

Sailing yachts < 10m                               60%                                       10.8%

Motor yachts: 7.51m - 12m*                   60%                                      10.8%

Motor yachts < 7.5m*                             90%                                       16.2%

 

* If registered in the commercial register

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Amended Guidelines regarding VAT treatment of Yacht and Aircraft leasing

 

The Commissioner for Revenue has published amended versions of the guidelines regarding the VAT treatment of yacht and aircraft leasing. It is noted that the determination of the period that the boat/aircraft spends within the territorial waters/airspace of the EU is not carried out by automatic reference to the published table but shall be subject to approval by the Commissioner after that the rental company shows to his satisfaction that it cannot reasonably carry out a physical assessment of such time outside the EU due to reasons beyond its control. Each application submitted is examined on a case by case basis and has to be approved in writing by the Commissioner.

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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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