Yachts in Malta

Malta VAT Yacht Leasing

VAT on Maltese registered pleasure yachts reduced to 5.4%

The Maltese VAT department has embarked on an attractive VAT incentive package through published guidelines on VAT payment applicable to yacht leasing. These guidelines address scenarios where a Maltese company purchases a pleasure yacht and enters into a ‘lease-sale‘ of the yacht with a third party. The aim of the scheme is that of assisting yacht owners to pay VAT on their yachts at an attractive VAT rate so as to place them within free circulation within the EU.

Scheme for payment of VAT on yachts

The main features of this scheme are as follows:

  1. A Maltese company would be set up and this would become the new owner of the yacht. The company would also be registered with a valid VAT number here in Malta. This same company would later become a lessor under the subsequent lease agreement.
  2. This Maltese company will lease the yacht to another person, a Maltese or foreign person or company - the Lessee.
  3. A leasing agreement (lease-purchase) of a pleasure craft being an agreement whereby the lessor (the owner of a craft) contracts the use of the craft to the lessee (the person who leases the craft) in return for a consideration is then entered into between the lessor and the lessee. At the end of the lease period, the lessee may opt to purchase the craft at a percentage of the original price.
  4. The initial VAT payable at source by the purchaser on the purchase price of the vessel would in actual terms not be payable by the lessor to the seller/supplier of the yacht. In making this statement we are conscious of three possible scenarios that may apply and in any one of them the end result would be nil VAT or refundable VAT on the purchase of the yacht. These scenarios are:
    • The yacht is purchased locally.
    • The yacht is purchased from another Member State.
    • The yacht is imported into the European Union.
  5. Different criteria apply to each of the above scenarios and we would of course be able to furnish clients with full details depending on their specific requirements.

  6. What would attract the payment of VAT is the lease of the craft as a supply of services. The supply of services is taxable according to the use of the craft within the territorial waters of the European Union.<

For the purpose of VAT, when a Maltese company purchases a pleasure yacht and lease-purchases it to third parties (Maltese or non Maltese person or company), then VAT is due on the lease at the normal rates of VAT in Malta i.e. 18%, since the supply of services would be deemed to be supplied in Malta. The activity of the Malta Company should be considered to be a normal business transaction and therefore it is advisable that a profit element of approximately 10% is generated by the company. The supply of services is taxable only on the portion of the use of the yacht, attributed within the territorial waters of the European Union.

The VAT Department, bearing in mind the difficulty in tracing the movement of the yacht in the EU waters, established through the Guidelines a set of criteria to establish percentage portions according to the type of boat, 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 in respect to the pleasure yacht to be purchased by the Malta Company which is required for the VAT special scheme purposes outlined above, the Malta Company would receive rental payments from the lessee (with an approximate profit element of 10% as explained above). The income received by the Malta Co. would be deemed to be trading income since it arises from trading activities (lease of the pleasure yacht) 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. However, it is also possible to interpose a second Malta Company for this purpose (a two-tier structure) as a result of which the tax refund and dividends are received by another Malta Company.

Practice Areas

+ Associated Law Firm

Cefai Advocates

+ Newsletter

Fill out the form below to subscribe to our Newsletter.