VAT on Maltese Registered Pleasure Yachts
The Maltese legislation offers third parties the ability to become the owners of an EU VAT-paid yacht with an effective VAT rate of 6.12%, excluding tax and cost transactions which give a risen outlay of 8%. The VAT treatment guidelines on yacht leasing published in 2019, offer parties the ability to deduct any input VAT incurred on the purchase of the yacht through a lease agreement between the owning company, a company registered under the laws of Malta that primarily acquires the yacht, and the lessee. This has to be executed in adherence to the provisos listed in the regulation and briefly listed below.
The yacht can be purchased both as new as well as second hand, and may be purchased from an EU supplier or a Non-EU supplier as the beneficial owner deems fit. Upon registration of the yacht in Malta, it is imposed that the vessel is brought and berthed in Malta and that the prior approval from the Director General VAT is acquired. Furthermore, following the revision of the regulations, the VAT portion is no longer paid in proportion to the size of the yacht, but is to be paid in full at the standard rate of 18%, which in turn is claimed back by the lessor through the trimester VAT return. The VAT paid certificate is then issued.
Throughout the lease, a log is to be maintained by the lessee throughout the use of the pleasure craft, whereby the percentage use of the pleasure craft in EU and non-EU territorial waters is determined. In this regard, the lessor can determine the portion of the lease that is taxable at the 18% rate as well as the portion that is not subject to tax due to the effective enjoyment being outside EU waters.
For understanding purposes, the following is a worked out case study of an individual who purchased a yacht from a an Italian supplier.
The individual sets up a company in Malta which acquires a 25-metre yacht with a value of €1,000,000. The yacht is brought to Malta and berthed. The full 18% VAT, i.e. €18,000, are paid upon registration, which are then fully claimed back in the company's trimester VAT return under Article 2 of the VAT Act. In this regard, the VAT paid at a company level (lessor) will be that of 0%, as the yacht is bought as a capital good.
The company then leases the yacht to the individual subject to the above-mentioned requirements, on a 36-month basis contract, at a lease of 10% of the value of the yacht i.e. that of €100,000 over a period of 36 months.
During the period of the lease, the lessor gathers data from reasonable documentation, of the yacht's effective use of enjoyment, and charges VAT on the lease depending on the preliminary ratio established of the effective enjoyment of the pleasure craft in EU territorial waters, i.e. if the yacht is 60% of the time outside EU waters, and the lease is that of €2,778 per month, only €1.111 are taxed at 18% VAT. The rest are non-taxable. The details on the preliminary ratios and method statement are further explained in the following link.
Further to the above VAT implications and computation, the lessor is charged tax only on the annual financing charging, which in turn is allowed a deduction against this income through expenses relating to repairs, maintenance and insurances attributable to the yacht. Additionally, the lessee is allowed capital allowances in respect of the yacht and may opt to shift the burden of such allowances onto the lessor, subject to written agreement between the parties listed in the contract. Where the lessee exercises the option to purchase the yacht, the financial consideration received by the lessor is deemed of a capital nature and therefore no tax thereon shall be paid. Moreover, the owner of the Malta Company is eligible to further tax benefits, including an effective corporate tax rate of 5% on the distribution of dividends.
The procedure for the above is relatively facilitated and cost-effective with the steps being mainly as follows:
Incorporation of a Malta Company
Purchase of Yacht
Lease of the Vessel
Discover all the advantageous of registering and berthing your yacht in the Maltese Islands through our array of professional and timely services. Contact us to set-up an appointment and we will guide you through owning your dream yacht.