Malta VAT Yacht Leasing

FLAG:Largest registry in Europe 6th in the world VAT ON PLEASURE LEASE: on actual and effective use in the EU REGISTRY GROSS TONNAGE:Over 57 million VESSEL REGISTRATION:48 hours NO. OF VESSESLS REGISTERED:over 11,000 ACCESSIBILITY & EMERGENCY:24 hours registry services

• Malta VAT solely on use in the EU
• 8% VAT rate - lowest amongst EU port-states
• Adjustment mechanisms for VAT to be paid on actual use in EU
• Guidelines reflecting EU developments and practices

The Malta VAT treatment of yacht leasing is based on the rules emanating from the EU VAT Directive, the Malta VAT Act (Chapter 406 of the Laws of Malta) and the guidelines on the leasing/hiring of pleasure yachts issued in March 2019. The applicable rules distinguish between:

• short-term leases: the lease of a yacht for not more than 90 days; and
• long-term leases: the lease of a yacht for more than 90 days

In case of short-term leases, Malta VAT would be levied on the lease should the yacht be put at the disposal of the lessee in Malta. In case of long-term leases, Malta VAT would be levied if the supply of the service is deemed to be taking place in Malta, that is:

• the lessor is established in Malta;  and
• the yacht is put at the disposal of the lessee in Malta.

In the context of long-term leases deemed to be taking place in Malta, the guidelines on the leasing/hiring of pleasure yachts lay down the conditions for VAT to be levied solely on that portion of the lease during which the yacht is used by the lessee in EU territorial waters.  No VAT is levied therefore, on the use of the yacht by the lessee outside the EU or in international waters.   This is based on article 59a of the VAT Directive which allows Member States to tax the use and enjoyment of services (including the leasing of pleasure yachts) specifically for the time that the service is effectively used and enjoyed in the EU. The place of supply for the leasing/hiring of pleasure yachts shall be considered as being outside the EU territorial waters if the actual effective use takes place outside the EU and on the conditions laid down in the guidelines being followed. The lessee therefore has to provide the lessor with records to determine the actual use and enjoyment by the lessee in and outside the EU territorial waters during the lease period. Considering that generally yacht lease fees are paid in advance, additionally the guidelines provide for:

• a method for calculating the VAT payable based on a preliminary ratio on the basis of which the first VAT returns and VAT payments shall be made
• an adjustment mechanism to ultimately ensure that throughout the lease period, the payment of VAT reflects the actual use and enjoyment of the yacht by the lessee in EU territorial waters.  

• The lessor must be a Maltese shipping organisation established in Malta for VAT purposes and holding a Malta VAT number
• The lessee may be established outside Malta, being a non-taxable person and therefore using the yacht for pleasure and not business purposes
• The Lessor and the lessee must enter into a leasing arrangement and the lease must be for more than 90 days (long-term lease)
• The leasing of the yacht must be undertaken through Malta and hence the yacht must be placed at the disposal of the lessee in Malta
• Prior approval must be sought from the Malta VAT department to apply Malta VAT on the real effective use and enjoyment of the yacht by the lessee in the EU
• The lessor must firstly levy provisional VAT on the lease and thereafter use the adjusting mechanisms provided for the VAT charged to ultimately reflect the actual use of the yacht in the EU The lessor must appropriate records in relation to the actual use of the yacht in/outside the EU by the lessee
• VAT returns must be properly submitted and an annual declaration filed with the Commissioner of Inland Revenue.