Malta provides for specific guidelines applying in the cases of long term leasing/hiring of pleasure yachts. The guidelines provide that during the lease period, VAT is solely due on the use of the yacht in the EU, to the exclusion of VAT being charged on the use of the yacht outside the EU.
A number of models may be used depending on the intended operations and use of the yacht for fiscal planning and effectiveness.
Beneficial lease set-ups wherein Malta companies lease a pleasure yacht to a non-taxable person or entity may apply said guidelines for VAT to be levied on the actual use of the yacht in the EU by the lessee.
Malta Yacht Lease Requirements
The following requirements have to be followed:
- 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
Malta Yacht Lease Set-up Step 1: Incorporation of a Maltese Company & Purchase of Yacht
A Maltese company must be incorporated with the object of owning and leasing the yacht which shall obtain a VAT number, purchase and lease out the yacht. The nature of the VAT treatment on the purchase of the yacht will depend on whetherthe yacht is imported from outside or within the EU, or otherwise bought from Malta. In such cases, and considering that the Malta company is purchasing the yacht for the purposes of the production of its income, VAT may be either:
- Payable and recoverable;
- Not payable;
- Deferred, subject to approval by the authorities.
Malta Yacht Lease Set-up Step 2: Yacht Registration
The registration procedure of a vessel if undertaken in Malta is very straightforward. This procedure is divided in two stages, whereby initially an application is made to the Maltese registry for the yacht to be registered provisionally for six months. During this timeframe, yacht owners have the possibility of using the Malta Flag prior to the permanent registration of the yacht without restrictions. Within the six-month provisional period, the documents necessary for the registration, namely an original bill of sale or builders’ certificate and a deletion certificate, if the vessel has been previously registered elsewhere, are to be handed over to the registry. An inspection must also be undertaken by a Malta Government Appointed Surveyor. This will conclude the registration of a yacht under the Malta flag as a pleasure yacht.
Malta Yacht Lease Set-up Step 3: Lease of the Vessel
Upon the arrival of the yacht in Malta, a lease agreement is drawn up whereby the owner of the vessel, acting as the lessor will lease the yacht to the lessee in return for a consideration. The owner of the yacht shall be the company incorporated in Malta and holding a VAT number and the lessee can be any party leasing the yacht for pleasure and not business purposes.
Malta Yacht Lease - The Applicable VAT
In case of long-term pleasure yacht 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 by the lessor at the disposal of the lessee in Malta.
The VAT rate applicable is of 18%, being the lowest for port-states in the EU. On approval by the Commissioner of Revenue, this rate of VAT shall 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 on the use of the yacht by the lessee outside the EU or in international waters. 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.
In view of the practice being that lease fees are paid in advance, the guidelines guide the lessor as to the appropriate VAT that is to be levied on the lease:
- During the first tax period (usually three months) the lessor will need to charge full VAT due on the lease fee payable by the lessee to the lessor (specific rules apply depending when the lease starts)
- For the subsequent tax periods up to the first 12 months of lease, the guidelines provide for a preliminary ratio calculation, that is an estimate/provisional calculation for calculating the estimated use of the yacht in the EU during this period and in relation to which VAT needs to be levied.
- At the end of the 12 month period (and for each other 12 month period thereafter) the actual VAT due (actual VAT ratio) shall be calculated based on records provided by the lessee and an adjustment mechanism is provided for to ensure that VAT paid reflects the actual use within the EU.
- The actual VAT ratio for the previous year is to be used as the estimate/temporary calculation for each subsequent year.
Sale of Yacht by the Lessor
At the end of the lease period the VAT implications depend on the intended use of the yacht and the plans of the Lessor. Indeed, the Lessor can lease again the yacht and, should the requirements be fulfilled, re-benefit from the guidelines. Should the lessor decide to sell the yacht, the VAT due on the sale price will depend on the place where the sale takes place for VAT purposes and the application of general principles relating to intra-community supplies and importation. If the sale is deemed to be taking place in Malta and the yacht is sold to the purchaser for private use, 18% VAT would generally be chargeable on the sale price.
