While cruising the Mediterranean Sea and visiting picturesque little villages along foreign costs is probably the dream of all yacht lovers, a seasoned yacht owner or seller will probably tell you that there is more to owning a yacht than what meets the eye. The next step after acquiring your yacht is to register the vessel under the flag of a jurisdiction of your choice. As a yacht owner, it is in your best interest to choose a jurisdiction which is fiscally competitive and highly accessible, yet still reputable.
Malta is a tiny member state in the middle of the Mediterranean Sea. It comes as no surprise that its strategic geographic location has helped it immensely in leaving a footprint in the maritime history of the Mediterranean. However, its success as the largest ship and yacht registrar in Europe and the 6th largest registry in the world can be attributed to more than just its location.
So, how did such a small island manage to become one of the top jurisdictions in the world to register vessels, particularly superyachts? Let’s break the benefits down into three easy steps:
1. Reduce your VAT liability down to potentially 5.4%
VAT requirements are nothing short of a headache for European Yacht owners as well as those sailing in EU waters. Pleasure Yachts which spend more than 6 months in any calendar year cruising in the EU or which are purchased or owned by EU residents or imported into the EU are subject to the EU’s VAT.
While all vessels sailing in the EU are subject to VAT, by registering your yacht in Malta you could potentially reduce your VAT liability down to 5.4% through a leasing set up for yachts over 24 metres. Malta has become the European Ship registry of choice for brokers and sellers as well as yacht owners seeking to register pleasure and super yachts because it provides the possibility of tax planning.
The effective VAT tax rate will depend on the length and type of vessel (whether sailing or motor), and are charged as follows
- Sailing boats or motor boats over 24 metres in length - 5.4%
- Sailing boats between 20.01 to 24 metres in length - 7.2%
- Motor boats between 16.01 to 24 metres in length - 7.2%
- Sailing boats between 10.01 to 20 metres in length - 9%
- Motor boats between 12.01 to 16 metres in length - 9%
- Sailing boats up to 10 metres in length - 10.8%
- Motor boats between 7.51 to 12 metres in length (if registered in the commercial register) - 10.8%
- Motor yachts up to 7.51 metres in length (if registered in the commercial register) – 16.2%
As regards VAT payable on the purchase of the yacht by the company, the leasing of the yacht is a determining factor. The lessor company uses the yacht for its economic activity, which in return grants the lessor company the right to deduct any input VAT incurred on the purchase of the yacht.
As regards the VAT charged by the company in relation to the leasing fees, the rate of VAT payable is commensurate to a percentage reflecting the use of the yacht in EU waters. Such percentage is set in accordance with the length and type of yacht (whether motor or sailing) resulting in an effective rate of VAT payable ranging from the full 18%, being the rate of VAT generally payable in Malta, to other different rates down to 5.4% for yachts over 24 meters.
2. Reputability of its Flag and Register
While there are other jurisdictions which come off as cheaper options, registering your yacht under a reputable flag is essential if you want to sail in EU waters with peace of mind. Reputability is a sine qua non factor in the maritime industry, thus, Dr Silvana Zammit, head of the Maritime Law practice at Chetcuti Cauchi Advocates emphasises the importance of choosing a reputable flag that has been listed on the white list of the Paris MoU. The Maltese Flag is the most popular EU flag amongst superyachts registered in the EU because Malta has entered into a number of treaties aimed at regulating and supervising the industry which has earned it a position on the White list on both the Paris MOU as well as the Tokyo MOU, and it has also entered into various bilateral agreements with foreign governments where Maltese ships receive preferential treatment in respect of port charges and taxes. Malta also carries out a highly rigorous supervisory exercise on vessels registered under its flag. It has set up a Flag state inspectorate which ensures adherence to international standards which adds to the reputability of the Malta flag.
3. Quick Straightforward Procedure
Although Malta imposes rigorous standards that have earned it such a golden reputation in the maritime sphere, these standards do not hinder those seeking to register their vessel. Malta provides for a straightforward procedure for registration and deletion of vessels, including the registration and discharging of mortgages which are essential when seeking to obtain financing.
In fact, there are a number of benefits associated with registering in Malta, including:
- its competitive registration and renewal fees;
- no restrictions on the nationality of the master, officers and crew serving on Maltese vessels;
- minimum technical requirements in relation to pleasure yachts allowing owners to freely design their own yachts;
- a 24-hour service to deal with urgent matters.
From a tax perspective, the procedure to benefit from the reduced effective VAT rates mentioned above is highly straightforward, particularly when you are assisted by a team of experienced maritime lawyers.
How does the Malta solution work?
In just a few straightforward steps, Malta has created a system whereby ownership of the yacht can pass onto the buyer at a reduced VAT rate. The procedure is relatively simple. While the buyer will still have full access to use and enjoy the yacht, he or she will initially start doing so under a leasing set up. The leasing set up involves the creation of a Malta company with the ultimate aim of passing on ownership of the yacht to the buyer.
- Prior to registering the yacht, the latter must be brought to Malta.
- A Maltese company will be set up which will acquire the yacht.
- After the yacht has been registered under the Malta flag, the company can lease the yacht to the buyer who will carry out the sale of the yacht at the end of the lease.
- At the beginning of the lease, an initial contribution, hence the first lease payment must be made, which must amount to 40% of the value of the vessel by the lessee (the prospective buyer) to the lessor company.
- The remaining portion must be paid in lease instalments which are payable every month through an agreement which does not exceed 36 months.
- At the end of the lease, the sale of the yacht is carried out for at least 1% of the purchase value on the return of the yacht to Malta at the expiration of the lease
- Subject to all the relative VAT payments, the issuing of a VAT paid certificate in relation to the yacht by the authorities, following which the yacht may circulate freely in the EU.
Fill in the form below to get a free consultation from Dr Silvana Zammit, our maritime law expert who will be able to show you how you can benefit from the Malta VAT yacht solution.
