On 1st January 2013, pursuant to Article 56 of the EU VAT Directive as reflected in the Malta VAT Act, the ‘New Place of Supply Rule’ came into force. This amendment alters where a service is deemed to occur for VAT purposes and who should account for the corresponding VAT.
The relevance of VAT for boats and yacht owners lies in the fact that VAT liability arises whenever vessels are purchased or formally imported in the EU waters.
Malta offers a favourable regime for VAT minimisation, potentially down to 5.4%, through a leasing set-up. This is undertaken through the setting up of a Maltese company which firstly must acquire the yacht, proceed with its lease to a third party for up to 36 months and finally ensue with the sale of the yacht.
In the context of the leasing of yachts and the Malta yacht leasing set-up, whilst the new rules provide that generally the place of supply of a long-term hire to a non-taxable person is the place where the customer is established, an exception is provided for in relation to pleasure boats. In the case of pleasure boats, the place of supply is where the vessel is put at the disposal of the customer subject to the supplier having an establishment there.
VAT and Yachts
Provisions are provided for non-EU registered yachts on which VAT has not been paid. In fact, non-EU vessels that are intended for use outside EU territorial waters may be temporarily brought into the EU for private use without the need for VAT payment. This applies insofar as the individuals are established outside the EU and provided that the vessel is not registered under an EU flag.
Once a vessel is temporarily imported in the EU, no additional VAT-related custom formalities apply when moving between one member state and another.
Depending on how the vessel is used, the period of temporary import is between eighteen and twenty-four months. At the end of the temporary importation period, the vessel must be either removed from EU waters or VAT must be paid. In the case of the latter, vessel owners may avail themselves of Malta’s Yacht Leasing Set-Up.
The Malta VAT Leasing Set-Up
Malta offers a favourable regime for VAT minimisation, potentially down to 5.4%, through a leasing set-up. This is undertaken through the setting up of a Maltese company which firstly must acquire the yacht, proceed with its lease to a third party for up to 36 months and finally ensue with the sale of the yacht.
The typical scenario is the following:
- Malta company is set up
- Malta company purchases the vessel
- Malta Company leases out the vessel to the Ultimate Boat Owner
- At the end of the lease period, the Ultimate Boat Owner may purchase the vessel
The lease agreement is a key factor of this advantageous set-up since this constitutes economic activity granting the lessor company the right to deduct any input VAT incurred on the purchase of the yacht.
The New Place of Supply Rule.
Prior to the 2013 amendments, the place of supply of a long-term lease to a non-taxable person was the place where the supplier (lessor) was established if the customer (lessee) was a non-taxable person. The long-term leasing of yachts by suppliers established in Malta to non-taxable persons, such as private individuals, was therefore subject to Maltese VAT. The term 'long-term' refers to the continuous use and possession of the yacht for ninety days or more.
Since 1st January 2013, pursuant to the Maltese VAT Act and Article 56 of the EU VAT Directive, the ‘New Place of Supply Rule’ came into force. Whilst the new rules provide that generally, the place of supply of a long-term hire to a non-taxable person is the place where the customer is established, an exception is provided for in relation to pleasure boats. In the case of pleasure boats, the place of supply is where the vessel is put at the disposal of the customer subject to the supplier having an establishment there.
Hence, the long-term leasing of a yacht to a non-taxable person is considered as a supply taking and falls within the scope of Maltese VAT law only if:
- the yacht is actually taken over by the lessee in Malta; and
- the supplier has a place of business or fixed establishment in Malta.
Accordingly, for Malta VAT to apply, the Maltese company should have its place of supply in Malta and grant physical control of the yacht to the lessee in Malta. Evidence should be maintained to prove the location where the yacht is made available to the customer. Failure to satisfy these conditions would shift the place of supply outside Malta if the customer is not established in Malta or does not have his permanent address or usual residence in Malta.
