VAT on Pleasure Boats (Yacht Leasing)

Since November 2005, the Maltese VAT Department published guidelines on the Department’s policy regarding the VAT treatment for yacht leasing arrangements involving Maltese Companies.

Definition of Pleasure Boat

A Pleasure Boat is a vessel not used for navigation on the high seas and the carrying of passengers for a reward, used for the purpose of commercial, industrial or fishing activities, used for rescue of assistance at sea or for coastal fishing or for use in wars. Boats that fall under this ‘definition’ classify as taxable goods and the VAT rate of 18% applies. Therefore the registration of a pleasure vessel in Malta will attract the payment of VAT at 18%.

Yacht Leasing Structure

A pleasure boat can be acquired by a Company in Malta which in turn leases the vessel to another person, Maltese resident or non-resident.
The lease agreement will be an agreement where the lessor (the owner of the boat – the Maltese Company) leases the boat to the lessee (the person who shall operate and use the boat) in return for a consideration. At the end of the lease the lessee will have the option to purchase the boat at a percentage of the original purchase price.

Application of VAT

For the purpose of VAT, the lease of the boat is a supply of service with the right of claiming back the input VAT by the lessor.
This supply of service is taxable only when the boat is in use within the territorial waters of the European Union (EU) provided that the lessor is a Maltese Company which is leasing the boat to any Maltese or non-Maltese person.

How does it work

The monthly lease payments will attract VAT at 18% payable to the Maltese VAT Department. However one will have to calculate the estimated percentage/proportion of the lease based on the time the boat is used in the EU territorial waters. This calculation is the basis of the taxable portion on which the 18% VAT shall be paid.
Given the fact that it is very difficult to trail the movements of a pleasure boat to determine the time such boat spends in EU and non EU territorial waters, the Maltese VAT Department has issued a table of percentage rates determining the taxable proportion based on the length and propulsion of the yacht.

Table or percentages

Practical example

Thus if for instance the monthly lease payment for a 19 metre boat is €10,000, VAT payable would be €10,000 x 40% x 18% resulting in VAT on the proportion of the lease paid of €720. The larger the yachts the more advantageous are the benefits.

List of conditions

The VAT Department has also listed the following requirements for such structure to take place:

• The leasing agreement shall be between a Maltese Company and any Maltese or foreign person or company
• The lease installments shall be payable every month for a period of not more than 36 months.
• Prior approval shall be sought in writing from the Commissioner of VAT and each application will be considered on its own merits and certain conditions may be applied.

Moreover the Commissioner of VAT may require the lessor to submit details regarding the use of boat.

If the lessee exercises the option to purchase the boat after the end of the lease, a VAT paid certificate will be issued to the lessee provided that all VAT due has been paid.

Disclaimer

The above are points intended to solely serve as an indication of the benefits and are based on the guide lines issued by the Maltese VAT Department and shall not be considered as final advice.

Should you require any professional advice or further clarifications from our office kindly contact us: malta@ecovis.com.