VAT on pleasure yachts registered in Malta reduced to 5.4%

Malta is rapidly becoming one of the major international centres for the registration of yachts.  This factor is mainly due to guidelines published by the Maltese VAT Department on the taxation of yachts which are lease-purchased to third parties by a Maltese company.  For the purposes of these guidelines, a lease-purchase is seen as a situation whereby a Maltese company purchases a yacht and leases it to a third party with an option in favour of the third party to purchase the boat at a reduced price at the end of the lease.

The VAT Department in Malta has in fact established that when a Maltese company buys a pleasure yacht and lease-purchases it to third parties, then VAT is due on the lease at the normal rates of VAT in Malta (i.e. 18%) since this is a supply of a service deemed to be supplied in Malta.  But the Department has further established that VAT is payable only on that portion of the lease during which the yacht is in EU waters.  However, since it is very difficult to establish this with precision, the Department has issued its own "presumed" length of stay during which the yacht is presumed to have been in EU waters and thus the Department will charge VAT according to this table as follows:

By way of example, a sailing yacht over 24 metres in length will be presumed to have sailed in EU waters for 30% of the time during which it was lease-purchased and therefore the VAT payable on the lease is the normal rate of VAT (18%) but only for 30% of the duration of the lease, i.e. 5.4% VAT on the value of the lease purchase.

In order to take advantage of this situation, certain criteria have to be met.  These can be summarised as follows: -

1. A Maltese company needs to be set up and a valid EU VAT registration number obtained;
2. The transaction is reported in advance to the Maltese VAT Department giving all details;
3. The yacht is brought to Malta preferably at the time of the finance-lease or alternatively at the time when the purchase-option is exercised;
4. The yacht has to be purchased by the Maltese company;
5. The yacht has to be leased out by the Maltese company.  A lease agreement would need to be drawn up;
6. The value of the yacht has to be established before the contract of lease takes place;
7. 50% of the yacht's value is to be paid by the lessee to the Maltese company;
8. The lease cannot be for more than 36 months;
9. The final purchase price cannot be less than 1% of the yacht's original value;
10. The Maltese company needs to make at least 10% profit out of the transaction.

For more information contact Antoine Naudi or Kathleen Mizzi at Naudi Mizzi & Associates on t: +356 2133 6555 - 6 or e: info@naudimizzi.com.