The guidelines explain that the leasing of a pleasure boat falls within the scope of such scheme when the lessor (owner of the boat) contracts the use of the boat to a lessee (the person who leases the boat) for a consideration. For VAT purposes, the lease of a yacht is treated as a supply of services which is taxable according to the use of the yacht within the territorial waters of the European Union. In other words, one would need to apportion the standard 18% VAT rate in accordance with the yacht’s use within the EU’s territorial waters.
In order to calculate the portion of the boat’s use within EU territorial waters, the VAT department has issued a table which outlines the estimated percentage portion of the use happening with EU territorial waters based on the length of the boat and its means of propulsion (motorised or sailing). The table is set hereunder:
How does this procedure work?
The lessor incorporates a company in Malta which would have as part of its economic activity the leasing of the yacht/s. The company duly registers for VAT in Malta under Article 10 of the VAT Act.
The lessor (company) acquires the yacht and initially pays 18% VAT (when the outright exemption is not possible). However, in terms of the company’s economic activity, this full input VAT incurred could still be claimed back.
The lessor (company) leases the aircraft to a lessee and levies VAT on each monthly lease charge. However, only the portion which relates to the use of the boat within the EU waters (calculated on the basis of the above-mentioned table) is subject to the 18% VAT rate.
For example, take a 25 metre sailing yacht, in this case when leased the monthly lease charges would not be at the standard 18% VAT rate but rather at 5.4% (being 30% [table] of 18%). Therefore, this means that no Maltese VAT is charged on 70% of the lease payments since this is deemed to relate to when the yacht would have been used outside EU territorial waters.
The lease agreement may offer the lessee the option to acquire the yacht at the end of the lease period. If such option is exercised, a certificate showing that all VAT due has been paid in full would be issued by the VAT department.
What conditions need to be satisfied?
The yacht must come into Malta, preferably at the beginning of the lease agreement;
The leasing agreement shall be between a Maltese company (lessor) and any Maltese or foreign individual or company (lessee);
An initial contribution shall be paid by the lessee to the lessor amounting to at least 50% of the value of the yacht;
The lease period shall not exceed a period of 36 months and the lease installments shall be payable on a monthly basis;
The lessor shall be expected to make a profit from the leasing agreement, over and above the value of the yacht;
In the case of an option for the ownership to pass to the lessee at the end of the lease agreement, the final payment at the end of the lease agreement shall not be less than 1% of the value of the yacht.