The Maltese VAT Department has issued guidelines on the VAT Treatment of yacht leasing applicable to pleasure yachts, which offer a very attractive VAT regime to owners, allowing an effective and low-cost solution for the acquisition of an EU VAT paid certificate.
Yacht Leasing Agreement
In order to avail oneself of the advantageous VAT rate (described above), a financial leasing agreement (whereby the lessee retains an option to purchase the craft at the end of the lease) would be entered into between the Maltese Company (the lessor) and the lessee.
The Maltese Company must be the owner of the craft (either bought directly from the owner or if craft is new, directly from yacht-builder). The Maltese Company shall lease the craft to a lessee (no nationality restrictions, and the lessee can be a physical or legal person).
Applicable Rate of VAT
When a Maltese Company buys a pleasure yacht and lease-purchases it to third parties, VAT is due on the normal rates of VAT (currently at 18%). However, VAT is payable only on that portion of the lease during which the yacht is in EU waters. The Maltese VAT Dept. has set out guidelines which establish the presumed portion of time spent in EU waters, based on the presumption that the larger the craft, the less time, it shall be in EU waters. The effective rate of VAT shall vary on the size of the craft, in the manner set forth below.
|Type of Yacht||% of lease subject to VAT||Effective Rate of VAT|
|Sailing boats or motor boats over 24 metres in length||30%||30% of consideration x 18%= 5.4%|
|Sailing boats between 20.1 to 24 metres in length||40%||40% of consideration x 18%= 7.2%|
|Motor boats between 16.01 to 24 metres in length||40%||40% of consideration x 18%= 7.2%|
|Sailing boats between 10.01 to 20 metres in length||50%||50% of consideration x 18%= 9%|
|Motor boats between 12.01 to 16 metres in length||50%||50% of consideration x 18%= 9%|
|Sailing boats up to 10 metres in length||60%||60% of consideration x 18%= 10.8%|
|Motor boats between 7.51 to 12 metres in length (if registered in the
|60%||60% of consideration x 18%= 10.8%|
|Motor boats up to 7.5 metres in length (if registered in the commercial register)||90%||90% of consideration x 18%= 16.2|
|Craft permitted to sail in protected waters only||100%||100% of consideration x 18%= 18%|
Conditions of Financial Leasing Agreement
The financial leasing agreement must have the following characteristics:
(i) The financial leasing must be between a Maltese Company (lessor) and any Maltese or foreign person / company;
It is therefore possible, to preserve anonymity for the ultimate beneficial owner, through the use of nominee shareholders and/or corporate vehicles.
(ii) The Lessee must pay the Lessor an initial contribution amounting to at least 50% of the value of the craft;
(iii) The lease installments shall be payable every month;
(iv) The currency of the lease agreement shall not exceed thirty-six (36) months;
(v) The lessor is expected to make a profit from the leasing agreement over and above the value of the boat;
(vi) Any purchase value at the end of the lease agreement shall not be less than 1% of the original value of the craft, and this will be subject to a standard rate of VAT at 18%
In order to avail oneself of the aforesaid favourable rate for VAT, the applicable steps, are as follows:-
(i) Prior Approval from Maltese VAT Commissioner;
The applicant should, on submission of relevant details of the craft, apply to the Maltese VAT Department, for a prior confirmation of the applicable rate of VAT.
(ii) Register Maltese Company;
Provided that all the necessary know-your-clients are provided, the incorporation of a Maltese Company is a relatively straight-forward process, which may be accomplished in two (2) working days.
The Maltese Company, as owner of the craft, would be empowered to operate, charter and manage yachts in its trading objects
(iii) Maltese company applies for VAT;
Following incorporation, the Maltese Company would apply for registration of a VAT number with the Maltese VAT Department;
(iv) Maltese company enter into lease agreement;
Following registration, the Maltese Company would enter into a lease agreement with the lessee.
(v) Submission of Lease agreement and supporting documentation to VAT Department;
The Maltese company would submit a copy of the lease agreement, together with the details of the yacht (certification, specification list, surveyor’s valuation, bill of sale if bought new etc;) to the Maltese VAT Department and apply for the applicable rate of VAT.
(vi) VAT Department issues letter of approval
The Maltese VAT Department would, upon satisfaction of the supporting documentation set forth in paragraph (iv) above, issue a letter of approval, confirming the applicable rate of VAT.
Illustration of Scheme
For the purpose of this illustration, we shall assume that:-
(i) The yacht is worth ten million Euro (€ 10,000,000);
(ii) The yacht has a length of fifty (50) metres;
(iii) The currency of the lease agreement shall be of 36 months; and
(iv) The Maltese company shall sell the craft to the lessee, at the end of the lease period for a profit of 1% (i.e. € 100,000 – 1% of € 10,000,000)
The Maltese Company acquires the yacht from client or from a third party which owns the yacht and enters into the financial leasing agreement with the lessee.
The lessee pays 50% of the value of the craft on the date of the contract (i.e. € 5,000,000). The balance (€5,000,000) shall be re-payable over 36 months.
Tax and VAT Applications
VAT on Initial Contribution
The VAT on the value of the lease is calculated on € 5,000,000 X 5.4% (VAT applicable rate because craft exceeds 24 metres) = €270,000
VAT on monthly lease payments
The value of the lease is €5,000,000. Divided over the currency of 36 months, the monthly lease payment is of € 138,888 a month.
The applicable VAT payable per installment is € 138,888 X 18% X 30% (applicable rate) = €7,500.
The total applicable VAT is € 7,500 a month multiplied by 36 months (currency of agreement) = € 270,000
VAT at end lease
When the lessee exercises the option to acquire the craft from the Maltese company, the applicable rate of VAT shall be 18%. This is because the delivery of the good (craft) from the supplier (lessor) to the customer (lessee) must be deemed for VAT purposes to have occurred in Malta.
The applicable rate shall be 18% VAT on € 100,000 (purchase value, assuming 1% profit to Maltese company) = € 18,000
The total VAT payable shall be of just €558,000 on a transaction worth € 10,000,000, thereby representing a considerable VAT saving (had the standard rate of 18% VAT been applicable, the VAT would have been of €1,800,000.)
VAT Paid Certificate
When the lessee exercises the option to acquire the craft after the end of the lease, and furnishes evidence thereof (i.e. invoice in relation to the aforesaid 1% and the applicable bill of sale), the Maltese VAT Department shall issue a VAT paid certificate attesting that all VAT due has been paid on the craft.
Taxation of the Maltese Company (lessor)
Although the corporate tax rate of Maltese companies is 35%, shareholders are entitled to a 6/7ths refund on the standard rate of tax at 35% leaving a tax leakage of just five per cent (5%). Furthermore, foreign tax paid can be taken into account for purposes of the refund calculation, subject to the maximum refund not exceeding Malta tax paid. Effectively, it is possible to envisage situations where no Maltese tax leakage would be suffered by the Maltese Company, in the manner set forth below:
|Maltese Company||No Foreign Tax||With Foreign Tax|
|Net Foreign Income||2000||2000|
|Grossing up with Foreign Tax||0||105|
|Tax at 35%||700||737|
|Credit- Double Tax Relief||0||105|
|Malta Tax Payable
(tax at 35% less tax credit)
|Shareholder of Maltese Company|
|Refund on distribution
(6/7 of Malta Tax Payable)
|Effective Tax Paid in Malta||100||0|
|Effective Tax leakage in Malta on Net Income||5%||0%|
*632 (6/7ths of 737)
The VAT registration scheme, and the Maltese tax credit system offers an effective, low-cost solution, allowing clients to obtain a VAT paid certificate in relation to the acquisition of crafts within the EU.
Thereinafter, it is advisable that clients seek bespoke tax advice in their country of residence, on the process to register such VAT paid certificate in their respective country of residence.
Contact one of our officers for bespoke VAT Advice and start reaping the full benefits of an onshore, low-tax, reputable, EU jurisdiction. Simply fill in the contact box below or contact us by email on firstname.lastname@example.org or by calling at +356 2338 1500
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