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Malta Yacht Leasing Scheme | 5% VAT

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Malta Yacht Registration Scheme – Register a Yacht in Malta

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
commercial register)
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%

Registration Process

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
Chargeable Income 2000 2105
Tax at 35% 700 737
Credit- Double Tax Relief 0 105
Malta Tax Payable
(tax at 35% less tax credit)
700 632
Shareholder of Maltese Company
Refund on distribution
(6/7 of Malta Tax Payable)
600 632*
Effective Tax Paid in Malta 100 0
Effective Tax leakage in Malta on Net Income 5% 0%

*632 (6/7ths of 737)

Conclusion

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 enquiries@fbsmalta.com or by calling at +356 2338 1500

We are committed to providing you with a swift solution best suited to your needs.

Yacht EU VAT

The general precepts that apply to the importation of yachts entering EU waters, may be concisely summarised as follows:

EU vessels

Yachts owned by EU resident individual or corporate entities have the right to free movement throughout the EU, provided VAT has been paid on the craft in one of the EU countries.   Yacht owners should, irrespective of whether they are navigating  in territorial waters of EU member states and when sailing between EU Countries, carry evidence of VAT payment or any exemption thereof at all times.

Non-EU vessels

A VAT-paid yacht will encounter no difficulties in EU waters insofar that the craft is not chartered.  Temporary importation relief from VAT is available to yachts which are beneficially owned by non-EU residents insofar that such non-EU residents do not acquire ordinary residence in the EU (interpretation of ordinary residence varies between EU member states but, as a rule of thumb, is often taken to be 183 days).

Yachts owned by non-EU residents and registered outside the EU are entitled to tax-free temporary importation into the EU for a total period of eighteen (18) months.  This dispensation applies to the entire EU zone (local customs are afforded the discretion to extend this grace period further if good reason is provided e.g. yacth is left in the care of a boatyard for repair), after which period, the yacht must either exit EU territorial waters or obtain an EU VAT certificate.

EU VAT – Paid Certificate

Although the aforesaid rules are clear cut, many yacht owners experience difficulty with local VAT authorities as to the implementation of the aforesaid EU guidelines for yachts purchased in and imported into EU Waters.  The attainment of an EU VAT-Paid Certificate may remain  highly elusive or a considerable expense that must be factored in the acquisition  of the craft.

The applicable rate of VAT varies wildly within the EU – with peaks of up to 27%.  Applying this VAT rate on the value of the craft can therefore have a major impact on the ownership costs and the resale value for the yacht.   Some jurisdictions, in particular Malta and Cyprus have come up with innovative yacht leasing schemes that apply a reduced rate of VAT regard being had to the length and the propulsion of the vessel – the underlying rationale being that the bigger the yacht, the more time it may be assumed that it will be outside EU territorial waters.  Consequently, a derogation applies from the standard rate of VAT, and VAT is only paid on the proportion of time, in which it is assumed that the yacht shall be in EU territorial waters.

The yacht leasing scheme allows the yacht to be leased to a lessee, who has, the option, if he so elects, to acquire the yacht on the expiration of the lease.  The end result allows yacht owners undertaking the yacht leasing scheme to severly mitigate the applicable rate of VAT payable on the yacht and more importantly to obtain an EU VAT-Paid Certificate.

Malta launched the yacht leasing scheme in 2007 effectively reducing the VAT rate to just 5.4% to crafts in excess of twenty-four (24) metres.  The scheme still applies today, and has been availed of, by many yacht owners.  Similarly, Cyprus has in March 2012, launched its own yacht leasing scheme, the mechanisms of which are to an appreciable extent similar to the ones provided under the Maltese scheme, yet the applicable rate of VAT is even more attractive, with a VAT rate of just 3.4% on the top-end of the scale (crafts in excess of twenty-four (24) metres).

View Yacht Scheme comparison between Malta & Cyprus for a complete understanding of the VAT rate on the Yacht leasing schemes in Malta and Cyprus.

Contact one of our officers in Malta or Cyprus for bespoke VAT Advice and start reaping the full benefits of two  onshore, low-tax, reputable, EU jurisdictions. Simply fill in the contact box below or contact us by email on enquiries@fbsmalta.com or by calling at +356 2338 1500 for a better understanding of the scheme.

We are committed to providing you with a swift solution best suited to your needs.

Malta and Cyprus Yacht Registration

Applicable Rate of VAT – Sailing Boats

The applicable rate of VAT in Malta for the delivery of pleasure yacht is 18% whereas in Cyprus the applicable rate of VAT is 17%. However, VAT is paid only on the portion of the lease during which the craft is in EU waters. The applicable rate of VAT between the two jurisdictions may be summarised as follows:

Type of yacht (Sailing) % of lease subject to VAT Effective rate of VAT (Malta) Effective rate of VAT (Cyprus)
Sailing boats over 24 metres in length – online calculator * 30% Malta
20% Cyprus
30% of consideration x 18% = 5.4% 20% of consideration x 17% = 3.4%
Sailing boats between 20.01 to 24 metres in length – online calculator * 40% Malta
30% Cyprus
40% of consideration x 18% = 7.2% 30% of consideration x 17% = 5.1%
Sailing boats between 10.01 to 20 metres in length – online calculator * 50% Malta
50% Cyprus
50% of consideration x 18% = 9% 50% of consideration x 17% = 8.5%
Sailing boats up to 10 metres in length – online calculator * 60% Malta
60% Cyprus
60% of consideration x 18% = 10.8% 60% of consideration x 17% = 10.2%
Craft permitted to sail in protected waters only – online calculator * 100% Malta
100% Cyprus
100% of consideration x 18% = 18% 100% of consideration x 17% = 17%

* Note: Please allow a few seconds for the online calculator to load

Applicable rate of VAT – Motor Boats

As with sailing boats, VAT is paid only on the portion of the lease during which the craft is in EU waters. Cyprus and Malta differ not only in the applicable rate of VAT, but also in the length of the craft. Cyprus presents a significant VAT saving for small, motor-propelled crafts, as may be summarised in the following table:

Type of yacht (Motor) % of lease subject to VAT Effective rate of VAT (Malta) Effective rate of VAT (Cyprus)
Motor boats over 24 metres in length – online calculator * 30% Malta
20% Cyprus
30% of consideration x 18% = 5.4% 20% of consideration x 17% = 3.4%
Motor boats between 16.01 to 24 metres in length – online calculator * 40% Malta 40% of consideration x 18% = 7.2% N/A (see below)
Motor boats between 14.01 to 24 metres in length – online calculator * 30% Cyprus N/A (see above) 30% of consideration x 17% = 5.1%
Motor boats between 12.01 to 16 metres in length – online calculator * 50% Malta 50% of consideration x 18% = 9% N/A (see above)
Motor boats between 8.01 to 14 metres in length – online calculator * 50% Cyprus N/A (see above) 50% of consideration x 17% = 7.5%
Motor boats between 7.51 to 12 metres in length – online calculator * 60% Malta 60% of consideration x 18% = 10.8% N/A (see above)
Motor boats up to 8 metres in length – online calculator * 60% Cyprus N/A (see above) 60% of consideration x 17% = 10.2%
Motor boats up to 7.5m metres in length – online calculator * 90% Malta 90% of consideration x 18% = 16.2% N/A (see above)
Craft permitted to sail in protected waters only – online calculator * 100% Malta
100% Cyprus
100% of consideration x 18% = 18% 100% of consideration x 17% = 17%

* Note: Please allow a few seconds for the online calculator to load

Conditions of Financial Leasing Agreement

Description Malta Cyprus
Lessor Malta Company Cyprus Company
Lessee No nationality restrictions No nationality restrictions
Initial contribution to be paid by lessee (as percentage of vessel) 50% 40%
Periodical payments of lease installments Monthly Monthly
Maximum lease period 36 months 48 months
Minimum profit margin by lessor 1% 10%
Minimum rate of interest to accrue to lessor during currency of lease No set minimum 5%
Final installment of yacht payment (as percentage of original value of the yacht) 1% 5%
Applicable rate of VAT of final instalment of yacht payment 18% 17%

Registration Process

In order to avail oneself of the aforesaid favourable rate for VAT in either Malta and Cyprus, the applicable steps, are as follows:-

(i) Prior Approval from VAT Commissioner;
The applicant should, on submission of relevant details of the craft, apply to the local VAT Department, for a prior confirmation of the applicable rate of VAT.

(ii) Register Company;

Provided that all the necessary know-your-clients are provided, the incorporation of a Maltese or Cypriot Company is a relatively straight-forward process, which may be accomplished in a few working days.

The Company as owner of the craft, must be empowered to operate, charter and manage yachts in its trading objects
(iii) Company applies for VAT;

Following incorporation, the Maltese or Cypriot Company would apply for registration of a VAT number with the relevant VAT Department;

(iv) Company enter into lease agreement;

Following VAT registration, the Maltese or Cypriot Company would enter into a lease agreement with the lessee.

(v) Submission of Lease agreement and supporting documentation to VAT Department;

The 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 local VAT Department and apply for the applicable rate of VAT.

(vi) VAT Department issues letter of approval
The local 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

Comparative study of Malta and Cyprus schemes based on the following scenario:-

(i) The yacht is worth ten million Euro (€ 10,000,000);

(ii) The yacht has a length of thirty (30) metres;

(iii) The currency of the lease agreement shall be the maximum allowed by law; and

(iv) The Company shall sell the craft to the lessee, at the end of the lease period for a profit (the minimum prescribed by law)

Description Malta Cyprus
Initial contribution to be paid by lessee (as percentage of vessel) EUR 5,000,000 EUR 4,000,000
VAT percentage of initial contribution 5.4% 3.4%
Amount of VAT due on initial contribution (i) EUR 270,000 EUR 136,000
Outstanding balance during currency of lease agreement EUR 5,000,000 EUR 6,000,000
Periodical payments of lease installments Monthly Monthly
Maximum lease period 36 48
Final installment of yacht payment (as percentage of original value of the yacht) 1% 5%
Amount on final installment (in money value) EUR 100,000 EUR 500,000
Balance to be paid on initial installment to penultimate installment EUR 4,900,000 EUR 5,500,000
Monetary value of monthly installment – from initial installment to penultimate installment EUR 140,000 EUR 117,021
VAT percentage of initial installment to penultimate installment 5.4% 3.4%
Amount of VAT due on initial contribution EUR 7,560 EUR 3,979
Total amount of VAT from initial installment to penultimate installment (ii) EUR 264,600 EUR 187,013
Amount on final installment (in money value) EUR 100,000 EUR 500,000
Applicable rate of VAT of final instalment of yacht payment 18% 17%
Amount of VAT due on final contribution (iii) EUR 18,000 EUR 85,000
Total Amount of VAT paid
Sum total of (i), (ii) and (iii)
EUR 552,600 EUR 408,021
Total VAT saving from standard rate EUR 1,247,400 EUR 1,291,979

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 and the applicable bill of sale), the Maltese or Cypriot VAT Department shall issue a VAT paid certificate attesting that all VAT due has been paid on the craft.

Income Tax Implications for lessor

The Lessor must pay income tax on the trading income derived from the yacht lease scheme and any interest derived therefrom.

The applicable rate of Income Tax may be calculated as follows:

Description Malta Cyprus (non-resident company)
Minimum profit margin by lessor (as percentage of consideration) 1% 10%
Minimum profit margin by lessor (money value) EUR 100,000 EUR 1,000,000
Minimum rate of interest to accrue to lessor during currency of lease (as percentage of consideration) 0% 5%
Minimum rate of interest to accrue to lessor during currency of lease (money value) EUR 0 EUR 500,000
Corporate Tax Rate (Malta) 35% 0%
Tax credit (shareholder’s refund) 6/7ths of 35% N/A
Ultimate Tax leakage EUR 5,000 EUR 0

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 enquiries@fbsmalta.com or by calling at +356 2338 1500

We are committed to providing you with a swift solution best suited to your needs.

EU Yacht Registration VAT Calculator for Sailing and Motor Yachts / Boats

Sailing Yachts / Boats

Type of Sailing Yacht / Boat Calculator
Over 24 metres in length Click here to launch online calculator *
Between 20.01 to 24 metres in length Click here to launch online calculator *
Between 10.01 to 20 metres in length Click here to launch online calculator *
Up to 10 metres in length Click here to launch online calculator *
Permitted to sail in protected waters only Click here to launch online calculator *

* Note: Please be patient and wait for online calculator to fully load

Motor Yachts / Boats

Type of yacht (Motor) Malta Cyprus
Over 24 metres in length Click here to launch online calculator * Click here to launch online calculator *
Between 16.01 to 24 metres in length Click here to launch online calculator * N/A
Between 14.01 to 24 metres in length N/A Click here to launch online calculator *
Between 12.01 to 16 metres in length Click here to launch online calculator * N/A
Between 8.01 to 14 metres in length N/A Click here to launch online calculator *
Between 7.51 to 12 metres in length Click here to launch online calculator * N/A
Up to 8 metres in length N/A Click here to launch online calculator *
Up to 7.5m metres in length Click here to launch online calculator * N/A
Permitted to sail in protected waters only Click here to launch online calculator * Click here to launch online calculator *

* Note: Please be patient and wait for online calculator to fully load.

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