Acquiring a yacht or an aircraft for private purposes always involves careful assessment and decision on the best method for financing and processing the tax asset to be acquired.

 

Because of its European Union membership, Malta offers excellent opportunities for acquiring yachts and airplanes for private use, specifically for VAT purposes. If properly structured, the purchase of a yacht or private airplane can be optimized through financial leasing with an option to purchase the asset, resulting in an extremely low VAT rate, both in leasing installments and in the final transaction of the acquisition.
 

The yacht leasing system is one of the most popular corporate ownership structures available for European yachts operating within the European Union (EU).
 

The Maltese VAT department has issued guidelines on VAT payment applicable to yacht leasing. These guidelines address scenarios where a Maltese company, the Lessor, purchases a pleasure yacht and leases it to a third party, acting as Lessee. The yacht owners are required to apply VAT on their yachts calculated on the portion of the time that the vessel is presumed to lie in EU waters.  Yacht owners also obtain a VAT paid certificate at the termination of the structure.

 

This leasing regime is very attractive for the purchase of yachts with a maximum leasing term of 3 years (36 months) and a minimum residual value of 1% of the original price of the yacht.

 

The salient features of these guidelines are:

 

• A Maltese Company is set up and becomes the new owner of the yacht. The Company will register for a VAT number in Malta;

• The Maltese Company leases the yacht to a third party, a Maltese or foreign person or a company - the Lessee;

• A Lease Agreement is concluded whereby the Lessor (the owner of the craft) contracts the use of the craft to the Lessee (the person who leases the craft) in return for a consideration. At the end of the lease period, the Lessee may opt to purchase the craft at a percentage of the original price;

• The initial VAT payable at source by the purchaser on the purchase price of the vessel would not be payable by the Lessor to the seller/supplier of the yacht. Three possible scenarios may apply here:

1. The yacht is purchased locally

2. The yacht is purchased from another Member State

3. The yacht is imported into the European Union

Difference criteria apply to each of the above scenarios. However, in each case the end result would be 0% VAT or refundable VAT on the purchase of the yacht.

 

• The supply of services is taxable according to the use of the craft within the territorial waters of the European Union.  The guidelines state that:

 

1. The VAT rates payable by the Lessee on the lease services is based on the percentage of lease taking place in EU waters. This is dependent on the type and length of the yacht. The principle applied here is that it is anticipated that yachts of a certain length spend only a part of their time in EU waters and a far greater time outside. By way of example, a yacht of 24 metres or bigger is deemed to spend only 30% of its time in EU waters and thus VAT at 18% is only calculated on 30% of the value of the lease services.

2. Prior approval shall be sought in writing from the Commissioner of VAT who is to confirm the rate applicable according to the use in EU territorial waters (depending on the size and value of the craft), which details depend on whether the vessel is second hand or new. The VAT department will then advise the applicable rate of VAT in consideration of the below:

 

Motor Yachts

 

Length	% of VAT (18%) the lease is subject	Effective rate of VAT
Over 24 metres in length	30%	5.4%
Between 16.01 and 24 metres in length	40%	7.2%
Between 12.01 and 16 metres in length	50%	9%

 

 

Sailing Yachts

Length	% of VAT (18%) the lease is subject	Effective rate of VAT
Over 24 metres in length	30%	5.4%
Between 20.01 and 24 metres in length	40%	7.2%
Between 10.01 and 20 metres in length	50%	9%

 

• The boat must come to Malta, possibly at the beginning of the lease agreement.

• An initial contribution shall be paid by the Lessee to the Lessor amounting to 50% of the value of the craft.

• The Lease instalments shall be payable every month and the lease agreement shall not exceed 36 months. VAT shall be charged on each monthly instalment at the applicable VAT rate.

• The Lessor shall be expected to make a profit from the leasing agreement over and above the value of the boat.

• Any purchase value at the end of the lease agreement shall not be less than 1% of the original value of the craft.

• Should the Lessee opt to purchase the craft at the end of the lease, a VAT paid certificate will be issued to the Lessee provided that all VAT due has been paid in full.

 

For further information please do not hesitate to contact us.