Commercial Yacht Registration
The Maltese VAT department has released guidelines on VAT payment applicable to yacht leasing. One of the schemes that these guidelines address are where a Maltese company purchases a pleasure yacht and enters into a lease-sale of the yacht with a third party. The purpose of the scheme is in assisting yacht owners to pay VAT on their yachts calculated on the percentage of the time that the vessel is determined to sail in EU waters and for those owners to obtain a VAT paid certificate at the termination of the aforementioned scheme.
The main features of this scheme are as follows:
- A Maltese company would be set up, becoming the new owner of the yacht. This company would also be registered with a valid VAT number in Malta. This same company would later become a lessor under the subsequent lease agreement.
- This new Maltese company can then lease the yacht to another person, a Maltese or foreign person or company – the Lessee.
- A leasing agreement (lease-purchase) of a pleasure craft being an agreement whereby the lessor (the owner of a craft) contracts the use of the craft to the lessee (the person who leases the craft) in return for a consideration is then entered into between the lessor and the lessee. 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 in actual terms not be payable by the lessor to the seller/supplier of the yacht. In making this statement we are aware of three potential scenarios that might apply and that may result in a nil VAT or refundable VAT on the purchase of the yacht. These scenarios are:
- The yacht is purchased locally.
B. The yacht is purchased from another Member State.
C. The yacht is imported into the European Union.
Different criteria apply to each of the above scenarios, however, we can furnish clients with the complete and full details depending upon their specific requirements.
- What would entice the payment of VAT would be the leasing of the vessel as a supply of services. The supply of services is taxable according to the use of the craft within the territorial waters of the European Union.
The scheme introduced by the Maltese authorities operates as follows:
- It introduces a schedule of VAT rates which would be payable by the lessee on the lease services that are provided by the lessor based on the percentage of the lease taking place in EU waters which percentage depends on the type of sea craft involved e.g. sailing boat, motor boat, and the length of the vessel concerned.
The reason for this scheme is that it is foreseen that yachts of a certain length spend only a portion of their time in EU waters and a far greater time outside those waters. In fact the guidelines indicate that the VAT department presumes that a 24+ meter yacht should spend only 30% of its time in EU waters (whereas a 22 meter vessel spends 40%, a 13 meter vessel 50% etc.) and therefore VAT at 18% would be calculated on only 30% of the value of the lease services.
- Approval must be sought from the Commissioner of VAT. For this purpose the VAT department would be provided with details necessary to determine the value and size of the yacht; these details depend on whether the vessel is a second hand or a new build. The VAT department would in turn advise the rate of VAT that would apply according to the scheme as indicated below:
iii. The VAT department, once having approved the applicable rate, would issue a provisional certificate at the beginning of that lease scheme which will confirm that VAT on said yacht is applicable in Malta. This would be contingent on upon request and when certain requirements have been met. This will offer an additional safeguard to the lessee in that it may produce such certificate upon questioning by VAT authorities at any subsequent ports of call during the duration of the lease period.
- The yacht must arrive at Malta, possibly at the beginning of the lease agreement.
- An initial contribution is to be paid by the lessee to the lessor amounting to 50% of the value of the craft at the beginning of the lease period. Thus in the case of the purchase price of Eur6,510,000 in relation to a 24+ meter yacht, an initial contribution of Eur3,255,000 is payable by the lessee to the lessor. VAT at 18% on the said amount would be payable on 30% of this consideration.
- The balance of Eur3,255,000 would then be divided into equal monthly lease installments. The lease agreement is not to exceed 36 months. VAT would be charged on each monthly installment at the applicable VAT rate (30% of consideration x 18% in our example). However it is important to note that the scheme expects the Lessor to make a profit from the leasing agreement over and above the value of the boat, the amount of which is determinable by the Lessor. VAT is also to be calculated on the profit decided upon (which is self assessed) again at the applicable rate.
vii. The lease agreement will grant the Lessee the option to buy the yacht at the end of the lease period at a price which must be not less than 1% of the original value of the vessel (in our example at a price of not less than Eur65,000 on which amount 18% VAT equivalent to Eur11,700 must be paid.
viii. At this stage, seeing the Lessee thus become the owner of the yacht and VAT thereon has been paid in full, the VAT Department will issue a VAT paid certificate in the name of the Lessee indicating that VAT has been paid in full.
- Income Tax considerations
As specified in the exhibit (vi) above, the lessor is expected to indicate a profit from the leasing agreement over and above the original value of the boat. Any amount claimed by way of profit would consequently be subject to the payment of income tax at 35% by the lessor.
It is very important to discuss the tax benefits accepted under Maltese law in relation to shipping organizations operating commercial yachts. In terms of Maltese law, commercial yachts registered in Malta and owned by Maltese shipping organizations pay an annual tonnage tax instead of tax on income. Those clients interested in possibly chartering their yacht for commercial purposes will find this a quite attractive and lucrative benefit.