Yachting & Leasing Structures
Being an island in the middle of the Mediterranean, seacrafts have always played an important role for the Maltese, and over time, the Malta Shipping Register has come to be one of the largest and most reputable registers in the world.
Over the years, as individuals became more wealthy and affluent, the ownership of pleasure crafts and yachts also increased. Such vessels remain a statement to one’s wealth and standing. Like most luxury goods, yachts attract the highest level of VAT charge (18%). However, with careful planning one may substantially reduce the VAT burden by acquiring a yacht through a Maltese lease-purchase arrangement.
The Malta tax authorities issued guidelines clarifying the Malta tax treatment of yacht leasing arrangements. In terms of the guidelines, the overall effective VAT payable on the acquisition of a yacht may be as low as approximately 5.4%, depending on the size and means of propulsion of the yacht.
In effect, a yacht would be acquired by a Maltese company and would then be leased to a third party lessee (who does not necessarily have to be a Maltese national or a Malta company) with an option in favour of the lessee to purchase the yacht at the end of the lease.
In the circumstances, Malta VAT would be payable only on that portion of the lease during which the yacht sails in EU waters. However, since this is very difficult to establish with any precision, the tax authorities have issued their own “presumed” length of stay guidelines fixing the duration of a yacht’s presumed stay in EU waters during a lease period and the extent of Malta VAT chargeable as a result as follows:
|Type of Yacht||% of lease subject to VAT||Effective rate of VAT|
|Sailing / Motor boat over 24 metres in length||30%||5.4%|
|Sailing boat between 20.01 and 24 metres in length||40%||7.2%|
|Motor boat between 16.01 and 24 metres in length||40%||7.2%|
|Sailing boat between 10.01 and 20 metres in length||50%||9.0%|
|Motor boat between 12.01 and 16 metres in length||50%||9.0%|
|Sailing boat up to 10 metres in length||60%||10.8%|
|Motor boats between 7.51 metres and 12 metres in length
(if registered in commercial register)
|Motor boats up to 7.5 metres in length
(if registered in the commercial register)
|Boats permitted to sail in protected waters only||100%||18.0%|
Therefore, taking the first type of craft as an example, a sailing or motor boat over 24 metres in length would be presumed to have sailed in EU territorial waters for 30% of the time during which it was leased. As a result, Malta VAT payable on the lease would be chargeable at the standard Malta VAT rate (18%) but only on the portion of the lease deemed to be related to the use of the boat in EU territorial waters (30%) – resulting in an effective Malta VAT rate of 5.4%.
The salient features of Malta yacht leasing arrangements are the following:
- Lease agreement should last at least one (1) year and cannot exceed three (3) years.
- An initial contribution shall be paid by the lessee to the lessor equivalent to at least 40% of the value of the yacht.
- The yacht must enter Malta at the beginning of the lease.
- Should the client resort to financing, security can be provided by a mortgage registered over the yacht as well as a pledge of shares in the owning company in favour of the lending bank or financial institution.
- The lessor is expected to make a profit from the leasing agreement over and above the value of the yacht.
- Should the lessee exercise its option to purchase the yacht at the end of the lease, the purchase price must not be less than 1% of the original yacht value and will be subject to Malta VAT at the standard rate of 18%.
- Once VAT on all lease instalments has been paid, the Malta tax authorities would issue an EU-wide VAT-paid certificate.
- No obligation to register the yacht under the Malta flag. However, should it so elect, a vessel is initially provisionally registered under the Malta flag for a period of six months, which period may be extendible to one year, during which period all documentation must be finalized.
- The yacht may be new or used.