A short-term charter of a yacht is an agreement whereby the yacht owner/operator contracts the use of the yacht for a consideration with a crew or on a bareboat basis. The term of the charter cannot be more than 90 days.
For VAT purposes, the short-term charter of a yacht to be used for leisure purposes is a supply of a service which is taxable at the standard rate of VAT. The place of taxation is the place where the yacht would actually be placed at the disposal of the customer, in this case in Malta. Subject to certain conditions, the taxation of this supply would be limited to that portion of the use of the yacht within the territorial waters of the European Union (EU).
It is very difficult to physically trace the movements of a yacht in order to determine the period during which the yacht is used within the territorial waters of the EU and the period during which it is used outside the EU.
In this regard, these guidelines set out to establish the estimated percentage portion of the charter based on the time that the yacht is made use of within the territorial waters of the EU. These percentages are set according to the length of the yacht and its means of propulsion (power or sailing).
The standard rate of VAT of 18% is applied on the established percentage of the charter deemed to be related to the use of the yacht within EU territorial waters. The table below indicates the applicable established percentage portions:
Yacht Type % of charter deemed to be taking place in the EU Computation of VAT
Sailing boats or motor boats over 24 metres in length 30% 30% of taxable value x 18%
Sailing boats between 20.01 to 24 metres in length 40% 40% of taxable value x 18%
Motor boats between 16.01 to 24 metres in length 40% 40% of taxable value x 18%
Sailing boats between 10.01 to 20 metres in length 50% 50% of taxable value x 18%
Motor boats between 12.01 to 16 metres in length 50% 50% of taxable value x 18%
All other boats 100% 100% of taxable value x 18%
The VAT treatment of short-term yacht chartering as per above table would be applicable subject to the following conditions:
* The supplier of the yacht charter shall be a person registered for VAT in Malta
* The yacht charter contract shall indicate the place where the charter commences (i.e. Malta), the charter price and a statement that the yacht shall sail outside EU waters. The VAT Department reserves the right to request proof of any payment in connection with the charter
* Upon application, the supplier of the charter has to produce sufficient documentation to identify the yacht with regards to hull number, port of registry, registration number, and any further documentation confirming the size and type of yacht
* Following submission of these documents, and provided that the conditions are met to the satisfaction of the Director General (VAT), the applicant shall be informed in writing regarding the applicable portion of the charter fee which would be subject to VAT
* Approval must be sought in writing from the VAT Department and each application shall be considered on its own merits
The Director General (VAT) reserves the right to impose any other conditions he may deem necessary on a case by case basis and he may also refuse any application. Furthermore, the Director General (VAT) can also perform checks to confirm the actual use of the yacht outside of EU waters and may also request the owner/operator of the yacht to submit details about the voyage and the hire, even after the completion of the charter.
Input tax
The supplier of the charter would have the right to claim input tax incurred on the fuelling and provision of the boat provided that these goods would be sold to the client of the charter under a separate contract or provided that they would be invoiced separately from the charter service. The supply of these goods to the charter client would have to be made at the full standard rate of VAT. Furthermore, the supplier of the charter would also be entitled to claim input VAT incurred on fuel purchased for the outward journey of the yacht to its next port of destination after the completion of the charter. Terms and conditions apply in terms of the law.
The VAT Department in Malta has devised a structure that apart from offering a safe business solution to those individuals wanting to acquire a pleasure yacht with a VAT paid status, offers the added benefit of owning a Maltese VAT paid yacht under the Maltese flag through a Maltese company.
A financial leasing agreement in respect of a yacht is an agreement whereby the lessor (the owner of the yacht) allows the lessee (the person who leases the yacht) to use the yacht for a stipulated period in return for a consideration (the lease payment). At the end of the lease period, the lessee may opt to purchase the yacht at a percentage of the original price.
A supply of services is deemed to take place where the person who makes the supply is established. Given that the company would be deemed to be established in Malta, the place of supply would be deemed to be Malta and therefore, the Maltese company would have to charge VAT on the income derived under the finance lease. As a general rule, under Maltese VAT law, the actual leasing of yachts is taxed at the general VAT rate of 18%.
The VAT department guidelines have determined that VAT is only payable on that portion of the lease during which the yacht is in EU territorial waters. It is very difficult to trace the movements of pleasure vessels in order to determine the period that the vessel spends within the territorial waters of the EU and the time it spends outside the EU. In this respect, these guidelines have issued a “presumed” length of stay during which the yacht is presumed to have been in EU waters, and the VAT rates are prescribed as follows according to the type and length of the vessel:
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 taxable value x 18%
Sailing boats between 20.01 to 24 metres in length 40% 40% of taxable value x 18%
Motor boats between 16.01 to 24 metres in length 40% 40% of taxable value x 18%
Sailing boats between 10.01 to 20 metres in length 50% 50% of taxable value x 18%
Motor boats between 12.01 to 16 metres in length 50% 50% of taxable value x 18%
Sailing boats up to 10 metres in length 60% 60% of taxable value x 18%
Motor boats between 7.51 to 12 metres in length (if
registered in the commercial register) 60% 60% of taxable value x 18%
Motor boats up to 7.5 metres in length (if registered in
the commercial register) 90% 90% of taxable value x 18%
Craft permitted to sail in protected waters only 100% 100% of taxable value x 18%
The beneficial owner acquires the yacht via a Maltese company. The company is not required to obtain special status or any advance revenue ruling. The main object of the company would be to lease the yacht to the beneficial owner which could be a company or person.
The finance lease agreement should last at least one (1) year and cannot exceed three (3) years. At the end of the lease term, the VAT paid certificate is then granted upon payment of VAT dues in accordance with the scheme.
For the structure to be valid, the Maltese VAT Department has issued the following criteria all of which must be satisfied:
** The boat must come to Malta, possibly at the beginning of the lease agreement;
** The financial leasing agreement shall be between a Maltese company and any Maltese or foreign person or company;
** The transaction is reported in advance to the VAT Department;
** The Maltese company makes a profit of 5% on the transaction;
** The lease instalments shall be payable every month and the lease agreement shall not exceed 36 months;
** Any purchase at the end of the lease agreement shall not be less than 1% of the original value of the vessel, and this will be subject to the standard rate of VAT at 18%.
Example:
Vessel with a length of 22 metres Amount in €
Value 1,000,000
Est. profit @ 5% 50,000
Total value incl. profit 1,050,000
Down payment: Total VAT payments
€500,000*40% = 200,000
VAT= 200,000 @ 18% = 36,000 36,000
Instalments:
Balance of 650,000 – 18 monthly
Instalments of 30,555.55 *40% = 12,222.22
VAT = 12,222.22 @ 18% = 2,200 39,600.00
Redemption: 1% of value = 10,000
VAT = 10,000 @ 18% 1,800
Total VAT Paid 77,400
Effective VAT rate: 7.74%
PAYMENT OF VAT IN MALTA
In order to enable us to guide you accordingly, please inform us of the cost of the purchase of the yacht so that we will provide you with an estimation of the VAT to be paid. This amount is subject to a valuation by a recognised surveyor. If you consider the proposal to be favourable, then we suggest that you should start by submitting a valuation of the yacht (the surveyor must be approved by the VAT Department and therefore please also submit his C.V. in order to obtain the necessary authorisation) so that we will apply to the VAT Department to obtain the approval for the yacht to be registered under this structure.
The main advantages of the Maltese legal regime of the mortgage of the vessel, established by the Merchant Shipping Act 1973 as amended in 1988, can be summarised as follows:
We are on hand to assist clients in all aspects of ship and yacht finance for both owners and banks. Our services include drafting, reviewing and amending loan and finance agreements, mortgage recitals, legal opinions, as well as corporate documentation.
Pleasure Yacht
The Merchant Shipping Act (Chapter 234 of the Laws of Malta) provides for an easy, swift and cost effective procedure for registering a pleasure yacht under the Malta maritime flag. In order to complete the process, an applicant would be required to complete the below listed procedures.
Provisional Registration
It is important to note that if registration of the yacht takes place prior to the delivery of the yacht, the registration can be declared null and void resulting in bankers (in case of mortgages) requesting re-registration; thus incurring registration fees all over again.
Permanent Registration
Having received the above information/documentation, a provisional certificate will be issued for a period of six months with a possible maximum extension of another six months (upon receipt of 1, 2, and 3 below). In order to proceed with the permanent registration of the yacht, the following documents are required within the prescribed time allowed (commencing from the date of provisional registration):
Commercial Yacht
The Commercial Yacht Code is drawn up for vessels which do not carry cargo and do not carry more than 12 passengers. Legal Notice 38 of 2006 regulates the certification of Commercial Yachts and Commercial Cruising Vessels. The following classes of vessels will be considered for registration under Malta flag:
The present recognised and authorised Classification Societies by the Maltese authorities are listed below. If the vessel’s classification is not among the ones listed below, then this should be changed upon registration.
Corporate Income Tax for the yacht owning company is the flat rate of 35%. However, a tax exemption (on profits derived from the trading of the yacht) is granted to commercial vessels not trading in Malta.
If you need any help, please feel free to contact us. We will get back to you within 1 business day. If you’re in a hurry, call us now.
Call: +(356) 21247785
info@gmxlaw.com Mon–Fri 09:00–17:00