Malta Yacht Leasing – Vat Issues 2024

In March 2020, the Commissioner for Revenue issued guidelines on the VAT treatment for pleasure yacht leasing.

The new guidelines open the possibility for the yacht owners to benefit from VAT optimization operating by the attractive lease models.

To benefit from the VAT schemes the yacht owner needs to comply with the following requirements:

• Lessor Company would beq owner of the yacht;
• Register for VAT in Malta;
• Lease agreement done for 12 to 36 months;
• Would be considered as a supply of service;
• Complete the provisional VAT Declaration;
• Obtain the VAT Paid Certificate.

The national VAT rates vary within the EU attaining up to the 27%.

In Malta, the standard applicable VAT rate is 18%.

The yacht leasing scheme allows the yacht to be leased out. The Lessee may acquire the yacht on the lease termination. 

The ending result allows the yacht owners significantly reduce the applicable VAT rate payable on the yacht and obtain an EU VAT Paid Certificate.

Let’s try to figure this out together.

   1. Malta VAT General Concept

   1.1. Who is a taxable person?

   1.2. What is a supply of goods or service?

   1.3. Place of supply – PoS

   1.4. Examples

   2. Focusing on yachting leasing: VAT schemes

   2.1. Introduction: hiring of means of transport provisions

   2.2. Guidelines regarding item 12 of part two of the 3rd schedule to the VAT act

   2.3. Conditions of using the leasing schemes

   2.4. Other VAT considerations

A person, who carries on an economic activity*, whatever the purpose or the result of that activity:

• Includes physical person, body of persons and any entity capable of carrying on economic activity;
• Excludes employees and public authorities acting in the functions assigned by law;

A holding company:

• Not a taxable person when it exclusively holds shares and derives dividend therefrom;
• ECJ Case C-60/90 Polysar: Dividend is the result of ownership of property not the furtherance of an economic activity;
• Considered taxable when it manages related companies for consideration (not mere financing);

Branch:

• Considered to be single legal entity with head office;
• ECJ Case-210/04 FCE Bank plc: No taxable supplies within a single entity;

* Economic activity:

• Any trade or business,
• Any profession or vocation and the provision of personal services,
• The exploitation of tangible or intangible property for the purpose of obtaining income therefrom on a continuing basis,
• The provision by a club, association or organisation against payment of the facilities or advantages available to its members,
• The admission, against payment, of persons to any premises;
• ECJ Case-266/83 Rompelman: preparatory activities for subsequent taxable supplies are inherently economic activities in themselves;
• Excludes illegal or illicit activities;
• Business intention matters – resulting profit or loss is irrelevant.

Registrations:

• Article 10 – regular registration – all persons, who are not registered under another article carrying out economic activity;
• Article 11 – registration for small undertakings whose turnover falls below specific thresholds – VAT number is ‘invalid’ for intra- community transactions and has no MT prefix;
• Article 12 – registration by taxable persons whose supplies are exempt without credit but who make ICAs or acquire services cross-border in excess of €10,000 – allows self-charge of VAT.

1. Every supply of goods or services that takes place (or is deemed to) in Malta for consideration by a taxable person acting as such;
2. Every intra community acquisition made for consideration:

• Transfer of right to dispose as owner, which goods are transported to or on behalf of the customer;
• Inverse of Intra Community Supply.

3.  Every importation that takes place in Malta (entry into Malta of goods from a third country);

Supply of goods is a transfer of the right to dispose of the property as owner.

Supply of services is what is not a supply of goods.

Where there is a mix, the principal nature of the supply is taken into consideration.

Most important concept in VAT law determines in which member state VAT will be paid on a taxable transaction;

Goods:

• goods that are transported – PoS where transport begins;
• goods that are not transported – PoS where goods are placed at disposal of the customer;
• goods installed by/on behalf of supplier – where the goods are installed;
• goods supplied on board ships and aircraft – point of departure;

Intra Community Supply and Intra Community Acquisition:

• A supply of goods with transport to another member state;
• ICA – takes place where goods are when transport ends;
• ICS – deemed to place where the goods depart;
• Both parties must be duly registered for VAT;
• Reported in Recapitulative Statements;

Services:

• Business to Business (B2B: customer has valid VAT number or is acting  as a taxable person) – supplies to taxable person acting as such where the customer is established.

• Business to Customer (B2C: customer does not have valid VAT number) – supplies to person acting in own capacity where the supplier is established.

Reverse charge:

• where the burden of payment of VAT shifts to the customer;
• customer self – charges VAT;
• applies when a good is supplied from another EU member state (and also whenever cross – border transactions occur in terms of services, EU or non-EU).

• The place of short – term hiring* of a means of transport shall be the place where the means of transport is actually put at the disposal of the customer.
• The place of hiring, other than short-term hiring, of a means of transport to a non -taxable person shall be the place where the customer is established, has his permanent address or usually resides.
• However, the place of hiring a pleasure boat to a non-taxable person, other than short-term hiring, shall be the place where the pleasure boat is actually put at the disposal of the customer, where this service is actually provided by the supplier from his place of business or a fixed establishment situated in that place.

* “short-term” shall mean the continuous possession or use of the means of transport throughout a period of not more than thirty days and, in the case of vessels – not more than 90 days.

In summary.

In order to prevent double taxation, non-taxation or distortion of competition, the Commissioner may, with regard to services the place of supply of which is governed by items 2, 8, 10 and 11 of this part:

—  consider the place of supply of any or all of those services, if situated within Malta, as being situated outside the Community, if the effective use and enjoyment of the services takes place outside the Community;

—  consider the place of supply of any or all of those services, if situated outside the Community, as being situated within Malta, if the effective use and enjoyment of the services takes place within Malta.

Colloquially known as the “use and enjoyment rules” for:

• item 2: General Supplies (not governed by special rules);
• item 8: Hiring of Transport – we focus on;
• item 10: Supply of telecommunications, broadcasting and electronic services to non -taxable persons;
• item 11: Supply of services to non – taxable persons outside the Community.

Focusing on the guidelines:

—  For leases after 1st November 2018, when place of supply is Malta to calculate when the effective use and enjoyment is outside EU territorial waters:

• lease commences in Malta;
• for long-term leases – lessor is established in Malta;
• lease agreement must be submitted to the IRD and requires prior approval;
• lessor must maintain proper records and calculations; and
•  lessor must be registered for VAT.

—  Commencement of Lease.

Upon commencement of the new lease, intended to effectively be used and enjoyed outside Malta, the lessor shall apply VAT as follows:

• If lease begins at least 30 days prior to the end of the tax period in which the lease commencement falls (i.e., first tax period) the lessor shall charge full VAT due in that period;
• If lease begins less than 30 days prior to the end of the tax period, in which the lease commencement falls, full VAT will be charged in the first period and the second period.

Hence first period the lessor shall always charge 18%.

—  The new VAT regime is calculated based on an actual ratio of the actual effective use and enjoyment of pleasure boat:

The Commissioner for Revenue recognises the lessor should obtain “reasonable documentary proof/technological data” to determine effective use and enjoyment within/outside the EU during the lease period, such as:

• logs held by the captain of the pleasure yacht;
• GPS/AIS data;
• other documentary proof showing the actual navigation of the pleasure yacht whilst lease is applied.

Thus, provided the lessor is a Maltese registered company the VAT is due only on the portion of the lease that takes place within EU territorial waters.

To help the lessor in recording, the Malta VAT Department has determined the following percentages to be the deemed amount of use of a yacht in EU territorial waters:

☛ Download .pdf 

To summarise the above layout, the new innovative yacht leasing schemes are applicable to reduce the standard VAT rate based on the presumption – the bigger yacht is, the more time it may spend outside the EU waters.

 The effective rate of VAT varies on the size of the yacht.

— Tax adjustments.

• The access VAT paid is calculated by multiplying the 18% VAT paid by the actual ratio calculated.
• First tax period is paid immediately 18%.
• The adjustment is done for every subsequent period, as applicable.
• Adjust in the subsequent VAT return accordingly any access output VAT.

In order to apply the Malta VAT leasing schemes, the following criteria must be followed:

—  Purchase of the Yacht by the Lessor where Place of Supply is Malta.

VAT treatment should always be VAT neutral, if yacht is used for trading purposes.

—  Sale of the Yacht by the Lessor where Place of Supply is Malta.

 If the yacht sold locally, it will be charged 18% immediately.

However, if purchaser had not initially claimed back the VAT incurred on the purchase, it is not subject to 18% VAT for the subsequent sale.

Probably it would have had a VAT Paid Certificate.

Should you be interested in latest local and EU yachting regulations, kindly contact us for Tax advice.

Author: © By Liudmyla Skryvanek