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?
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);
- 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.
- 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.
1.2. What is a supply of goods or services in terms of Article 4?
- Every supply of goods or services that takes place (or is deemed to) in Malta for consideration by a taxable person acting as such;
- 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.
1.3. Where is a place of supply (PoS)?
Most important concept in VAT law determines in which member state VAT will be paid on a taxable transaction;
- 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;
- 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.
|Supplier||Customer||Place of Supply|
- Business to Customer (B2C: customer does not have valid VAT number) – supplies to person acting in own capacity where the supplier is established.
|Supplier||Customer||Place of Supply|
- 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).
AAA Limited is a Maltese company, which provides maritime service to the international ship owners. One of its clients is a company established in Italy with a valid VAT number. When AAA Limited provides a service to this Italian company, where would the PoS be deemed to be?
Since the Italian company is a taxable person acting as such, it is a B2B transaction. Hence, PoS where the customer is established.
In another transaction, BBB Limited provided VAT advisory services to a non-taxable Dutch individual in his personal capacity. Will the PoS be where the customer is established?
No, this is a B2C transaction since the customer is not a taxable person acting as such. Hence, PoS is where the supplier is established.
CCC Limited is a Maltese company, which sells marine equipment to principally EU countries. Its biggest client is a company, which is based and VAT registered in Spain. The goods are transported directly from Malta to Spain. Will the PoS be deemed to be in Spain?
No, this is deemed to be an Intra – Community Supply since it involves the transport of goods between two EU member states and two taxable persons. Hence, the POS would be where the transport begins.
DDD Limited acquires most of its goods from a Chinese Company. How should this transaction be treated from a VAT perspective?
Goods are being transported from a third country. Therefore, this is not an Intra – Community Acquisition but an importation. The importation is deemed to take place in Malta.
2. Focusing on yachting leasing: VAT schemes
2.1. Introduction: hiring of means of transport provisions
- 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.
|Short-Term Hiring of pleasure boat||Where put at the disposal of the Lessee|
|Long-Term Hiring to non-taxable person||If place of establishment and place where yacht put at disposal coincide:
|Long-Term Hiring to non-taxable person||If place of establishment and place where yacht put at disposal do not coincide:
place where customer is established
|Long-Term Hiring to taxable person||Where customer is established|
Argo Ltd has the following yachts available for leasing at its disposal in Malta. It is in current negotiation to lease out as follows and the place of supply would be:
- A lease of 60 days:
- With a Dutch National – the place of supply is Malta;
- With a British National – the place of supply is Malta;
- A lease to a commercial entity established in Greece for 365 days – the place of supply is Greece;
- With an Italian customer for a lease of 120 days – the place of supply is Malta.
2.2. Guidelines regarding Item 12 of Part Two of the Third Schedule of the VAT Act
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.
The place of supply of certain services may be deemed outside of the supplier’s country, if the effective use and enjoyment of said service takes place outside of said country.
Likewise, if the service is provided by a supplier in a non – EU country and enjoyed within the EU, the place of supply will be in the Member State in which the service was enjoyed.
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%.
ABC Ltd is considering leasing out its yacht as from 15th May 2021. Its next VAT period determines from 1st April 2021 to 30th June 2021. In which periods does it need to charge 18%?
In first period only, subsequently it will need to use the ratio and adjust accordingly.
ZZZ Ltd is considering leasing out another yacht as from15th June 2021. Its next VAT period ranges from 1st April 2021 to 30th June 2021. In which periods does it need to charge 18%?
The first and second one, since the lease commences less than 30 days before the VAT period end.
— The new VAT regime is calculated based on an actual ratio of the actual effective use and enjoyment of pleasure boat:
Determination of Actual Ratio based on Actual effective use and enjoyment:
Actual effective use and enjoyment in the EU during the 1st or 1st and 2nd tax periods as applicable
Total effective use and enjoyment during the 1st or 1st and 2nd tax periods as applicable
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:
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.
Argo Ltd has a lease agreement with Aphrodite Ltd for its yacht. The lease agreement is €40,000 per month, and commenced 35 days prior to VAT Period end.
During the 1st year it spend the following time within the EU: 30%, 50%, 40%. During the 1st year, how should VAT be calculated?
— 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.
2.3. Conditions of using the leasing schemes
In order to apply the Malta VAT leasing schemes, the following criteria must be followed:
- The leasing must be concluded between a Maltese Company (Lessor) and any Maltese or foreign individual / corporate entity (Lessee);
- Prior approval from Maltese VAT Commissioner of the relevant yacht’s details is required;
- The period of the lease agreement shall not exceed 36 months;
- The yacht must come to Malta at the beginning of the leasing;
- The Lessor is considered to make a profit from the leasing agreement;
- The Lessee may opt to purchase the boat at a percentage of the original price on the lease expiration;
- For the Lessee, whose final consideration is to purchase the yacht after the lease termination, the consideration would be subject to standard Malta VAT rate 18% and the VAT Paid Certificate will be issued to this Lessee provided that total VAT due has been paid.
2.4. Other VAT consideration
— 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.
|Procured locally||Immediately pay 18% VAT|
|Procured from an EU Member State||Reverse charge mechanism applies|
|Procured from a third country.||Considered an importation:
18% immediately paid for customs clearance
— 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
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