VAT Rates Applicable To Yacht Finance Leasing Structures

According to guidelines published by the Maltese VAT Department dealing with the VAT treatment of yacht leasing, the supply of leasing services is taxable according to the extent of use of the yacht within EU territorial waters, provided that the lessor is a Maltese company. Insofar as the lessor is concerned, the lease of the Yacht is a supply of services with the right of deduction of input VAT, where such right applies. The VAT liability therefore arises in the hands of the lessee.

In view of the practical difficulties which arise in determining the period that the craft spends inside and outside EU territorial waters, the guidelines establish an estimated percentage portion of the lease based on the time that the craft is presumed to be used within EU territorial waters. These presumptions are tied up to the length of the vessel and its means of propulsion (power or sailing).

The following table sets out the relative percentage points applied by the VAT department in relation to yacht finance leasing.

It should be stated that the transaction costs related to the implementation of this structure may increase the total outlay by a margin of approximately 2 or 3 %.

In order to apply these guidelines the following conditions shall apply:

• 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.
• Prior approval shall be sought in writing from the Commissioner of VAT who is to confirm the rate applicable according to the use in EU territorial waters (depending on the size and propulsion of the craft), as well as the acceptability of the value of the craft as declared. For this purpose a valuation certificate of the craft shall be submitted with the application for approval.
• An initial contribution shall be paid by the lessee to the lessor amounting to 50% of the value of the craft.
• The Lease installments shall be payable every month and the lease agreement shall not exceed 36 months. The recommended period is of 12 months.
• The lessor shall be expected to make a profit from the leasing agreement over and above the value of the boat.
• Any purchase value at the end of the lease agreement shall not be less than 1% of the original value of the craft, and this will be subject to the standard rate of VAT at 18%.
• If the lessee opts to purchase the craft at the end of the lease, a VAT paid certificate will be issued to the lessee provided that all VAT due has been paid.