Reduced VAT on Short-term Yacht Charters Commencing in Malta

MEDIA ROOM

On the 29th July 2013, guidelines were issued by the VAT Department in respect of the Malta VAT treatment of short-term yacht charters commencing in Malta. The guidelines are to a great extent similar to the interpretation which applicable to long-term yacht leases.

VAT Department Guidelines

According to the guidelines, 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 bare boat basis for a term which is not more than 90 days.

For the purposes of VAT, 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 at 18%. 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).

The VAT Department has acknowledged the difficulty in trailing the movements of a yacht in order to verify that period during which the yacht is used within the territorial waters of the EU and that during which it is used outside the EU. In this regard, the guidelines 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.

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 which are set according to the length of the yacht and its means of propulsion (power or sailing).The applicable percentage portions are the following:

Yacht type % of charter deemed to take place in 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% Taxable value X 18%

 

The VAT treatment of short-term yacht chartering in accordance with the above-mentioned table would be applicable as long as the following conditions are observed:

  • The yacht owner/operator of the yacht charter shall be registered for VAT in Malta.
  • ┬áThe 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 yacht owner/operator has to produce sufficient documentation identifying the yacht with regards to registration number, hull number, port of registry 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 VAT Director General, 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 VAT Director General is entitled to impose any other conditions as may be deemed necessary on a case by case basis and he may also refuse any application. Moreover, the VAT Director General can also perform his own checks to confirm that the yacht is actually being used 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 charter has been completed.

Input tax

The owner/operator of the charter would be able to claim input tax incurred on the fuelling and provision of the boat provided that these goods would be sold to the charter customer under a separate contract or provided that they would be invoiced separately from the charter service. The supply of these goods to the charter customer would have to be made at the standard rate of VAT at 18%.

In addition, 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 subject to any terms and conditions which may be in terms of law.