VAT Treatment of Yachts in Malta

CSB Group assists clients throughout the entire ship registration and deregistration process, among other shipping services.

Malta has retained its importance in the shipping and yachting world not only because of its geographical location but also because it offers attractive and competitive incentives, thereby making Malta one of the top flags in the world. Malta’s solid roots as a maritime settlement continue to enhance and expand the island’s footing in the maritime industry.

Besides offering world-class berthing facilities to the superyacht industry, Malta offers ship and yacht owners several attractive solutions, including attractive VAT incentives for yacht and superyacht owners.

VAT Treatment of Yachts intended for Private Use

In March 2020, Malta published its guidelines regarding its VAT treatment options establishing the means in which leased pleasure yachts are to be treated for VAT purposes, with a particular focus on the use and enjoyment provisions on yacht leasing supplies. The Guidelines issued on the subject matter reflect EU developments and practices.

With respect to operating leases, it is possible for a lessor/owner of a yacht to lease out their yacht to a lessee for a consideration for a specified period of time (both for a short term lease or a long term lease). Through such a structure, VAT would be payable by the lessee on the monthly lease instalments, which VAT would be payable on a quarterly basis, and depending on the actual use and enjoyment of the yacht within EU waters.
In order to benefit from the said VAT treatment option, the following conditions would need to satisfied:

• The lessor must be a Maltese entity and possess a valid Maltese VAT identification number to be eligible for the Yacht leasing Scheme;
• There must be a yacht leasing agreement in place between the lessor and lessee setting out the conditions of the lease;
• The lessee must be a non-taxable person i.e. not using the yacht for commercial business purposes;
• The yacht must be placed at the disposal of the lessee in Malta;
• The lessor must maintain documentary and/or technological data to determine the actual use and enjoyment of the pleasure boat within and outside EU territorial waters;
• An annual declaration must be filed by the lessor with the Commissioner for Revenue within the prescribed timeframe.

The scheme works depending on the ratio of use and enjoyment of the yacht in or outside EU territorial waters. As a general rule, full VAT payment at the rate of 18% is payable when the place of supply of the service is in Malta; however, in cases where the actual effective use and enjoyment of the pleasure yacht would be outside EU waters, there is an adjustment method that would apply. The end result will be that VAT would only be charged on the actual use and enjoyment of the yacht by the lessee in EU territorial waters. To this end, no VAT shall be due on the portion of the lease where the yacht is effectively used and enjoyed outside EU territorial waters.

Therefore, Malta VAT will be applicable solely on the use of the yacht within EU territorial waters; the applicable VAT rate will be reduced, depending on the effective use and enjoyment of the yacht, possibly making it amongst the lowest VAT rates within the EU Member States.

Importantly, the VAT treatment options also provides an element of flexibility when it comes to exiting or terminating the lease. In the eventuality that at the end of the lease the lessor decides to contract the sale of the yacht in Malta, then VAT at the standard rate of 18% is charged on the value of the yacht upon subsequent sale.

In such a case should the Maltese VAT Department be satisfied that the necessary rules and regulations have been duly observed, a VAT Paid Certificate would be issued.

VAT Treatment of Yachts intended for Commercial Use

Yachts intended for commercial use may opt for VAT deferment on the importation as follows:

• Obtaining a VAT deferment on the importation of the commercial yacht by a Maltese owning entity having a Maltese VAT registration; without needing to set up a bank guarantee (as previously required);
• Obtaining a VAT deferment on the importation of the commercial yacht by an EU owning entity having a Maltese VAT registration, provided that the company duly appoints a VAT representative in Malta, without needing to set up a bank guarantee (as previously required); or
• Obtaining a VAT deferment on the importation of the commercial yacht by a non-EU owning entity on provision by the importing entity of a bank guarantee amounting to the VAT payable on 0.75% of the value of the yacht, capped at one million euro;

To opt for the first proposed VAT deferment structure, one would need to incorporate a shipping company in Malta, which company would need to obtain a valid Malta VAT identification number. In each instance, the importation of the commercial yacht will require the yacht to physically call at Malta in order to undergo VAT and Customs procedures. Following which, the yacht would be imported into the European Union with the VAT payment deferred accordingly rather than paid upon importation. In such a case, the yacht would be able to roam freely and circulate within EU waters.

Should you have any questions or require clarifications please do not hesitate to contact us on [email protected] so that we may be able to guide and advise you further.