Malta offers an attractive regime for persons who are interested in acquiring pleasure boats.
In terms of guidelines issued by the Malta VAT Department, the VAT incurred on the acquisition of a yacht can be reduced substantially, depending on the size and means of propulsion of the yacht. This is essentially based on the deemed use and enjoyment provisions, covering the hiring of means of transport, which are prescribed in the EU VAT Directive and which were transposed into our local legislation.
In November 2005, the Malta VAT Department published guidelines outlining the terms and conditions which can be applied to the leasing of yachts by Maltese Companies. On the basis of these guidelines potential buyers of yachts are able to pay VAT on the lease of a yacht (with an option to buy) only on a percentage of the lease which is attributable to its deemed use within European territorial waters.
In view of the practical difficulty in trailing the movements of the yacht to determine the time it spends within EU territorial waters, the VAT guidelines establish a percentage of use determined on the basis of the type of propulsion of the craft and its overall length.
The effective VAT rate, based on the deemed use of the yacht within EU territorial waters, ranges from a 5.4% to 18%.
- The yacht must physically be in Malta at the beginning of the lease.
- The yacht has to be acquired by a Maltese Company, and subsequently be leased to either another Maltese company or foreign holding company (which is not VAT registered) or to a private individual. At the end of the lease period, the lessee has an option to purchase the yacht.
- An initial contribution shall be paid by the lessee to the lessor amounting to 40% of the value of the vessel.
- The Lease agreement shall regulate an arrangement between a Maltese company (lessor) and another Maltese company or Foreign holding company (non VAT registered) or individual (lessee) for a period which is not less than 12 months and not more than 36 months.
- In case the lessee is a non-taxable person, the initial possession of the yacht should be take place in Malta.
- The monthly lease charges by the lessor to the lessee are chargeable at the rate of 18% VAT. However, in view of the fact that the yacht is partially used in EU territorial waters and partially in non-EU territorial waters, VAT is chargeable only on the portion that the yacht is deemed, during the period of the lease, to be used in EU territorial waters.
- Since the lessor company uses the yacht for its economic activity (i.e. the leasing and eventual sale of the yacht) it has the right to recover any input VAT incurred on the acquisition of the yacht and in the course of its economic activity.
- The lessor is expected to make a profit from the leasing agreement over and above the value of the yacht.
- Should the lessee exercise the option to purchase the yacht at the end of the lease period, the purchase price will not be less than 1% of the original value, and will be subject to VAT at the full rate of 18% (irrespective of the % of use within EU territorial waters).
- Prior approval must be sought from the Director General (VAT), who must approve the value of the yacht and the applicable percentage on which VAT is chargeable, according to its use within in EU territorial waters.
- A provisional VAT Paid certificate will be provided by the VAT office upon submission and payment of the first VAT return to the VAT Department.
- A VAT Paid certificate will be issued at the end of the lease subject to settlement of all VAT obligations. This should allow free movement of the yacht within EU territorial waters.
- Payment of VAT on importation of the yacht is normally deferred in order to alleviate the cash flow burden arising as a result of the importation of the yacht into Malta.
Percentage of Use
|Type of Boat||% of Lease taking place in the EU||Effective VAT Rate|
|Sailing boats or motor boats over 24metres in length||30%||5.4%|
|Sailing boats between 20.01 to 24metres in length||40%||7.2%|
|Motor boats between 16.01 to 24 metres in length||40%||7.2%|
|Sailing boats between 10.01 to 20 metres in length||50%||9%|
|Motor boats between 12.01 to 16 metres in length||50%||9%|
|Sailing boats up to 10 metres in length||60%||10.8%|
|Motor boats between 7.51 metres to 12 metres in length (if registered in commercial register)||60%||10.8%|
|Motor boats up to 7.5 metres in length (if registered in the commercial register)||90%||16.2%|
|Boats permitted to sail in protected waters only||100%||18%|