VAT planning for EU Yachts

31/08/2012

EU Yachts

On the 24/11/2005, the Maltese VAT Department published its guidelines on the VAT treatment of yacht leasing. These regulations have clarified the taxation of yachts which are lease-purchased to third parties by a Maltese International Trading Company (ITC).
A financial leasing agreement (lease-purchase) of a pleasure craft is an agreement whereby the lessor (the owner of a craft = an ITC) leases it to a third party (lessee) with an option in favour of the lessee to purchase the boat at a reduced price at the end of the lease.
With careful planning, these guidelines mean that the lessee of the yacht can now become the owner of an EU VAT-paid yacht by paying as little as 6.18% VAT on the original value of the yacht. However tax and costs on the transactions will have an incidence on the final outlay raising the total outlay by about 2%.
The Maltese VAT Department has established that when a Maltese company buys a pleasure yacht and lease-purchases it to third parties, then VAT is due on the lease at the normal rates of VAT in Malta, i.e. 18%, since this is a supply of a service deemed to be supplied in Malta. But VAT is payable only on that portion of the lease during which the yacht is in EU waters. However, since it is very difficult to establish this with precision, the Department has issued its own “presumed” length of stay during which the yacht is presumed to have been in EU waters and thus the Department will charge VAT according to this table as follows:
 
Type of Yacht % of lease subject to VAT Effective rate of VAT
Yachts over 24 metres in length 30% 5.4%
Sailing yachts between 20.01 and 24 metres in length 40% 7.2%
Motor yachts between 16.01 and 24 metres in length 40% 7.2%
Sailing yachts between 10.01 and 20 metres in length 50% 9%
Motor yachts between 12.01 and 16 metres in length 50% 9%
 
Taking the first type of craft as an example, a sailing yacht over 24 metres in length will now be presumed to have sailed in EU waters for 30% of the time during which it was lease-purchased and therefore the VAT payable on the lease is the normal rate of VAT (18%) but only for 30% of the duration of the lease, i.e. 5.4% VAT on the value of the lease-purchase.