Malta has always established itself as a leading maritime centre having the largest ship register in the European Union and the sixth largest in the world and such success is not only merit to the location.
Furthermore, Malta’s yachting industry has also grown substantially during the years. Specifically in relation to the leasing of pleasure yachts, the VAT incidence can be reduced drastically depending on the use of the yacht within and out of EU territorial waters as no VAT is chargeable on the portion of the lease attributable to effective use and enjoyment of the yacht outside of EU territorial waters.
Way back in 2005, the Malta VAT Department had issued guidelines in relation to the VAT treatment of the leasing of pleasure yachts by a Maltese company. On the 28th February 2019 the VAT Department issued new guidelines to further reflect EU developments in the field whilst still basing the guidelines on the principle of effective use and enjoyment provided for in the EU VAT Directive.
What is the VAT treatment for Yacht Leasing?
A short-term (not more than 90 continuous days) lease of a yacht which is put at the disposal of the lessee in Malta, is considered a supply of a service falling within the scope of Maltese VAT. For long-term leases, apart from having the yacht put at the disposal of the lessee in Malta, the lessor must be established in Malta. In terms of the Maltese VAT Act and based on Article 59A of the EU VAT Directive, the Commissioner for Revenue may consider the place of supply of the hiring of means of transport to be outside Malta if the effective use and enjoyment of the yacht takes place outside EU territorial waters.
What do the New Guidelines Provide?
The new guidelines aim at alleviating the difficulty which normally arises when assessing the extent to which a pleasure boat is effectively used and enjoyed by the lessee within and outside EU territorial waters especially in those instances when lease payments are payable in advance. In fact the guidelines provide the methodology to be used to arrive at the ratio of effective use and enjoyment within EU territorial waters.
What are the Conditions to be Satisfied to be able to Apply the Guidelines?
- The lessor must have a Maltese VAT identification number;
- The yacht must be placed at the disposal of the lessee in Malta;
- The lessee must be a non-taxable person i.e. not using the yacht for commercial business purposes;
- There must be a yacht leasing agreement in place between the lessor and the lessee;
- Prior approval of the lease is to be sought from the Malta VAT Department in order to be able to apply the effective use and enjoyment principle;
- The lessor must obtain from the lessee reasonable documentary and/or technological data to determine the actual use and enjoyment of the pleasure boat within and outside EU territorial waters;
- Annual compliance obligations must be complied with.
What do the guidelines provide in relation to the ratio of effective use and enjoyment?
The guidelines provide how VAT is to be charged upon the commencement of the lease, depending on the date of the start of the lease when compared to the tax period of the lessor. Afterwards, a preliminary ratio is to be calculated based on the effective use and enjoyment of the first or first and second tax period, depending on the commencement of the lease and this ratio should be used for the first 12 months of lease.
After the lapse of a one year lease, an ‘actual ratio’ is obtained and this will be used as the provisional ratio for the subsequent year. An adjustment of the difference between the provisional and the actual ratio should be done in the tax return for the tax period following the end of the relevant Annual Period or in the tax return for the tax period following that in which the lease period terminates, whichever is the earlier.
How can we assist?
Our tax and legal team can assist with the attainment of prior approval from the VAT Department, calculation of lease payments and also all compliance obligations from a VAT perspective. Get in touch today.
Why choose Nexia BT?
Established by Brian Tonna, managing partner, Nexia BT is a corporate and private client advisory, audit, accounting and tax firm. Our clients are local and international financial and other institutions, SMEs, high-net-worth-individuals, the public sector and high-end organisations.
As a reputable organisation of over 25 years standing and forming part of a worldwide network of independent business advisors, consultants, auditors and accounting firms present in over 115 countries, we are optimally positioned to offer global expertise.
Along these years, we have built client loyalty around a credible reputation for delivering results whilst working to the highest professional standards.
Nexia BT’s strength lies in the technically competent staff with experience across a varied range of industry sectors. We deliver solutions to our clients through a high calibre customised service reflected in the professional work approach and ethics of our staff and driven by our ethos ’Closer to you’. With the backing of this business approach, we confidently present you Nexia BT as your trustworthy, dependable and reliable partner in Malta.
Get in Touch
Tax Advisory Services