Yacht Leasing: VAT on the basis of EU use and enjoyment
The Maltese VAT Department recently issued guidelines with the intention of reducing substantially the overall VAT impact on the leasing of a yacht.
The guidelines establish that Maltese VAT on a lease taking place in Malta is only charged on the portion of the lease which reflects the actual effective use and enjoyment of the yacht within EU waters. No VAT is charged on the portion of the lease which reflects the use and enjoyment of the yacht outside the EU.
Prior to the launch of these guidelines, effective use and enjoyment of the yacht within EU waters was determined by reference to the size and type of boat, rather than actual use.
The following conditions must be satisfied for the rules to apply:
- The lessor must possess a valid Maltese VAT number.
- The yacht must be in Malta at the commencement of the lease, such that the place of supply for VAT purposes would be Malta.
- The lease agreement entered into between the lessor and the lessee must presented to the Commissioner for Revenue.
- Prior approval from the VAT Department must be obtained for the lessor to apply Maltese VAT on the basis of effective use and enjoyment.
- The lessor must keep appropriate records to prove the actual use and enjoyment within and outside EU waters.
- An annual declaration must be filed with the Commissioner for Revenue.
The actual use and enjoyment of the yacht within / outside EU waters is calculated by reference to distances covered. Given that generally yacht lease fees are paid in advance, the guidelines provide an adjusting mechanism to ensure that the ultimate VAT charge reflects the actual use and enjoyment within the EU.
On monthly leases, VAT is charged at the rate of 18% on a preliminary ratio attributable to the effective use and enjoyment within the EU. Such VAT charged is then adjusted on an annual basis once the lessee presents technological data and/or documents to the lessor to show the actual effective EU use and enjoyment within that year.
As a result, over the term of the lease, VAT would only be paid on the portion relating to actual use and enjoyment of the yacht within the EU, subject to some limitations in the VAT calculation as may be prescribed by the guidelines.