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New construction vessel contracts – the pros and cons

Competing in an increasingly crowded marketplace, prospective purchasers will find it more cost-effective to purchase new construction with warranties, as opposed to a comparably priced brokerage boat. As such, purchasing a newly constructed vessel has become an attractive option for both experienced boaters and first-timers. When constructing a new vessel, the shipyard will inevitably ask you to sign a purchase agreement detailing the build. Regardless of the nature of complexity or type of contract, purchasers should keep in mind three important factors prior to signing an agreement. First, where is the boat being delivered upon completion? Secondly, how will changes be handled and the progress of payments? And thirdly, how will  a default by the shipyard be handled?

In today’s global marketplace, boats may be purchased from all over the world. Oftentimes the shipyard is in a different location where the vessel is built, than where it will be delivered. In certain circumstances, the yard will ask the purchaser to take delivery at the yard and then would be the owner’s responsibility to move the boat to its ultimate destination. Whereas in other cases, the yard will agree to deliver the vessel to a point chosen by the purchaser. This can have major implications with regards to warranties and sales or value added tax.

The delivery point can have major influence on a purchaser’s decision making because, depending on the jurisdiction, it can add a significant amount to the cost of the vessel. It is best to consider the tax ramifications of delivery prior to signing the purchase agreement in order to provide the most favorable terms to the purchaser. If you have not had a chance to speak with a maritime lawyer or tax professional prior to signing the contract, you might consider leaving the delivery location as “to be determined” until you have had a chance to speak with a qualified professional.

The second point to consider with regards to delivery is when the warranties will begin to run. Typically, warranties on the vessel do not begin to run until the owner takes delivery of the vessel. It becomes important to know when and where that delivery will take place in order to know when the warranty period begins. As issues come up in your first year of ownership, as oftentimes happens, this date may become important in the future.

The second major issue we see in new construction is how to handle change orders and progress payments. Change orders are common in new construction agreements as owners continue to see the progress of their vessel and decide that they want to add or change features that they did not originally contemplate on. Shipyards would be happy to accommodate the purchaser but  at an added cost. It is important for the contract to specify which changes will be considered to be significant and which changes can be accomplished at no further charges. Depending on how change orders are handled, it can have substantial implication on the overall cost of the vessel.

Additionally any increases in the cost of the vessel, changes in orders can affect the amount of time it takes to complete the vessel. Prior to making a change order, the purchaser should request that the shipyard provide a clear estimate of the amount of time that will be assigned to each change. While it is expected and understandable that changes can add to the time it takes to complete a vessel, change orders should not give the shipyard a blank slate to complete the vessel whenever it wants to or drag out the construction. The contract should contemplate changes and assign reasonable amounts of time and cost for the changes to be completed.

The contract also needs to contemplate at what point progress payments will be due. This can sometimes be a set of defined milestones the shipyard must meet prior to the next or final payment being made. While in other contracts, it calls for every single milestone to be met in each stage of the construction prior to payment. There are benefits and drawbacks to each type of agreement. When it is necessary that 100 percent of milestones be reached prior to payment, the purchaser is guaranteed to have the entire stage completed before he makes a payment. The drawback is that if there is a delay or backorder on parts, a stage may be nearly completed but construction will have to stop until the part is received and installed and the next payment is tendered. On the other hand, if the purchaser can be satisfied that a predetermined certain percentage of a progress stage is complete in order to make the next payment, progress can continue on schedule without being delayed by back ordered materials or similar issues. The drawback of this type of agreement is that the purchaser may have made a progress payment while a significant part of the vessel remains unfinished while the shipyard waits for materials to arrive. A prospective purchaser should weigh the pros and cons of each option prior to purchase.

The final issue we see involving new construction contracts is how to deal with default by the shipyard. Default typically happens in two ways; either the shipyard goes bankrupt or the shipyard fails to complete the vessel in a timely manner in compliance with the agreement. Each purchaser should ensure that there are provisions in their purchase agreement that protect them in the event of default. The easiest way to accomplish this is to include a penalty clause for each day the completion date is pushed back because of a default by the yard. The total delay cost can then be subtracted from the final payment made by the purchaser. It is important to carefully define scenarios in which the shipyard will be penalized for their delay.

Another consideration to include in the contract is which party will retain possession of the vessel under construction and any materials purchased for the vessel in the event of a default or bankruptcy by the builder. Many purchasers may have an interest in retaining both the hull under construction and already purchased materials to take to another shipyard for completion. Oftentimes, if a shipyard reaches the point of bankruptcy, it will not have any other assets available for the purchaser to recover the purchaser’s costs already incurred. This means the vessel, as is, and any materials are the only way to recover for the purchaser.

The purchase and construction of a brand new vessel can be a very exciting time and one that the purchaser can easily get caught up in the excitement. New vessel construction contracts can be very complex agreements with a number of provisions that have serious monetary ramifications for the prospective purchaser. In spite of the excitement, purchasers would be well advised to enter the agreement with caution and to seek professional counsel before signing any shipyard agreement.

Contact our ASSET- V Team Today for more information.

 

Fire Prevention on board

Onboard fire

A shout of “fire” is probably the most dreaded word to hear aboard any vessel. Fires are deadly and destructive, can be difficult to put out, and could ultimately cause the loss of the vessel and/or loss of life.

All crew, especially deck and engineering officers, spend much time and effort undergoing firefighting training and participate in numerous fire drills. Special training is devoted to engine room fires that is where most vessel fires originate. Emphasis is placed on fire prevention including good housekeeping practices and the removal of any one element of the fire triangle (fuel, heat and oxygen) that will cause a fire to go out or not start in the first place.

All yachts built today are designed with fire prevention in mind and include fire bulkheads, non-flammable materials and have systems and equipment to detect fires and extinguish them. There are many fire items aboard such as smoke detectors, heat detectors, fire suppression systems, fire extinguishers, firefighting gear and tools, fire pumps and plumbing, etc. There are fire safety plans, international rules and a host of measures designed to prevent and, if prevention is not successful, to extinguish fires.

Even when extinguished, depending on the severity and longevity of the fire, much effort and expense will be spent in repair and cleanup, not to mention the vessel being out of service for some amount of time. Fires become exponentially more costly for every second they burn.

Yet, no matter how hard we try to deal with the prevention of vessel fires, they still occur.

Origins of oil mist fires

An important area of fire origination in engine rooms is oil mist. The International Maritime Organization (IMO) recognizes the extreme danger of oil mist fires in vessels: ISO 16437:2012 “The majority of fires which have occurred in engine rooms are generally caused by a leak or fracture from a flammable liquid system. Most engine room fires begin as a result of the ignition of oil mist.

Many mariners are not even aware that oil mist is a fuel and can be present in the engine room without any warning. Oil mist is typically introduced to the engine room via a tiny perforation, fracture or leak of pressurized oil (fuel, lube or hydraulic) from injectors, fuel lines, high-pressure pumps or high-pressure oil lines that atomizes the fluid as it escapes. It is frequently undetectable by the naked eye.

Oil mist may also form when oil contacts a hot surface causing the oil to vaporize. Oil mist is quite small, with droplets in the 1-10 micron range, and tends to disperse evenly in the surrounding air. It has a large surface area and a low flash-point temperature, making it very flammable when sufficient quantities are present. If the quantity of oil mist reaches the lower explosive level of 50 mg/liter and comes into contact with a heat source of 200 degrees C, it can explode.

Ignition can come from heat sources such as bearings, turbochargers, exhaust systems and electrical sources such as electric contacts, faulty wiring, motors and static electricity. Oil mist explosions in large engine crankcases have been recognized for many years and devices to detect this have been required for quite some time. More recently, attention has been given to oil mist in the ambient air in engine rooms, and oil mist detectors for this specific problem have been developed.

Oil mist detectors vary

There are two types of oil mist detectors for engine rooms. The earlier “sniffer” systems have been around for a while. This type will extract engine room air into the unit and analyze it by nephelometry, the detection of oil mist due to light scatter. If oil mist is present, an alarm will be generated.

They work well, however, there are some disadvantages. Multiple units are needed to effectively sample the various areas in the machinery space because each local point of the machinery space ventilation will require a separate unit. The units are pre-calibrated so no adjustments are possible. Each sampling unit is somewhat bulky and most require AC power, so if the problem lies with the electrical generator, they stop functioning when the generator is shut down unless a UPS (uninterruptible power supply) is provided. They have moving parts (fans), which require periodic maintenance, and some units have filters that must be changed. The nephelometric chamber that houses the light source transmitter, measuring receiver and compensating receiver will need periodic cleaning. This type of system is typically found on large commercial vessels.

A more recent type of oil mist detector is the optical opacity meter. These were also developed for large commercial vessels but because of their small size, they are ideal for yacht installations.

Initially, infrared light was used but the most advanced systems now use a laser. The laser is transmitted from the transceiver to a reflector and back, a double-pass detection method. The optical qualities of the laser are precisely known so any oil mist present will be detected by the opacity of the laser light.

There are a number of advantages to this type of system: They are much smaller, streamlined units. The transceiver and reflector can be mounted from 1m up to 15m (50 feet) apart, providing a large area of coverage. Generally, two units will cover a large engine room and the main reason for the second unit is not only to provide more coverage but to also provide redundancy. They are also fully programmable so that warnings and alarms can be adjusted to any opacity parameter.

These systems integrate into the vessel’s communications system using MODBUS TCP/IP protocol so they are easy to install. They have no moving parts so the only maintenance required is to periodically wipe the lenses clean. They use DC power (typically 24 volts), the same as most modern electronics, so are not affected if the vessel’s generator is taken off line.

Another big difference is that these types of oil mist detectors will also detect the presence of smoke. Earlier versions had more false alarms because of the longer light path, but advances in the quality of the laser optical beam analysis and the ability to program the units have greatly reduced or eliminated this problem. Multiple transceivers can work off of a single PLC (programmable logic controller).

Yacht safety comes first

Additional transceivers can be installed to protect other machinery spaces that have the potential for oil mist, such as generator rooms, hydraulic spaces (stabilizers and thrusters), and steering gear areas (lazarettes). Besides protecting from fire hazard, the early warning of oil mist presence will pay dividends in keeping the yacht’s machinery spaces clean. The system is type classed and certified by DNV-GL for classed vessels. Most importantly, it gives the crew an early warning of a hazardous fire situation.

Marine insurance companies are still unaware, for the most part, that these systems exist for yachts, but this will change as more oil mist detectors are installed and fire casualties are reduced. This is already the case with commercial vessels, especially tankers and cruise ships.

Firefighting and fire extinguishing are important, but fire prevention is even more so. Preventing fires is the most cost-effective method to avoid injury, damage, and loss.

Malta offers great diving, deep harbors

Malta offers great diving, deep harbors

 

 

Malta is a southern European island country comprising an archipelago in the Mediterranean Sea. It lies 50 miles (80 km) south of Italy, 176 miles (284 km) east of Tunisia, and 207 miles (333 km) north of Libya. The country covers just over 122 square miles (316 square kilometers) and has a population of just under 450,000, making it one of the world’s most densely populated countries.

The capital is Valletta, which, at 0.8 square kilometers, is the smallest national capital in the European Union.

Malta’s location has historically given it great strategic importance as a naval base, and a succession of powers, including the Phoenicians, Romans, Moors, Normans, Sicilians, Spanish, Knights of St. John, French and British. Malta was admitted to the United Nations in 1964 and to the European Union in 2004. In 2008, it became part of the Eurozone.

Malta is a popular tourist destination with its warm climate, numerous recreational areas, and architectural and historical monuments, including three Unesco World Heritage Sites, and seven Megalithic temples, which are some of the oldest free-standing structures in the world. If old churches are of interest, Malta has 365 of the most exquisite churches, one for each day of the year.

Malta has three large natural harbors on its main island:

  • The Grand Harbor at the eastern side of the capital city of Valletta, has been a harbor since Roman times. It has several extensive docks and wharves, a cruise liner terminal, as well as a number of marinas. Grand Harbor Marina accommodates the largest yachts. It also has a terminal that serves ferries that connect Malta to Pozzallo and Catania in Sicily.
  • Marsamxett Harbor on the western side of Valletta has a number of yacht marinas, Manoel Island Yacht Marina being the largest, able to accommodate yachts to 80m. It is centrally located in Gzira so chandlery shops, shopping malls, supermarkets and tourist services are all accessible within a short walking distance. In the vicinity, one also find numerous restaurants, bars and convenience shops.
  • Marsaxlokk Harbor (Malta Freeport) at Birżebbuġa on the southeastern side of Malta, is the island’s main cargo terminal. Malta Freeport is the 11th busiest container port in Europe and 46th busiest in the world.

There are also two manmade harbors that serve a passenger and car ferry service that connects Ċirkewwa Harbor on Malta and Mġarr Harbor on Gozo. There is a marina in Mgarr that accommodates smaller yachts to about 22m.

Depths are not an issue in and around Malta. Anchoring is difficult, though, as depths reach 40m and more just 4.5m from shore.

Malta is a huge dive destination for Europeans. There are many artificial reefs made by sunken ships and numerous cave dive sites. Although the waters are extremely clear, do not expect as much coral and sea life as one would see in the Caribbean. Many seaside resorts in crystal clear water-bays surround the islands.

The food generally has an Italian influence and in most places, one can order in Italian language, as it is the third unofficial language, after the official languages of Maltese and English.

Fishing is not one of the islands’ advantages, as we found out on our research. Most fresh fish is from multiple floating farms strategically placed around the islands. Beware of them as they are moved around and may cause navigation hazards.

There are plenty of other things to do and one should tour all three major Islands, as each has different things to offer.

Visitors total about 1.5 million a year, so traffic can be unpleasant. Local transportation, on the other hand, is organized and affordable.

Crew/Tutor roles and trends on a yacht

For some owners who wish to take extended trips over a number of months, having a tutor on board means that children can enjoy the experiences world-wide cruises can bring, while not negatively affecting their educational progress. There has been a growing trend where yacht owners are organizing cruises for their family – sometimes for over a year – and taking their children out of school. Not only do these trips offer the unique opportunity for children to live aboard a yacht, but also experience a non-traditional educational platform.

When bringing a new teacher on board the yacht, it can be difficult for a tutor to assimilate themselves into the existing crew dynamic. Of course, the tutor would not be seen as a member of the family, but also neither would they be a traditional crewmember.

Tips for tutors and yacht owners

 

  • Tutors are encouraged to become a multi-faceted member of the yacht’s crew. They should be able to offer a range of skills so they are a useful member of the team.
  • Hiring should only be to those who have trained professionally as teachers. For those that have actively chosen to teach children, this could be a way to combine their vocation with an unforgettable opportunity to travel the world.

The advantages of education on a yacht

The children’s education often surpasses any that they would have in schools. Whereas a round-the-world trip would have previously been seen as damaging to child’s schooling, a dedicated onboard tutor offering four hours of teaching per day is often more effective than a full day at a ‘normal’ school. There are a lot more people doing this, and a lot more people considering it. There’s a sense that it’s not detrimental to the child, it’s actually good for them. Schools are also supportive of that.

For many, the lessons learned on board, as well as the undivided attention of the tutor, means that the pupils often return from their voyages with superior knowledge to their classmates. The children usually come back ahead of where they left. By the time the child returns from that trip, they’ve not only had the life experience, the worldliness, but they also have all their academics fixed.

This career route could be an opportunity for teachers who wish to change their environment for something a little different, or for a crewmember looking to add another string to their bow.

The concept of education is becoming more fluid, with schools and parents moving away from the traditional regimes found in established institutions. If qualified teachers are looking for a change in environment, becoming a private tutor on board a superyacht could offer a once-in-a-lifetime experience. Similarly, if crew wish to pursue a career that ensures longevity, becoming a certified tutor is a way to stay in the yachting market and adopt new skills. The market may begin to see a crew/tutor role as a more viable option and common part of any yacht’s team.

 

The aspiring yacht owner – Tips to avoid pitfalls

Yacht Ownership

In an ideal world, the aspiring yacht owner would walk down to his nearest marina, hand over his cash and take possession of his shiny new vessel. Cruising the waves as much or as little as he liked with little additional costs. Unfortunately, when it comes to purchasing and owning a yacht, life is not so simple!

Yachts come in various shapes and sizes, from a 30ft sailboat, up to extensive luxury motor vessels capable of accommodating and entertaining large groups of people for long periods at sea. Obviously, the latter category will come with a considerably higher price tag and ongoing running costs. Buying a yacht of any type or size is a major acquisition, and just like the purchase of any other major asset, should be well thought through and planned out to avoid a number of potentially expensive pitfalls.

Financing

Perhaps the first question to answer is how to pay for your yacht in the first place. The first decision to be taken is whether you wish to buy your vessel outright or whether a structured funding solution could bring substantial additional benefits. Loans are widely available from banks, many of which now have dedicated marine finance teams or from a specialist marine finance company. Structured solutions can be arranged via trust companies and special purpose vehicles, which tend to be the domain of fiduciary and corporate services specialists.

One of the most common ways of financing a yacht purchase is by taking out a mortgage on the vessel. Yacht mortgages come in various flavours to suit an individual’s particular needs. As with a house, a plain repayment mortgage would enable the buyer to pay off the principal and the interest at the same time over a defined period. The disadvantage, of course, is that interest rates can rise as well as fall so that there is no certainty as to what future monthly repayments may be. However, some lenders offer time-limited interest-only yacht mortgages. Here payments will cover the cost of interest for a certain period – for example, 12 months – with the facility then reverting to capital and interest repayments for the remaining term.

A more creative solution could lie in using a trust, a company which owns the yacht, the asset can be made to work through a chartering programme, for example. A special purpose vehicle will be established to hold a deposit for the yacht which is held as a security against future loan repayments. These funds can be held on deposit and so will grow with interest. At the same time, revenues from chartering feed into the ownership company which then funds the purchase of the yacht. Revenue from chartering could substantially pay off the yacht costs within two to three years on this model. As a result, the owner would achieve a far more effective and profitable outcome.

It is also important to ensure that all the appropriate legal requirements are followed once you have made an offer. Rules vary from country to country of course.

It is also important to make clear within this contract that the vessel will be sold subject to finance approval, and if the boat is second-hand, subject to a satisfactory survey and valuation.

Insurance

You will also be required to have insurance in place before the loan can be approved and issued. Just like insuring against any other risk, marine insurance policies come in many shapes and sizes depending on the level of cover required, and evidently, this will be reflected in the level of the premium.

Running Costs and Other Considerations

Overall running costs are likely to equate to around 10% of the value of the vessel each year. There will be a range of costs to consider, the most obvious of which are maintenance and repair costs. You will also have to pay an initial and ongoing annual fee to have your vessel registered in the jurisdiction of your choice. Fees may vary depending on the vessel’s size and its intended use (whether it will be used for leisure or commercial purposes for example). Fees also vary from jurisdiction to jurisdiction.

Furthermore, there may be significant other costs to bear depending on the size of your vessel and how you intend to use it. The chances are that the larger the vessel, the less likely it is that you will be sailing it yourself, so you will need to hire a skipper. The more substantial and luxurious motorised yachts might also require a crew, so this brings employment law and employee rights into the equation, as well as extra costs.

The ongoing responsibilities of owning a yacht are, then, manifold, and could overwhelm even the most diligent yacht owner, particularly if the vessel is moored in one jurisdiction and registered in another. At this point, it is worth considering contracting the services of a yacht management company, or a corporate service provider specialising in marine services. These companies are present in most of the popular yachting locations as well as in jurisdictions with yacht registries. They will assume many of these responsibilities, such as completing the necessary paperwork to register your vessel, ensuring that is maintained, and taking over the hiring and paying of the crew. Using a management company also allows yacht owners to utilize alternative ownership structures which may mitigate the initial and ongoing costs associated with buying and running a yacht, some of which are described next.

When you eventually sell your yacht,  costs associated such as VAT payable depends upon where the sale is executed.

Corporate Ownership

While it is perfectly possible in most cases to register a yacht in one’s own name as an individual, there are many disadvantages to doing so; indeed, it is certainly the case that the vast majority of owners choose to transfer their ownership to some form of corporate entity or special purpose vehicle. For example, by using an offshore company to own, run or charter a yacht, it may be possible to take advantage of low rates of corporate tax and reduced rates of VAT on offer in certain jurisdictions. Furthermore, using a company form has certain other benefits in terms of protecting the owner; confidentiality being one of them and limiting the liabilities that may arise in connection with ownership of the vessel being another. If confidentiality is a high priority for the owner, an additional option is the use of a trust company.  The owner (settlor) would transfer the asset to the effective ownership of a trustee, who then manages it for the benefit of the beneficiary.

Fractional Ownership

One of the major pitfalls of ownership is that yachts are a depreciating asset which might only be used a few weeks of the year by their owners. Fractional ownership can mitigate some of these cost factors by effectively dividing the costs of ownership among a limited group of people, each of whom owns a ‘fraction’ of the yacht. Fractional ownership entitles you to use the vessel for a set amount of time each year, and fractional schemes are usually run by yacht management companies. In return for a fee, the management company will take on the day-to-day responsibilities of maintaining the yacht as described above. The disadvantage is that the yacht cannot be said to be truly ‘yours’, and you might not be able to use it when you want.

Chartering

Another way to offset the costs of yacht ownership is to charter your boat to other users, usually through a yacht management or charter company. This enables you to earn income from your yacht while you are not using it by renting it out to others for certain periods of time. How much income you ultimately earn from chartering your yacht will depend on the type of agreement you have with the chartering company. Under some agreements, the income is split equally between the yacht owner and the charter firm. However the owner typically still pays ongoing running costs. Alternatively, it is possible to agree to receive a guaranteed income every month, regardless of how often your boat is chartered out. This reduces risk, but owners may be restricted to a certain number of weeks each year when they can use their boat. And while chartering may be an attractive way to defray the costs associated with yacht ownership, there could well be tax implications in your country of residence on the income you receive.

Leasing

By using a leasing arrangement, the bank or finance company buys the yacht from the seller and then leases it to the buyer. With this type of financing deal, the buyer does not actually legally own the asset but is instead granted possessory interest. The advantage, though, of using this type of arrangement is that one is not locked-in to ownership, and is able to walk away at the end of the lease term without having to worry about maintenance or selling on a depreciating asset. On the downside, monthly lease payments tend to be higher to take account of depreciation, and the lease owner has to front the risks associated with owning and operating a yacht such as liability for loss in the event of damage.

In Summary

While buying a yacht may appear on the surface to be a simple transaction, there are in fact many things to take into consideration before taking that plunge. Which route to ownership is ultimately taken will, of course, depend heavily on a person’s circumstances, such as their own financial standing, where they live, and how they intend to use their boat, among other things. Thankfully, there is a growing community of professionals in this field which can steer yacht owners onto the right course and take much of the hassle out of the ownership experience.

 

Contact us to find out more :

Tax Guide to Leasing of Yachts

Your Guide to Leasing of Yachts

Where leasing arrangements of yachts do not fall within the scope of Legal Notice 369 of 2005 and where the aforesaid lease is deemed by the Commissioner of VAT to be in accordance with guidelines issued by the VAT department from time to time, the Inland Revenue Department has decided that in such special case, the following tax treatment is to be adopted for each year for the duration of the lease:

  1. the lessor is charged to tax only on the annual finance charge, namely the difference between the total lease payments less the capital element divided by the number of years of the lease;
  2. the lessee is allowed a deduction in respect of the (i) the finance charge; (ii) maintenance; (iii) repairs; and (iv) insurance;
  3. the lessee is allowed capital allowances in respect of the yacht and the parties may not opt to shift the burden of wear and tear onto the lessor;
  4. where the lessee exercises an option to purchase the yacht on the termination of the lease, the purchase price received by the lessor shall be considered to be of a capital nature and no tax thereon shall be payable by the lessor.

Malta owes much of its maritime history to its strategic location in the centre of the Mediterranean, its natural harbours and its extensive range of maritime services including excellent yachting berthing, repair and servicing facilities. Malta offers interesting tax planning opportunities for operators and owners of commercial yachts and owners of pleasure yachts.

Commercial yachts
It is possible to register eligible yachts in the Maltese Commercial Yacht Register. Registration in this type of register allows the operation of the yacht on a commercial basis in international waters including chartering. Registration under the Commercial Register may lead to an exemption from income tax on profits from commercial yacht operations, an exemption from capital gains tax on the transfer of shares in a commercial yacht-owning company and VAT exemptions on:
• importation and acquisition /sale of yachts used for commercial purposes; and
• hiring, leasing and chartering
• repairs, refits, maintenance and related services

VAT reduction on Yacht Finance Leasing
Where a yacht is not registered in the Commercial Register, either because the owner does not wish to register an eligible vessel commercially or because the vessel is not eligible for such registration, the acquisition of importation of a yacht into the EU will, in general, be subject to VAT in the member state of importation or acquisition.
Maltese VAT legislation contains special rules based on the EU VAT Directive dealing with finance leasing of yachts. These rules are attractive for yacht owners who use Malta as a base for the importation or purchase/acquisition of a new yacht into or within the EU. Finance leasing is a contract which provides for the lease of a yacht by the lessor to the lessee in return for a fee and also provides for an option by the lessee to purchase the yacht at the end of the lease period at a price which is calculated as a percentage of the value of the vessel.
A yacht under a finance leasing transaction is treated as used partly in EU waters (including Maltese waters) and partly outside EU waters and consequently, only the portion of lease payments that is attributable to the use of the yacht in EU waters is subject to Maltese (EU) VAT. In view of the difficulty in calculating the exact time spent in EU and non-EU waters, the rules provide for a simplified deemed percentage of the lease that is attributable to the use of the yacht in EU waters. These percentages are based on the length of the yacht and propulsion method.

Conditions

In order to qualify for the above reductions in VAT, the rules prescribe a number of conditions, mainly :
• the lessor must be a Maltese limited liability company and registered for VAT in Malta
• the Lease agreement must be for a period not exceeding 3 years
• the contract must provide for an option of the lessee to purchase the yacht at the end of the lease
at a percentage of the value of the yacht – the price payable upon the exercise of the option to
purchase the yacht is taxable at the standard rate of 18%
• the finance lease agreement and the value of the yacht must be approved by the VAT Department prior to the commencement of the finance lease.
This opportunity is of interest to owners or prospective buyers of yachts on which no EU has been paid and is open to new and second-hand yachts.

How can we be of help?
We can assist yacht owners or operators by –
• identifying an optimum VAT structure for the intended acquisition or operation of the yacht in
question (commercial yacht or private yacht)
• obtaining the required VAT clearances
• assistance in the corporate set-up and registration of the yacht under the Maltese flag (where
required )
• providing ongoing and annual yacht registration maintenance services and support
• handling of VAT payments and back-office support