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

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