In November 2005, the Maltese VAT Department issued Guidelines (the ‘Guidelines’) setting out the VAT treatment of the leasing of yachts by a Malta company and in virtue of which the overall VAT incidence incurred on the acquisition of a yacht can be reduced substantially, depending on the size and means of propulsion of the yacht.

Malta VAT Treatment

– Since the lessor company uses the yacht for its economic activity (the leasing and potentially the sale of the yacht to the lessee), it has a right to deduct any input VAT incurred on the purchase of the yacht.

– In terms of the monthly lease charges by the lessor to the lessee, these are subject to VAT at the standard Malta VAT rate of 18%. However, since it is deemed that the yacht will be used partly in EU territorial waters and partly outside EU territorial waters, VAT would be chargeable only on the portion that the yacht is deemed, during the period of the lease, to be used in EU territorial waters. In view of the practical difficulty in trailing the movements of yachts to determine the time they spend in EU territorial waters and the time they spend outside EU territorial waters, the VAT Guidelines indicate that this percentage will be determined according to the length of the boat and its means of propulsion, as demonstrated in the following table:

Type of boat % of lease taking place in the EU Computation of VAT
Sailing boats or motor boats over 24 metres in length 30% 30% of consideration x 18%
Sailing boats between 20.01 to 24 metres in length 40% 40% of consideration x 18%
Motor boats between 16.01 to 24 metres in length 40% 40% of consideration x 18%
Sailing boats between 10.01 to 20 metres in length 50% 50% of consideration x 18%
Motor boats between 12.01 to 16 metres in length 50% 50% of consideration x 18%
Sailing boats up to 10 metres in length 60% 60% of consideration x 18%
Motor boats between 7.51 to 12 metres in length (if registered in the commercial register) 60% 60% of consideration x 18%
Motor boats up to 7.5 metres in length (if registered in the commercial register) 90% 90% of consideration x 18%
Boat permitted to sail in protected waters only 100% 100% of consideration x 18%

For example, a sailing boat between 10.01 to 20 metres in length is deemed to be used for 50% of the time in EU territorial waters and for 50% of the time outside EU territorial waters. Consequently, Maltese VAT would only be chargeable by the lessor to the lessee on 50% of the lease payments.

Applicable Conditions

In order for the VAT treatment under the Guidelines to apply, certain conditions must be satisfied, including:

– The owner of the yacht, i.e. the lessor, must be a company incorporated in Malta with a valid Malta VAT identification number. The lessee may be either a company or an individual, whether resident in Malta or not;

– The yacht must come into Malta;

– An initial contribution shall be paid by the lessee to the lessor amounting to at least 50% of the value of the craft;

– The lease instalments shall be payable every month and the lease agreement shall not exceed a period of 36 months;

– The lessor is required to make a profit from the leasing agreement, over and above the value of the boat;

– The final payment at the end of the lease agreement, as a result of which the ownership of the yacht effectively passes to the lessee shall not be less than 1% of the value of the yacht and is chargeable to VAT at 18%;

– Prior approval must be sought in writing from the Commissioner of VAT.

VAT paid certificate

If the lessee opts to purchase the yacht at the end of the lease, a VAT paid certificate will be issued to the lessee provided that all VAT due has been paid.