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GUIDELINES REGARDING VAT TREATEMENT OF YACHT LEASING

What is financial leasing agreement of a pleasure craft?
A financial leasing agreement of a pleasure craft is an agreement whereby the lessor (the owner of a craft) contracts the use of the craft to the lessee (the person who leases the craft) in return for a consideration. In addition, at the end of the lease period, the lessee may opt to purchase the craft at a percentage of the original price.

How is the leasing agreement treated for VAT purposes?
For the purpose of VAT, the lease of the craft is a supply of services with the right of deduction of input VAT by the lessor, where such right applies. This supply of services is taxable according to the use of the craft, attributed within the territorial waters of the European Union (EU), provided that the lessor is a Maltese company (including a commercial bank) which is leasing the craft to any Maltese or non-Maltese person or company.

How is the use of crafts within EU territorial waters calculated?
It is very difficult to trail the movements of pleasure crafts in order to determine the period that the craft spends within the territorial waters of the EU and the time it spends outside the EU.

In this regard, these guidelines establish the estimated percentage portion of the lease based on the time that the craft is used within the territorial waters of the EU. These percentages are set according to the length of the craft and its means of propulsion (power or sailing).

The standard rate of VAT of 18% is only applied on the established percentage of the lease, deemed to be related to the use of the craft in EU territorial waters. The table below indicated the established percentage portions according to the type of craft:

TYPE OF CRAFT	% of lease subject to VAT	Effective rate of VAT
Sailing boats or motor boats over 24 metres in length	30%	5.40%
Sailing boats between 20.01 to 24 metres in length	40%	7.20%
Motor boats between 16.01 to 24 metres in length	40%	7.20%
Sailing boats between 10.01 to 20 metres in length	50%	9.00%
Motor boats between 12.01 to 16 metres in length	50%	9.00%
Sailing boats up to 10 metres in length	60%	10.80%
Motor boats between 7.51 to 12 metres in length *	60%	10.80%
Motor boats up to 7.5 metres in length*	90%	16.20%
Craft permitted to sail in protected waters only	100%	18.00%

* (if registered in the commercial register)

In order to apply these guidelines the following conditions shall apply:

The boat must come to Malta, possibly at the beginning of the lease agreement.
The financial leasing agreement shall be between a Maltese company and any Maltese or foreign person or company.
Prior approval shall be sought in writing from the Commissioner of VAT who is to confirm the rate applicable according to the use in EU territorial waters (depending on the size and propulsion of the craft), as well as the acceptability of the value of the craft as declared. For this purpose a valuation certificate of the craft shall be submitted with the application for approval.
An initial contribution shall be paid by the lessee to the lessor amounting to 50% of the value of the craft.
The Lease instalments shall be payable every month and the lease agreement shall not exceed 36 months.
The lessor shall be expected to make a profit from the leasing agreement over and above the value of the boat.
Any purchase value at the end of the lease agreement shall not be less than 1% of the original value of the craft, and this will be subject to the standard rate of VAT at 18%.

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

For more information on the advantages of registering a vessel in Malta, click here

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