The 12% VAT Rate for Malta Yacht Charters
Background
What is VAT?
Value Added Tax (VAT) in Malta is regulated by the Value Added Tax Act (VAT Act), requiring VAT to be paid on every supply of goods or services that takes place in Malta.
When are Yacht Charters Subject to VAT in Malta?
Not all yacht charters are subject to VAT in Malta.
The Rules
The Third Schedule to the Maltese VAT Act provides that the place of short-term hiring of a means of transport shall be the place where the means of transport is actually put at the disposal of the customer.
On the other hand, in cases other than short-term hiring, the place of hiring a pleasure boat to a non-taxable person, shall be the place where the pleasure boat is actually put at the disposal of the customer, if the service is provided by the supplier from his place of business or a fixed establishment situated in that place.
It clarifies that âshort-termâ means the continuous possession or use of the means of transport throughout a period of not more than 90 days in the case of vessels.
What does this Mean?
In simple terms, a yacht charter will be subject to VAT in Malta when (a) the yacht is chartered for a period not exceeding 90 days and the yacht is put at the disposal of the customer in Malta (the customer takes physical possession of the yacht in Malta); or (b) the yacht is chartered for a period exceeding 90 days, the yacht is put at the disposal of the customer in Malta and the owner (person supplying the yacht) has his place of business or a fixed establishment in Malta.
Rate of VAT
Calculation of Taxable Value of Service
Prior to considering the rate of VAT applicable to yacht charters, one must first understand the taxable value of yacht charters. The Seventh Schedule to the VAT Act sets out the general rule being that the taxable value of a charter shall be the total value of the consideration payable to the owner of the vessel by the charterer, including any subsidy directly linked to the provision of the charter, but excluding the VAT chargeable under the VAT Act on that charter.
It shall also include incidental expenses such as commissions, transport and insurance costs charged by the owner of the vessel to the charterer, even if they are covered by a separate agreement.
However, it shall not include price reductions, penalties and interests for late payments, disbursements or deposits.
The Actual Rate of VAT
The general rule found in the VAT Act is that the provision of services is to be taxed at a rate of 18%. However, the Eighth Schedule to the VAT Act sets out a list of exceptions to this rule. One such exception, introduced on the 1st of January 2024, provides a special VAT rate of 12% in respect of yacht charters.
In order to qualify for this special VAT rate, the following conditions must be met: (i) the charter must be conducted in accordance with a charter agreement; and (ii) the charter period, together with any other charter period made to the same person in relation to the chartering of the same yacht or a yacht of the same kind during the previous year, must not exceed 5 weeks.
Deductions from VAT Chargeable
Persons subject to VAT may also deduct from the amount of VAT chargeable during a period, (i) any input tax credit for that period; or (ii) any other deductions allowed under the Tenth Schedule to the VAT Act.