VAT Treatment on a Yacht Lease in Malta

The new guidelines relate to the lease of pleasure yachts by a lessor to a lessee, also clarifying the manner in which VAT is levied on the leasing of pleasure yachts at each chargeable event.

The new rules issued by the Commissioner for Revenue are still based on Article 59A of the VAT Directive.  take into consideration the place of supply of the leasing of pleasure yachts and the overall VAT incurred on the leasing of such yacht which may be reduced substantially depending on the use and enjoyment of the yacht when a yacht is supplied by a Lessor to a Lessee in Malta. No Maltese VAT is applied when the lessee makes use of the pleasure yacht outside of European territorial waters.

An initial ratio calculation will be used for the first or first and second annual tax period depending on the start of the lease. The Guidelines stress the importance that the lessor maintains adequate records which includes documentary evidence and/or technical data to determine the ‘actual’ effective use and enjoyment ratio throughout the term of the lease. Furthermore, an adjustment of the difference will be made in the next VAT return.

The New VAT Guidelines impose specific obligations that need to be fulfilled for the guidelines to apply:
  • A Malta registered company, is to own the private yacht and act as the lessor and is VAT registered in Malta.
  • The lessor will enter into a long-term yacht lease agreement (i.e. a lease covering more than 90 days’ continuous possession or use) with a non-taxable third party (Maltese/non-Maltese).
  • The conditions of the lease, including its duration and the consideration to be paid by the lessee to the lessor, shall be agreed contractually between both parties.
  • The yacht must be placed at the disposal of the lessee in Malta (effective from the commencement of the lease agreement).
  • Prior approval in writing must be sought from the Maltese VAT department approving the application of Maltese VAT based on effective use and enjoyment.
  • That the effective use and enjoyment of the yacht in EU territorial waters is evidence-based. The lessor is required to obtain from the lessee documentary and/or technological data to demonstrate the yacht’s movements within/outside EU waters;
  • An annual declaration is to be submitted by the lessor with the Commissioner for Revenue within the prescribed timeframe.

The 2019 Guidelines may be accessed here for ease of reference.

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