In 2005 the VAT Department issued guidelines on the VAT treatment of leasing of yachts by a Maltese company. These guidelines provide that the VAT rate on the lease payments will be at a reduced rate depending on the size and type of boat as well as the percentage of lease deemed to be taking place in the EU.
In order to benefit from the reduced VAT rate, the following conditions must be fulfilled:
- A percentage of the use of the yacht must be within the territorial waters of the European Union.
- The lessor must be a Maltese registered company, with a valid VAT identification number. The Maltese company may lease the boat to either a Maltese or non-Maltese individual or company.
- The lease installment must be payable monthly. However, the lease period cannot exceed the period of 36 months.
- An initial contribution amounting to 50% of the value of the vessel must be paid by the lessee to the lessor.
- The lessor company, using the yacht for commercial purposes, particularly generating an economic activity, including the potential final sale of the yacht, has the right to deduct any VAT charges incurred on the purchase of the yacht.
- The yacht should come Malta preferably at the beginning the lease agreement.
- It is expected that the lessor is to make a profit from the leasing agreement, over and above the value of the boat.
- Prior approval must be sought in writing from the Commissioner of VAT. Certain conditions may apply. The Commissioner of VAT may require the lessor to submit details regarding the use of the boat.
- If the lessee elects the option to purchase the boat at the end of the lease, a VAT paid certificate will be issued to the lessee provided all due VAT has been paid.
- The final payment at the end of the lease agreement, resulting in the transfer of ownership from the lessee to the lessor, cannot be less than 1% of the value of the yacht. The final lease payment is chargeable at 18% VAT rate.
- Due to the difficulty in determining the percentage of time spent outside of EU territorial waters, the VAT Department has established that such percentage is to be estimated according to the size of the vessel as set out in the table below: