Low Rate VAT Scheme for Yacht Finance Leasing
- Low VAT Rates
- Levied only during time spent in EU waters
- VAT payable over 3 year period
- Malta leasing company profit taxable at 5%
Special regulations govern the financial-leasing of yachts to third parties by Maltese companies, allowing for significantly reduced VAT rates.
What is finance-leasing?
A Malta company (lessor) purchases a yacht and leases it to a third party (lessee), who maybe an individual or company, with the option in favour of that third party to purchase the yacht at a reduced price at the end of the lease.
This will result in the lessee enjoying significant EU VAT rate reductions.
Malta’s standard VAT rate is 18% and is levied on the lease charges when a Malta company purchases a pleasure yacht and enters into a finance-leasing contract with the lessee as the supply of the service is deemed to occur in Malta.
VAT is only charged on lease payments attributable to the period of time that the yacht would have been sailing or present in EU waters.
Malta VAT authorities, to assist with calculating the time spent in EU waters, have issued a “presumed” length of stay chart:
|Yacht Type||% of Lease,,Subject to VAT||Effective VAT Due|
|Yachts over 24 metres||30%||5.4%|
|Sailing yachts from 20.01 – 24 metres||40%||7.2%|
|Motor yachts from 16.01 – 24 metres||40%||7.2%|
|Sailing yachts from 10.01 – 20 metres||50%||9%|
|Motor yachts from 12.01 – 16 metres||50%||9%|
|Sailing yachts up to 10 metres||60%||10.8%|
|Motor yachts from 7.5 – 12 metres||60%||10.8%|
Example: a motor yacht, 16.5 meters in length is presumed to be in EU waters for 40% of the time, resulting in a VAT rate of 7.2%.
- Lease contract must be between a Malta company and a non-resident.
- Approval of Commissioner of VAT must be obtained – who determines the applicable rate of use in EU waters.
- A valuation certificate is to be given to the Commissioner of VAT before the transaction.
- Lease agreement to be less then 3 years.
- Final lease payment not to be less then 1% of value of yacht, which is to VAT at 18%.
- The yacht is brought to Malta (i) preferably at the beginning of the lease, or (ii) at the time when the purchase option is exercised.
- Lease contract must require that lessee pays 50% of the value on signing and the balance within 36 months.
- Final purchase price must not be less than 1% of the original value of the yacht.
- The Malta company must make at least 10% profit on the transaction.
- Upon lessee exercising the purchase option on the lease agreement, a certificate is issued by the Malta VAT department declaring that VAT has been fully paid in Malta (EU).
- The VAT is payable over a three year period.
As the leasing profit (minimum of 10%) is considered trading income, due to the tax refund system, the Malta company would end up paying only 5% on its profits.