Malta: Yacht Leasing Structure
On the 28th of February 2019 the Maltese Revenue Department published a new set of guidelines for the long term hiring of yachts and the payment of VAT. These guidelines apply to operational leases which have started on or after the 1st of November 2018. The guidelines have a number of similarities to those that were previously in place in Malta, including the principle of effective use and enjoyment which can be found in Article 59A of the VAT Directive.
The VAT guidelines
The guidelines establish a system whereby Maltese VAT is charged on the portion of the lease which is effectively used and enjoyed within EU territorial waters and a ration of such use will need to be established. The lessor is made responsible for showing and proving the portion of the effective use and enjoyment of the vessel in EU waters, and the burden of proof has been shifted completely onto the Lessor, therefore the lessor must maintain adequate records and documentary evidence, to determine the location of the actual effective use and enjoyment of the yacht. The Lessor must effectively prove that the vessel has been used outside EU territorial water to benefit from the reduction in the percentage of VAT applied.
conditions which muST be met for the new guidelines to apply
- The Lessor must be established in Malta and must be registered for VAT in Malta;
- The Lessee must be a non-taxable purpose and therefore the use of the yacht cannot be for commercial purposes;
- The yacht needs to be made available to the lessee by the lessor at the time of commencement in Malta;
- The lessor and lessee must enter into a formal lease agreement which will need to be approved by the VAT department and approval must be issued from the VAT department before applying the Maltese VAT rates based on the effective use and enjoyment;
- The lessor must file an annual declaration in a format acceptable to the Commissioner for Revenue;
- Quarterly VAT returns must be filed.
The lessor, being established in Malta and registered for VAT in Malta is obliged to file quarterly VAT returns. To determine the percentage of VAT that need to be applied for that portion of the lease, the lessor has to obtain documentation/technical data that determines the use and enjoyment of the pleasure yacht both within and outside EU territorial waters, which data will be used to establish the necessary ratio which will determine the VAT percentage.
The ratio is worked out by dividing the actual effective use and enjoyment of the yacht in EU waters by the use outside EU territorial waters during the tax period. The result provisionally determines the use in the subsequent tax periods. Provisional output tax is calculated by multiplying the taxable value of each supply by the “Preliminary Ratio” by the standard rate of VAT. Tax overpaid will be calculated and then adjusted in the tax return for the following period. The adjustment and calculation of output tax depends on the duration of the lease. At the end of the lease period the lessee will have various options, some of which may lead to the procurement of a VAT paid certificate.