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Yacht ownership using Maltese Structures

30.06.2014

Registration of a Yacht under the Maltese Flag

The advantages of registering a yacht under the Maltese Flag are not limited to the reputation of the flag, but benefits range from financial and fiscal advantages to employment incentives.

Registration and yearly maintenance of the registration are obtained at minimum costs. The provisional registration of a yacht can be obtained within twenty four hours of the filing of the necessary documents, with the permanent registration taking place within six months from the provisional registration upon all documentation being received by the Authority.

The set up and registration of a company to own the yacht is cost effective, and the advantages of reduced personal liability and the anonymity offered by the ownership of a yacht through a company generally attract owners to go for this option. The transfer of shares within the company owning the yacht is also exempt from taxation, and likewise a Maltese company owning a Maltese registered yacht is not taxed on the sale and mortgage of such yacht.

VAT Considerations

As a rule, yachts which are used within the EU waters and owned by EU citizens must be VAT paid and must have a VAT paid certificate. Malta is one of the EU jurisdictions offering substantial VAT reductions by means of lease structures. The jurisdiction offering overall most benefits with regards to this structure is Malta, since the law does not impose that the Lessor and the Lessee must have a different beneficial owner, and nor is it imposed that the Lessor must be a financial institution. Furthermore, Malta offers a low base rate of VAT at 18%.

According Maltese law, for the purpose of VAT, the lease of the yacht is considered a supply of services with the right of deduction of input VAT by the lessor, where such right applies. This supply of services is taxable according to the use of the craft, attributed within the territorial waters of the European Union, provided that the lessor is a Maltese company which is leasing the craft to any Maltese or non-Maltese person or company.

Minimising VAT implications

The guidelines issued by the Maltese Vat Department establish the estimated percentage portion of the lease based on the time that the craft is used within the territorial waters of the EU. These percentages are set according to the length of the craft and its means of propulsion.

The standard rate of VAT of 18% is only applied on the established percentage of the lease, deemed to be related to the use of the craft in EU territorial waters. The minimum rate is paid on a yacht of 24 meters or bigger, where the ‘vatable’ portion is established at 30% with an effective rate of VAT and tax of between 5.4 and 6.2 per cent.

In order to benefit from the Maltese VAT lease scheme, the boat must come to Malta, possibly at the beginning and at the end of the lease agreement. A financial leasing agreement is drawn up between a Maltese company and any Maltese or foreign person or company. Prior to the set-up, approval is sought in writing from the Commissioner of VAT who is to confirm the rate applicable according to the use in EU territorial waters, as well as the acceptability of the value of the craft as declared. For this purpose a valuation certificate of the craft is submitted with the application for approval.

Payments are divided into two phases:

  • An initial contribution is paid by the lessee to the lessor amounting to 50% of the value of the craft.
  • Lease instalments are paid every month by the lessee to the lessor, and the law requires that the lease agreement should not exceed 36 months.

Furthermore, the lessor is expected to make a profit from the leasing agreement over and above the value of the boat, and the purchase value at the end of the lease agreement must not be less than 1% of the original value of the craft, and this will is subject to the standard rate of VAT at 18%.

If the lessee opts to purchase the craft at the end of the lease, a VAT paid certificate is issued to the lessee provided that all VAT due has been paid.

Short-term chartering of Yachts

In the case of a short-term charter of a pleasure boat, the overall VAT incurred may be reduced substantially depending on the size and means of propulsion of the yacht. A short-term charter of a pleasure yacht is an agreement whereby the yacht owner/operator contracts the use of the boat for a consideration with a crew or on a bare boat basis. The term of the charter cannot be more than 90 days.

  • Type of craft subject to VAT
  • % of lease rate of VAT
  • Effective
  • Sailing boats or motor boats over 24 metres in length
  • 30%
  • 5.4%
  • Sailing boats between 20.01 to 24 metres in length
  • 40%
  • 7.2%
  • Motor boats between 16.01 to 24 metres in length
  • 40%
  • 7.2%
  • Sailing boats between 10.01 to 20 metres in length
  • 50%
  • 9%
  • Motor boats between 12.01 to 16 metres in length
  • 50%
  • 9%
  • Sailing boats up to 10 metres in length
  • 60%
  • 10.8%
  • Motor boats between 7.51 to 12 metres in length (if registered in the commercial register)
  • 60%
  • 10.8%
  • Motor boats up to 7.5 metres in length (if registered in the commercial register)
  • 90%
  • 16.2%
  • Craft permitted to sail in protected waters only
  • 100%
  • 18%

For VAT purposes, the short-term charter of a yacht to be used for leisure purposes is a supply of a service which is taxable at the standard rate of VAT. The place of taxation is the place where the yacht is physically placed at the disposal of the customer. Subject to certain conditions, this supply is taxed according to the use of the boat insofar as that portion of its use within the territorial waters of the European Union (EU). The minimum rate is established at 30% of the charter income applicable for short term chartering of pleasure yachts of 24 meters in length or over. 

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