One of the most advantageous incentives introduced under Maltese law is the VAT scheme which targets yacht owners who choose to register their boat under the Malta flag. This incentive provides for the payment of a reduced rate of VAT.
This attractive VAT scheme is based on the supply of leasing services and the potential subsequent acquisition of the yacht for a minimal amount. The VAT rate is therefore reduced if certain criteria are satisfied. The scope behind the applicable reductions is based on the use of the yacht within the territorial waters of the EU. The bigger the yacht, the less time it is deemed to spend in EU territorial waters and therefore the amount of VAT payable would be significantly less.
Due to the difficulty of calculating the exact portion of use within the EU, the reductions vary depending on the length and type of the yacht, with the most favourable rate being as low as 5.4% as opposed to the standard 18%. Prior approval must be sought from the Commissioner of VAT in order to determine the applicable rate of VAT.
The scheme takes effect if a lease agreement is entered into, having the pleasure yacht as its subject, a Maltese company as the lessor and a third party as the lessee. The leasing third party may be any Maltese or non-Maltese person or company.
The lease agreement entered into between the parties must provide for lease instalments payable every month for a period of not longer than 36 months. It is important to note that the scheme expects this activity of the Maltese company to be a normal business transaction, even in the event that such a company is set up for this purpose, and therefore it is advisable that a profit element is generated by the lessor from the lease agreement.
An initial contribution, equivalent to at least 50% of the value of the yacht must be paid at the beginning of the lease agreement with the balance to be paid as equal instalments for the duration of the lease period.
At the end of the lease agreement, it is possible for the lessee to opt to purchase the yacht, which amount can be as low as 1% of the value of the yacht. Where the lessee opts to exercise this option, a VAT paid certificate will be issued to the lessee provided that all the VAT due has been paid.
The following table is an illustration of the applicable VAT benefits under Maltese law:
|Type of Vessel||% of Lease subject to VAT||Effective Rate of VAT||YOU SAVE!|
|Sailing or Motor Yacht over 24m||30%||5.4%||12.6%|
|Sailing Yacht over 20.01m less than 24m||40%||7.2%||10.8%|
|Motor Yacht over 16.01m less than 24m||40%||7.2%||10.8%|
|Sailing Yacht over 10.01m less than 20m||50%||9%||9%|
|Motor Yacht over 12.01m less than 16m||50%||9%||9%|
|Sailing Yacht up to 10m||60%||10.8%||7.2%|