GUIDELINES
REGARDING VAT TREATEMENT OF YACHT LEASING
A
financial leasing agreement of a pleasure craft is an agreement
whereby the lessor
(the
owner of a craft) contracts the use of the craft to the lessee
(the
person who leases the craft) in return for a consideration. In
addition, at the end of the lease period, the
lessee may
opt to purchase the craft at a percentage of the original price.
One
is to note that the transactions referred to below are book entries,
and no real cash transfer needs to take place.
For
the purpose of VAT, the lease of the craft is 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 Euroopean Union (EU), provided that the lessor is a
Maltese company (including a commercial bank) which is leasing the
craft to any Maltese or non-Maltese person or company.
How
the use of crafts within EU territorial waters is calculated
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 (power or sailing).
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 table below indicates the established
percentage portions according to the type of craft:
|
Type
of craft
|
%
of lease subject to VAT
|
Effective
rate of VAT
|
|
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%
|
In
order to apply these guidelines the following conditions apply:
•
The
boat must come to Malta, possibly at the beginning of the lease
agreement.
•
The
financial leasing agreement shall be between a Maltese company and
any Maltese or foreign person or company.
•
Prior
approval shall be sought in writing from the Commissioner of VAT who
is to confirm the rate applicable according to the use in EU
territorial waters (depending on the size and propulsion of the
craft), as well as the acceptability of the value of the craft as
declared. For this purpose a valuation certificate of the craft shall
be submitted with the application for approval.
• An
initial contribution shall be paid by the lessee
to
the lessor
amounting
to 50% of the value of the craft.
•
The
Lease instalments shall be payable every month and the lease
agreement shall not exceed 36 months
•
The
lessor
shall
be expected to make a profit from the leasing agreement over and
above the value of the boat
•
Any
purchase value at the end of the lease agreement shall not be less
than 1% of the original value of the craft, and this will be 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
will be issued to the lessee
provided
that all VAT due has been paid.
Example:
Craft
with a length of 25 metres the value of which is of Euro 1,000,000
Down
payment:
Initially
the lessee is to pay the lessor half of the value of the Yacht which
amounts to Euro 500, 000:
500,000
x 30% = 150,000 (note that the ‘Vatable’ portion is only 30%
since the craft exceeds 24 metres)
VAT
= 150,000 @ 18% = Euro 27,000
Vat
on the first payment is of Euro 27, 000 and therefore total amount
due for the first instalment including VAT is of Euro 527,000
Instalments:
It
is through the instalments that the profit is made, since the law
requires that at least 10% profit is made by the lessor. For this
reason 36 monthly instalments are calculated at the amount of Euro
16, 667 which amount to 600, 000 and therefore 10% profit is made on
the total amount of Euro 1, 000, 000. Furthermore, on this 10%
profit, the company is to pay income tax, and share holders who are
not Maltese Citizens are effectively taxed at 5% and therefore Euro
5, 000 are to be added to the VAT which is paid on the whole
transaction.
36
monthly instalments of 16, 667 x 30% = 5,000
VAT
= 5,000 @ 18% = 900 and this means that VAT on the instalments is of
Euro 900 monthly. Furthermore, as stated above, since a profit of
Euro 100, 000 is being made over the 36 months by the lessor, this
profit is taxed at 5% and therefore Euro 5,000 are due in taxes.
Redemption:
1%
of value = 10,000
VAT
= 10,000 @ 18% = 1,800
Apart
from the VAT paid on this 1% of the value, the lessor also has to pay
tax at 5% when the share holders are not Maltese Citizens. Therefore,
including the tax paid on the 10% profit paid by the lessor, and the
tax on the 1% value of the yacht when (and if) the yacht is bought by
the lessee from the lessor at the termination of the lease amounts to
Euro 5, 500.
Summarily,
on the above mentioned yacht which exceeds 24 Metres, Vat is paid at
Euro 27, 000, on the first payment, Euro 900 on each of the 36
monthly instalments, and Euro 1,800 on the final sale. In addition
Euro 5, 500 is the amount of Tax payable by the lessor on the profit
made and on the final transfer. This amounts to a total of Euro 66,
700. Therefore the total amount of tax and Vat paid works out at an
average of 6.6%, and provided all conditions are strictly adhered to
after the sale, one may apply for a certificate that the yacht is Vat
Paid.
For further information
kindly contact Dr. Adrian Muscat Azzopardi on +356 79467023 or
adrianma@credence.com.mt
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