A short-term charter of a yacht is defined as an agreement whereby the yacht owner/operator contracts the use of the yacht for a consideration with a crew or on a bare boat basis for a period which cannot exceed 90 days.
VAT Treatment of Short-Term Charters
the taxation of this supply would be limited to that portion of the use of the yacht within the territorial waters of the European Union (EU)
For the purposes of VAT, the short-term charter of a yacht to be used for leisure purposes is considered to be supply of a service which is taxable at the standard rate of VAT. The place of supply and therefore taxation is the place where the yacht would actually be placed at the disposal of the customer (i.e., Malta). However, in accordance with guidelines established by the VAT Department (“VAT Guidelines”) the taxation of this supply would be limited to that portion of the use of the yacht within the territorial waters of the European Union (EU), subject to the satisfaction of certain conditions.
Calculating Use of Yacht within EU Territorial Waters
Since it is very difficult to trail the movements of a pleasure yacht in order to determine the period that it spends within the territorial waters of the EU and the time it spends outside the EU, the VAT Guidelines establish the estimated percentage portion of the lease based on the time that the boat is used within the territorial waters of the EU. These percentages are set out in the table below, in accordance with the length of the boat and its means of propulsion (power or sailing):
|Type of yacht||% of charter deemed to take place in the EU||Effective rate of VAT|
|Sailing boats or motor boats over 24 metres in length||30%||5.4%|
|Sailing yachts between 20.01 and 24 metres in length||40%||7.2%|
|Motor yachts between 16.01 and 24 metres in length||40%||7.2%|
|Sailing yachts between 10.01 and 20 metres in length||50%||9%|
|Motor yachts between 12.01 and 16 metres in length||50%||9%|
|All other yachts||100%||18%|
In order for the above-mentioned VAT treatment of short-term yacht charter to be applicable, the following conditions must be met:
- The supplier of the yacht charter shall be a person registered for VAT in Malta.
- The yacht charter contract shall indicate the place where the charter commences (i.e. Malta), the charter price and a statement that the yacht shall sail outside EU waters. The VAT Department reserves the right to request proof of any payment in connection with the charter.
- Upon application, the supplier of the charter has to produce sufficient documentation to identify the yacht with regards to hull number, port of registry, registration number, and any further documentation confirming the size and type of yacht.
- Following submission of these documents, and provided that the conditions are met to the satisfaction of the Director General (VAT), the applicant shall be informed in writing regarding the applicable portion of the charter fee which would be subject to VAT Approval must be sought in writing from the VAT Department and each application shall be considered on its own merits.
- The Director General (VAT) reserves the right to impose any other conditions he may deem necessary on a case by case basis and he may also refuse any application.
- The Director General (VAT) can also perform checks to confirm the actual use of the yacht outside of EU waters and may also request the owner/operator of the yacht to submit details about the voyage and the hire, even after the completion of the charter.
The supplier of the charter would have the right to claim input tax incurred on the fuelling and provision of the boat provided that these goods would be sold to the client of the charter under a separate contract or provided that they would be invoiced separately from the charter service. The supply of these goods to the charter client would have to be made at the full standard rate of VAT. Moreover, the supplier of the charter would also be entitled to claim input VAT incurred on fuel purchased for the outward journey of the yacht to its next port of destination after the completion of the charter.