The dreaded VAT question which is invariably asked by a yacht owner, is whether to charge VAT on the supply of services consisting in making the said yacht available for charter. The main concern here is naturally the necessity to retain competitive charter rates, whilst remaining above board from a VAT perspective.
The Bacino Case
The “Bacino” is a landmark judgement delivered by the European Court of Justice on the 22nd December 2010, in terms of which the ECJ analysed the provisions of the EU VAT Directive relating to the “exemption of exports for the Community and like transactions and international transport” and went on to clarify when the payment on yacht charters is VAT-exempt and when it must be paid by the lessee to the yacht owner.
Summarily, the facts of this case related to Bacino Chartering Company SA (“Bacino”) making available for charter on a regular basis a vessel which it owned to natural persons for the purpose of leisure activities on the high seas. Based on the assumption that such chartering services where exempt from VAT, Bacino did not charge the natural person VAT on the hire and therefore did not forward any VAT payments, which should have been calculated on such hire, to the Luxembourg tax authorities
The ECJ concluded that the wording of the relevant EU Directive covers the hiring of vessels used for navigation on the high seas and carrying passengers for reward or used for the purpose of commercial, industrial or fishing activities. In order for such a hiring service to be capable of exemption under that provision, the lessee of the vessel concerned must use it for an economic activity. Moreover “if the vessel is leased to persons who use it exclusively for leisure purposes and not for financial gain, outside the sphere of economic activity, the hire service does not meet the explicit conditions for VAT exemption…”
Maltese VAT Rules – When to charge.
Maltese legislation mirrors the relevant provisions of the EU VAT Directive, to the extent that the supply of a yacht used for navigation on the high seas and carrying passengers for reward or used for the purpose of commercial, industrial, fishing activities is exempt from VAT, as long as the supply of the yacht is in Malta. Moreover our VAT Act specifies that the supply of services consisting of the modification, maintenance, chartering and hiring of a yacht is exempt from VAT, when the place of supply of the said yacht is Malta.
The above-mentioned exemption therefore applies to yachts which are used for navigation on the high seas and are carrying passengers for reward or used for the purpose of commercial, industrial or fishing activities. If these conditions are not satisfied, VAT at the applicable rates (depending on whether the hiring is long-term or short-term) must be charged on the chartering service as a local supply.
Simply put therefore, in cases where the lessee of a yacht leases the yacht for leisure purposes, then the lessee needs to pay VAT on the chartering service to the owner who is using the yacht for commercial activities. On the other side of the coin, when a yacht owner orders the supply of fuel, provisions or commissioning the refit of the yacht which is being used for commercial activities on the high seas, then no VAT is due on the said services by the owner to the particular supplier or service provider.
The VAT treatment of the various transactions is more simply illustrated below:
|Contracting Parties||Vessel Use||VAT|
|Yacht Owner > Lessee||Private/leisure||Yes|
|Yacht Owner > Lessee||Commercial||No|
|Supplier > Yacht Owner||Commercial||No|
In terms of Maltese legislation, an intra-community acquisition is the acquisition of the right to dispose as owner of goods which are transported by or on behalf of the supplier, or the person acquiring them from a Member State, to the person acquiring them in another Member State.
From a VAT perspective, if the Maltese company acquiring the yacht is VAT registered and acquires the yacht from another VAT-registered company in a Member State, the sale of the yacht will be exempt from VAT in that Member State and the VAT obligations will be shifted to the Maltese company which in turn will charge Malta VAT in accordance with the reverse charge mechanism.
The VAT on an intra-community acquisition of a yacht will need to be declared on the earlier of the following two dates:
- The 15th day of the month following the date of acquisition;
- The date on which a tax invoice is issued to the person making the acquisition for the supply of goods in question
In order for the above-mentioned rules to apply in respect of an intra-community acquisition of a yacht, the said yacht must necessarily be brought into Malta within the indicate time-frame.
This Article was first published on Skipper Magazine, 2014.