On 12th March 2020, the Office of the Commissioner for Revenue (“CfR”) published new guidelines (the “Guidelines”) in connection with the leasing of pleasure yachts and the corresponding treatment of such leases for VAT purposes, which guidelines are essentially based on Article 59a of the EU VAT Directive.
In terms of the Guidelines, the CfR recognises that lessors of yachts intended for pleasure use will not be able to assess, at the date of each chargeable event, the extent to which the yacht is effectively used and enjoyed by the lessee within and outside territorial waters if lease payments are charged by the lessor in advance. Accordingly, the CfR shall only consider the place of supply of the leasing of pleasure yachts that are deemed to take place in Malta, as being situated outside EU territorial waters if the actual effective use and enjoyment of the lease takes place outside territorial waters.
Summarily therefore, the standard VAT rate of 18% is chargeable on the leasing of pleasure yachts however subject to certain conditions as set out in the guidelines, the ‘Use and Enjoyment’ provisions may be availed of such that the VAT charged would correspond to the actual time that the yacht spends within EU territorial waters. It is noteworthy that such provisions may be availed of only if the time spent within EU territorial waters may be determined. Therefore, actual proof such as logs maintained by the captain of the yacht, GPS data and any other documentation evidencing the yacht’s location during the term of the lease must be provided to the lessor.
- At the commencement of the lease, full rate of VAT at 18% is chargeable by the lessor on the consideration payable by the lessee – if the lease commences at least 30 days prior to the end of the first tax period, then the full rate shall be payable only for the first tax period;
- If the lease commences less than 30 days prior to the end of the first tax period, the VAT is chargeable by the lessor on the consideration payable by the lessee for the first and also the second tax period;
- After the lapse of the first and second tax period, the lessor must procure from the lessee such reasonable documentary and/or technological data (time based not distance based) on which he is to determine the effective use and enjoyment within and outside the EU during such first and second period;
- Further to the above, the lessor will calculate the effective use and enjoyment based on this ‘actual ratio’: U & E outside EU/U & E outside the EU + U & E within the EU;
- Lessor will then be in a position to calculate the ‘excess output VAT’ for the first and second period and make the necessary adjustment in the relative entry of the third VAT return;
- The aforesaid calculation of the ‘actual ratio’ and adjustment/s applicable for the preceding VAT period (either upwards or downwards) shall be applied in respect of every subsequent tax period for the duration of the lease;
- At the termination of the lease the vessel may be transferred to the UBO at a taxable value which is not less than that established by the CfR in terms of the regulations governing the taxable value of used pleasure boats. 18% VAT is chargeable on such taxable value.
It is understood that unlike the previous yacht leasing structure, there is no requirement to notify CfR and obtain its approval prior to the implementation of such yacht leasing structure. After the first or second period, upon the lessor’s request, the CfR may issue a comfort letter certifying that VAT is being accounted for in Malta.
Once the lessee exercises the option to acquire the yacht after the termination of the lease period a VAT-paid certificate may be issued to the lessee provided that all conditions set out in the Guidelines have been met.
Mr X is a non-EU citizen who wishes to purchase a superyacht costing €60M and implement a yacht leasing arrangement in terms of the Guidelines.
What are the steps and how would VAT be calculated?
- Mr X (UBO) incorporates a MaltCo (Lessor) and registers for VAT in Malta under A.10 of the VAT Act, acquires the yacht which it intends to lease to Mr X (Lessee) for a period of 10 years;
- Mr X finances the purchase of the yacht by MaltCo/Lessor through a shareholder’s loan;
- Lessor charges monthly instalments to the Lessee (set off from loan) at the rate of €515,000/month;
- For the first and second tax period (each period equivalent to three months):
- the lessee will pay VAT equivalent to
€556,200 (€515,000 x 6 = €3,090,000 @ 18% = €556,200);
- the lessee will pay VAT equivalent to
- After the lapse of the first and second tax periods from the commencement of the lease:
- the lessor procures from the lessee information on the basis of which the actual ratio of Use & Enjoyment for the first two tax periods is determined as being 50% outside EU;
- For the third tax period, lessor charges VAT as follows:
(€515,000 x 3 = €1,545,000 x 50% = €772,000 @ 18% = €139,050) and makes an adjustment in Box 41 of the VAT Return of €278,100 (credit of €139,050 carried forward to next period or refunded)
- For the fourth tax period Lessor repeats the procedure on the basis of the information that he procures from the lessee and the recalculated ‘actual ratio’.
- At the end of the lease (i.e., 120 months) MaltCo may sell the yacht to Mr X for the depreciated value of €60M as set out in the CfR Regulations relating to the disposal of used pleasure yachts:
Year Rate 1 10-12% 2-4 5-8% 5 10-12% 6-7 7.5% 8-10 2%
- MaltCo is to charge VAT at the standard rate of 18% on the sale of the yacht.