MALTESEYACHT LEASING SCHEMEa brief overview of the guidelines
INTRODUCTIONIn November 2005, the Maltese VAT Department issuedGuidelines explaining the Department’s policy with regard to theVAT treatment of yacht leasing arrangements entered into byMaltese companies.
LEASE AGREEMENTA leasing agreement of a pleasure craft is an agreement wherebythe lessor (the owner of the craft) contracts the use of the craftto the lessee (the person who leases the craft) in return for aconsideration.In addition, at the end of the lease period, the lessee may opt topurchase the craft at a percentage of the original price. The ﬁnalpurchase is strictly an option which may be exercised at the endof the lease for a separate consideration.
VAT TREATMENT OF LEASEFor VAT purposes, the lease of the craft is a supply of serviceswith the right of deduction of input VAT by the lessor, where theright of input VAT applies. This supply of services is subject to VATaccording to the use of the craft, which is attributed within theterritorial waters of the European Union (EU), provided that thelessor is a Maltese company (including a commercial bank) whichis leasing the craft to any Maltese or non-Maltese individual orcompany.
CALCULATION OF USE INEU WATERSIt is very difﬁcult to trail the movements of a pleasure craft inorder to determine the period that the craft spends within EUterritorial waters and the time it spends outside EU territorialwaters. In this regard, the guidelines establish an estimated(deemed) percentage portion of the lease based on the time thatthe craft is used within the EU territorial waters. Thesepercentages are set according to the size of the craft and itsmeans of propulsion (power or sailing). The standard rate of VATof 18% in Malta is then applied on the established percentage ofthe lease, deemed to be related to the use of the boat in EUterritorial waters.
VAT RATES :: MOTORYACHTS % OF LEASE TYPE OF MOTORYACHT VAT COMPUTATION IN EU WATERSMotoryachts cruising in protected waters only 100% 100% of consideration X 18% Motoryachts up to 7.50m* 90% 90% of consideration X 18% Motoryachts between 7.50m - 12.00m* 60% 60% of consideration X 18% Motoryachts between 12.01m - 16.00m 50% 50% of consideration X 18% Motoryachts between 16.01m - 24.00m 40% 40% of consideration X 18% Motoryachts over 24.00m 30% 30% of consideration X 18%* This size of craft is only permitted within the commercial registry
VAT RATES :: SAILING YACHT % OF LEASE TYPE OF SAILING YACHT VAT COMPUTATION IN EU WATERSSailing Yachts cruising in protected waters only 100% 100% of consideration X 18% Sailing Yachts up to 10.00m 60% 60% of consideration X 18% Sailing Yachts between 10.01m - 20.00m 50% 50% of consideration X 18% Sailing Yachts between 20.01m - 24.00m 40% 40% of consideration X 18% Sailing Yachts over 24.00m 30% 30% of consideration X 18%
CONDITIONS(a) The craft must enter a Maltese port, ideally at the beginning of the lease agreement.(b) An initial contribution shall be paid by the lessee to the lessor amounting to 50% of the value of the craft.(c) The leasing agreement shall be between a Maltese company and any Maltese or foreign person or company.(d) The Lease installments shall be payable every month for a period of not less than 12 months and not more than 36 months.(e) 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%.
CONDITIONS(e) Prior approval shall be sought in writing from the Maltese Commissioner of VAT and each application will be considered on its own merits and certain conditions may be applied. Moreover the Commissioner of VAT may require the lessor to submit details regarding the use of the boat.(f) 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%.(g) If the lessee exercises the option to purchase the boat after the end of the lease, a VAT paid certiﬁcate will be issued to the lessee provided that all VAT due has been paid by the lessor.
PRACTICAL EXAMPLEPeter, an individual residing in Spain acquired a 27 meter power boat from an Italianshipyard for the price of €1,000,000.PlanBeing a power boat and with an overall length of 27 meters, it will qualify for a ‘deemed’ EU useof 30%, meaning that only 30% of the lease payments will be subject to Maltese VAT.Step 1Set up a Maltese Company to acquire the craft. The company must register for VAT in Malta.Step 2Italian ship yard will invoice the Maltese company for the full cost of the craft. This is an intracommunity supply and hence, VAT is accounted for under the reverse charge mechanism(no input VAT).(If the vessel were acquired from outside the EU, a VAT deferral on the ‘importation’ may beobtained).
PRACTICAL EXAMPLEStep 3The vessel is registered under the Maltese ﬂag.Step 4The lease between the Maltese company (the lessor) and Peter himself (as the lessee) commences.VAT is charged accordingly on the portion of the lease which is deemed totake place in the EU,i.e. 30%.Step 5Once the lease term is over, Peter exercised his option to acquire the craft at a predeterminedprice of 1% of the original value of the craft. This is fully vatable.
PRACTICAL CALCULATIONMechanics of the leaseCraft type: Power boatCraft length: 27 meterCraft value: €1,000,000Total Payment•Down payment from the lessee to the lessor = €500,000 (50% of €1,000,000 see note b)•Only 30% of the initial deposit is subject to VAT (see table) hence €150,000 x 18% = €27,000.Total payout to the lessor is €527,000•The proﬁt (referred to as the ﬁnance charge) from the leasing operation is set at +/- 5% andtherefore, the ﬁnance charge works out to €1,000,000 x 5% = €50,000•Assuming that the lease will take place over a 36 month period, the 36 lease installments will becalculated on the remaining €500,000 + €50,000 that is €550,000 divided by 36 installments =€15,278.
PRACTICAL CALCULATION•Note that only 30% of the €15,278 are subject to VAT hence:•€15,278 x 30% = €4,583 x 18% = €825•Therefore the lease installments amount to €15,278 + €825 = €16,103.•At the end of the lease, the lessee may opt to acquire the craft, that is at say 1% of original valueand vat is charged on the full price hence €1,000,000 x 1% = €10,000 x 18% VAT = €1,800 =€11,800•TOTAL effective VAT LEAKAGE = €27,000 + €29,700 (this is 825 x 36 installments) + €1,800 =58,500 i.e. 5.8%
SUMMARY 27M MOTORYACHT 36 months + 1 € € Vat € Tax € Total Cost of yacht 1,000,000.00 Deposit 0.50 500,000.00 Vatable deposit 0.30 150,000.00 27,000.00 Total lease value 500,000.00 Finance charge 0.05 50,000.00 Total payable 550,000.00 Vatable element 0.30 165,000.00 29,700.00 Vat free element 385,000.00 Monthly install 16,102.78 Buy out 0.01 10,000.00 1,800.00 Taxable Fin charge 50,000.00 17,500.00 Taxable buy out 10,000.00 3,500.00 Totals (VAT & INCOME TAX) 58,500.00 21,000.00 79,500.00 Vat no option 1,000,000.00 x 18% VAT = 180,000.00 Saving 100,500.00 Effective Rate after expenses 0.08 VAT LEAKAGE 0.06
TAX REBATE FORFOREIGN NATIONALSIn certain cases it is also possible as a foreign EU nationalto reclaim 85% of the corporation tax paid through thelease. This possibility varies on a case-by-case basis anddepends on the individual’s tax status and domicile.Should this have been possible in our practical example afurther tax saving of €17,850 (€21,000 X 85%)would have been realised
QUESTIONS ?We would be pleased to answer any queries you may have relating to this presentation or the Maltese Yacht Leasing Scheme at this time.
INTERESTED?We are personally reachable at all times and welook forward to demonstrating your case studyWe would be pleased to prepare a fully-ﬂedged proposal including a breakdown of costs, VAT Payable and Tax Payable at your request
GET IN TOUCH! Mr. Niki Travers Tauss +356 99442122 email@example.com