Malta offers favourable VAT treatment to the leasing of pleasure yachts on account of the time such yachts are able to spend on the high seas. This tax system, in addition to Malta’s position in the centre of the warm Mediterranean Sea, has positioned Malta as one of the top jurisdictions for pleasure yacht registration, ownership and chartering.
Malta Yacht Leasing Guidelines
The Malta Yacht Leasing Guidelines issued by the Malta Department of VAT establish the VAT rate applicable to lease payments as well as the percentage of such lease payments that are taxable in Malta, resulting in a VAT rate on VAT paid yachts in Malta to be reduced significantly than the standard 18% VAT rate. This depends on a number of factors including the type of pleasure yacht, whether powered or a sailing yacht, as well as its length.
According to the Guidelines, a lease agreement in respect of a pleasure yacht is an agreement whereby the lessor contracts the use of the yacht to the lessee in return for a consideration, which lease agreement will grant the option to the lessee to purchase such yacht at a percentage of the original price on termination of the agreement.
Accordingly, when a Maltese company purchases a pleasure yacht and lease-purchases it to third parties (whether a Maltese or foreign person or company), VAT is due on the lease at the normal rates of VAT in Malta at 18%, since the service would be deemed to be supplied in Malta. The activity of the Malta Company should be considered to be a normal business transaction and therefore it is advisable that a profit element of approximately 10% is generated by the company. The supply of services is taxable only on the portion of the use of the yacht, attributed within the territorial waters of the European Union.
Malta Yacht Leasing Taxable Portion
Through the above yacht leasing guidelines, the VAT Department has set the criteria to establish percentage portions according to the type of boat, as follows:
|Type of Craft||% of lease subject to|
Effective Rate of VAT
|Sailing boats or motor boats +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||60%||10.8%|
|Motor boats between 7.51 to 12 metres in length (if registered in a 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%|
Taxation of Malta Yacht Owning Company
The yacht leasing structure described above applicable to the purchase of the pleasure yacht by the Malta Company results in the Malta Company receiving rental payments from the lessee (with an approximate profit element of 10% ). This income received by the Malta Company is treated as trading income arising from the leasing of the pleasure yacht and is subject to income tax at the company tax rate of 35% in Malta.
Under Maltese tax law, the shareholders of the Malta Company may, following receipt of dividends, claim a refund of 6/7ths of the Malta tax suffered at company level on the dividends distributed from this income stream. The tax treatment of the dividend income and the corresponding refund in the jurisdiction where the shareholders are tax resident must however be verified by competent advisors in the jurisdiction of the shareholder. However, it is also possible to interpose a second Malta Company for this purpose (a two-tier structure) as a result of which the tax refund and dividends are received by another Malta Company.
INTER-SERV advises and represents clients in matters dealing with yacht registration and yacht leasing structures and the sale and mortgage of vessels. The firm handles all aspects of the leasing structure, including the Malta company formation, company secretarial and Malta tax advisory services.