The official publication in February 2019 issued by the Commissioner for Revenue, providing guidelines on the place of supply rules for the yacht leasing industry has brought an end to the infringement proceedings instigated by the EU.

The new rules are based on the use and enjoyment principle that the lessee derives within EU territorial waters. Consequently, the new guidelines move away from the old method of calculation which linked the length of the boat and its means of propulsion (i.e power and sailing) with the VAT that should be charged on the lease receivable from the lessee.

The Maltese VAT on a lease is now calculated on the portion of the lease based on the effective use and enjoyment of the pleasure yacht that the lessee derives within EU territorial waters. No Maltese VAT is charged on the portion of the lease covering the effective use and enjoyment of the pleasure yacht outside EU territorial waters.

A simplified calculation is illustrated below:

Yacht used within EU Territories

 

 

40%
 

 

 

 

Lease amount

 

 

10,000

VAT Rate

 

 

18%

Effective VAT Rate (40% of 18%)

 

 

7.2%

Effective VAT amount payable

 

 

720

 

The guidelines stress the importance that during the lease period, the lessor must maintain adequate records, including reasonable documentary evidence and/or technological data. This data ensures that the preliminary ratio may be appropriately determined.

Careful considerations also apply with respect to the commencement of the lease and the application of VAT and prior approval must be obtained from the Commissioner for Revenue for the lessor to apply Maltese VAT based on the effective use and enjoyment principle. Other considerations to note are that for Maltese VAT to be applicable, the pleasure yacht must be placed at the customer’s disposal in Malta and that during the duration of the lease, the pleasure yacht must solely be used for the private use of the lessee. The yacht leasing agreement must also be presented to the Commissioner.

For further details please contact Karen Spiteri Bailey on [email protected]