At the end of February 2019 the Malta VAT Department published new guidelines on the VAT treatment on transactions relating to the leasing of pleasure yachts by a Malta registered entity. These amendments have been made to further reflect the developments made at EU level in this sector while still transposing the principles outlined in the EU VAT Directive.
Previously, the levy of VAT was determined with reference to the type and length of the vessel in question, with the effective rate being potentially brought down to 5.4% from 18% (in the case of sailing boats or motor boats over 24 metres in length). Under the new guidelines the VAT rate is to be levied with reference to the time spent by the vessel in EU territorial waters.
In principle, should a lessee use the vessel completely outside EU territorial waters, no VAT is due on said transactions. The New VAT Guidelines impose certain obligations on the lessor and lessee in order to arrive at a fair determination on the use of the vessel in EU territorial waters or otherwise.
- The lessor must have a Maltese VAT identification number;
- The vessel in question must be placed at the disposal of the lessee in Malta;
- The lessee must not be a person carrying out an economic activity (not be a taxable person);
- The lease arrangement must be in line with a yacht leasing agreement between the lessor and the lessee which must also be approved by the VAT department in order for the beneficial rates to be applied;
- The lessee must provide the lessor with information backed up with data gathered via technological/technical methods in order for the actual use and enjoyment of the pleasure boat within and outside EU territorial waters to be determined;
- Annual compliance obligations by way of the prescribed form must be attended to.
Furthermore, the new VAT guidelines also stipulate how VAT is to be charged upon the commencement of the lease, depending on the start date of the lease when compared to the tax period of the lessor.
After the first year of the lease, a preliminary ratio is to be calculated based on the effective use and enjoyment of the first or first and second tax period, depending on the commencement date of the lease and this ratio shall be used for the first 12 months of lease.
After the lapse of one year, an ‘actual ratio’ is obtained and this will be used as the provisional ratio for the subsequent year. An adjustment of the difference between the provisional and the actual ratio will be carried out in the tax return for the tax period following the end of the relevant Annual Period or in the tax return for the tax period following that in which the lease period terminates, whichever is the earlier.