Malta VAT Yacht Leasing
The favourable VAT treatment in Malta regarding Pleasure Yacht Leasing makes Malta an attractive jurisdiction for interested yacht owners or potential ones, who, with careful planning are given the possibility of reducing the applicable VAT rate on the supply of leasing services. Following the publication of the Guidelines by the Malta VAT Department (the “Guidelines”), the VAT rate on such an arrangement can be reduced significantly lower than the standard 18% VAT rate, depending on a number of factors, including the type of yacht (power or sailing) and its length.
In terms of 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 agreement will grant, at the end of the lease, the option to the lessee to purchase such yacht at a percentage of the original price.
For the purpose of VAT, when a Maltese company purchases a pleasure yacht and lease-purchases it to third parties (Maltese or non Maltese person or company), then VAT is due on the lease at the normal rates of VAT in Malta i.e. 18%, since the supply of services 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.
The VAT Department, bearing in mind the difficulty in tracing the movement of the yacht in the EU waters, established through the Guidelines a set of criteria to establish percentage portions according to the type of boat, as per the table below.
| Type of craft | % of lease subject to VAT |
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% |
Income Tax Implications
As a result of the lease arrangement in respect to the pleasure yacht to be purchased by the Malta Company which is required for the VAT special scheme purposes outlined above, the Malta Company would receive rental payments from the lessee (with an approximate profit element of 10% as explained above). The income received by the Malta Co. would be deemed to be trading income since it arises from trading activities (lease of the pleasure yacht) and would be subject to income tax at the rate of 35% in Malta. In terms of Malta tax legislation, 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.