After a long period of consultation, on 28 February 2019, the Malta VAT department finally released new Guidelines including the VAT considerations on use and enjoyment for pleasure boats spending time both inside and outside EU territorial waters. These guidelines apply to leases commencing on or after 1 November 2018.
The new guidelines set out the treatment of a lease rental arrangement, a term that helps differentiate the old from the new and better describes what it actually is.
The Lessee (individual or corporate) rents the yacht from the Lessor on a commercial basis and pays VAT on the rental invoice for any period of use of the yacht within the EU. The determination of commercial basis will depend on the specifics of each case factoring in yacht depreciation and also a profit element for the Lessor. There has to be commercial rationale as to why the Lessor is entering into such an arrangement with the Lessee, and this will need to be presented to the Commissioner when applying for approval for each case at the outset.
There are some similarities to the former Malta lease in that:
- The Lessor is a VAT registered Maltese entity that owns the yacht
- The Lessor can be either an individual or a corporate and assumes the responsibility of the operator during the rental period
- The yacht must be in Malta at the commencement of the rental
- The rental is for pleasure yachts only
- Approval is sought on a case by case basis from the Commissioner but that is where the similarities end
How much VAT do I pay?
VAT at the Malta rate of 18% is applied to the lease rental payment based on the period of use and enjoyment in the EU.
How do you evidence the time outside the EU?
Technological data and documentation will need to be submitted by the Lessee to support the periods of time spent outside EU territorial waters.
How long is the lease rental period?
The lease can be set for any period but is anticipated to be at least two to three years. There is no mechanism to obtain a VAT paid yacht at the end of the rental period so both parties may agree to early termination, at which point the yacht returns to a non-VAT paid status.
Careful management of the arrangements, especially that of EU and Non-EU use will be required and Sarnia, as yachting specialists, are ideally placed to provide this as well as the other aspects of ownership and operation through our Malta office located in Floriana.