Yacht Registration and VAT reduction scheme

Malta’s geographic location in the heart of the Mediterranean Sea has historically proved to be of great importance to shipping. Malta has a strong maritime tradition and as a white-listed open registry, it has retained its importance in the shipping world by offering attractive and competitive incentives, thereby achieving international recognition as one of the top flags in the world.

Aequitas Legal can provide competent and experienced lawyers to assist clients on all aspects of Maritime law in Malta from yacht registration to ship finance, leasing and litigation. Our lawyers can help owners of all kinds of vessels such as pleasure and commercial boats, tankers, oil rigs, and cruise ships to take advantage of the many financial benefits of becoming registered under the Malta Flag.

We provide a variety of services to ship owners including the purchasing and leasing of yachts, ship charters, marine management and company formations as well as the financial aspects of owning a boat such as maritime mortgages and bank loans.
Support in this area includes advice and assistance and also includes registration under the Malta Flag, shipping purchase and sales, yacht charters and leasing and ship ownership and management including company incorporations.

Our lawyers can help you with all ship financing including the securing and discharging of mortgages over vessels, VAT regulations and making the most of Malta maritime tax incentives. Apart from helping our clients utilise the VAT reduction scheme, we also provide marine litigation and the option of a resident agent in Malta.

Malta VAT reducing scheme on pleasure yachts - Information sheet

This scheme is limited to the registration of pleasure crafts.

BACKGROUND

The purchase of a yacht for non-commercial purposes within the EU is subject to VAT taxation. This rate varies throughout the EU and bears an 18 percent charge in Malta. The payment of VAT is a legal obligation and free circulation within European waters is only allowed upon presentation of a certified VAT receipt.

EXAMPLE

A yacht purchased for € 1m is charged 18 percent VAT charge at € 180,000

SCHEME

Following the scheme approved by the VAT Department in Malta, it is in fact possible to reduce this rate significantly, sometimes as much as 5.6 percent. The rationale behind this scheme stems from the effective use and enjoyment provision within the sixth VAT directive. Given Malta’s geographical position in the southern flank of the Mediterranean it is presumed that a portion of the vessel’s operation will in fact take place in international waters, an area in which VAT taxation is not applicable. It is important to note that this will not affect the VAT payable on an outright sale, but will be solely applicable to the lease of a vessel. This scheme therefore changes the nature of the transaction from sale to lease whereby the proportion of payable VAT is worked out based on the length and type of vessel in accordance with the published guidelines of the Malta VAT office.

DETAILED SOLUTION

The details of the scheme will be handled by Aequitas and its agents but are outlined below for completeness.

LESSOR COMPANY IS ESTABLISHED

A Maltese company owned by the beneficial owner is formed in Malta and registered for VAT.

LESSOR ACQUIRES VESSEL

In this case, the company will take a loan from the beneficial owner and purchase the vessel. During this initial purchase, VAT is not considered a cost since the lessor company purchases the vessel as a business asset with the intention of renting it out to a lessee company.

LESSOR  COMPANY MARKS-UP VESSEL VALUE

In this case, it is necessary to increase the vessel’s value by a minimal margin in order to demonstrate profit and commercial rationale for the lessor company. Informal guidance supplied by the VAT Department indicates that a one percent margin is sufficient. Any such profit is subject to a 5 percent corporation tax. The taxation system for Maltese companies is esoteric and requires the payment of 35 percent of tax, of which six sevenths are refundable to the shareholder. This results in the effective taxation rate of five percent which may be relevant when considering cash flow.

LESSEE COMPANY IS ESTABLISHED

A second Maltese company that should also be owned by the beneficial owner is formed. This company enters into a lease agreement with the lessor company with the option to buy

THE AGREEMENT

Lease and option agreements are drafted on the following terms:

  1. Vessel will be leased to the lessee for a period of 12 months with the option to purchase at the end of contract. (Note that it is possible to extend the period of this lease, however this will be subject to additional operational costs)

  2. Total lease value must be equivalent to 99 percent of the vessel’s value.

  3. Purchase price will be equal to one percent of the vessel’s value.

  4. Not all of the 99 percent value mentioned above is subject to VAT.

  5. 50 percent of the lease must be paid at the commencement of the lease and is subject to VAT on a reduced portion of the agreement.

  6. 50 percent remaining balance must be paid in 12 monthly instalments and VAT charges will be relatively applied.

  7. During these 12 months the vessel is granted the right for free circulation within EU waters.

  8. Once the 12 months are over, the vessel lessee company will exercise its option to purchase and pay the remaining one percent of the entire value which is subject to 18 percent VAT. A certificate will be granted at this stage.

RELEVANT REDUCTION

The lease value percentage to which VAT is applied may vary between thirty and ninety percent. Power boats over 2 metres enjoy the maximum reduction in which only thirty percent of the lease value is subject to VAT. The following table obtained copied from Malta’s VAT department indicates guidelines as follows:

Type of Boat% of lease taking place in the EUComputation of VAT
Sailing boats or motor boats over 24 metres in length30%30% of consideration x 18%
Sailing boats between 20.01 to 24 metres in length40%

40% of consideration x 18%

Motor boats between16.01 to 24 metres in length 40%40% of consideration x 18%
Sailing boats between 10.01 to 20 metres in length50%50% of consideration x 18%
Motor boats between 12.01 to 16 metres in length50%50% of consideration x 18%
Sailing boats up to 10 metres in length60%60% of consideration x 18%

Motor boats between 7.51 to 12 metres in length (if registered in the commercial register)

60%60% of consideration x 18% 
Motor boats up to 7.5 metres in length (if registered in the commercial register) 90% 90% of consideration x 18% 
Boat permitted to sail in protective waters only 100% 100% of consideration x 18% 

 

YEAR 2

Following the completion of the first year, the lessor company is made redundant (assuming the 12 month option has been selected). Additionally, it may be required for the lessee company to transfer the vessel to the beneficial owner at this point. If either, or both companies, are required at this stage they can either be kept or liquidated. It is interesting to note that their operation is not necessarily restricted to vessel holding and leasing and their operation may be changed once they have fulfilled their purpose.

ADDITIONAL SERVICES 

Whilst the provision of local directors is not a requirement should the client be unwilling to act as director on the lessor and lessee company we can provide local directors.

VARIATIONS

If desired the above scheme may be operated under one the following variations:
No lessee company

The beneficial owner is able to lease the vessel from aforementioned lessor company in his/her own name, removing the need for the lessee company. The advantage here is an obvious reduction in costs, however the beneficial owner may not want, or may not always be in a position to own the vessel directly.
Length of lease greater than 12 months
In certain cases, the lease agreement may be extended up to a total of 36 months. This may be advantageous due to cash flow considerations. On the other hand however, this extension will also result in an increased amount of time in which the vessel is not in possession of a paid VAT certificate.

Aequitas Legal is a member of the Malta Chamber of Advocates and the international Mulitlaw Network. Its subsidiary, Aequitas Trust & Fiduciary Limited, is a licensed trustee, nominee and administrator of foundations regulated by the Malta Financial Services Authority. Aequitas Legal and Aequitas Trust & Fiduciary are both registered at Second Floor, Valletta Buildings, South Street, Valletta, Malta. Whilst every effort is made to achieve complete accuracy no information contained on this site represents advice and Aequitas Legal and Aequitas Trust & Fiduciary Limited accept no liability whatsoever for any errors or omissions. By using this website you agree to its terms of services, our privacy policy can be viewed here.

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