In response to the infringement proceedings launched against it by the European Commission early last year, Malta has released revised guidelines on its VAT treatment of pleasure yacht leasing.
These new rules are effective on all leases commencing on or after 1 November 2018.
The Commission had held that Malta was in breach of EU law for not levying the correct amount of VAT on pleasure yacht leasing. After receiving its letter of formal notice, Malta assured the Commission it would amend its legislation to comply with EU regulations.
Current EU VAT rules permit Member States to alleviate VAT charges from certain supplies of services when the effective use and enjoyment of the product is outside the EU. Under the new yacht leasing guidelines, Maltese VAT is chargeable at the rate of 18% on the portion of the lease attributable to effective use and enjoyment of the pleasure yacht in EU territorial waters. VAT is not chargeable on that portion of the lease attributable to effective use and enjoyment of the pleasure yacht in non-EU territorial waters.
However, these guidelines only apply if certain specified criteria, including but not limited to the conditions listed below, are satisfied.
- The lessor has a valid Maltese VAT number;
- A bona-fide yacht leasing agreement exists between the lessor and lessee;
- The yacht must be placed at the disposal of the lessee in Malta;
- The lease payments are payable in advance;
- The lessor maintains adequate records to identify place of effective use and enjoyment; and
- Specific approval has been granted by the Commissioner.
Further to the general conditions outlined above, for long-term yacht leases to take advantage of the yacht leasing guidelines, additional conditions apply.
Under Malta’s previously established VAT guidelines, the larger the boat was, the less the lease was estimated to take place in EU waters. This created favourable tax treatment for luxury yachts who benefited from greatly reduced VAT bills.
Last year, along with Malta, Cyprus, Greece and Italy also had infringement proceedings launched against them for operating VAT schemes which allowed for a reduced VAT base on the lease of yachts.