The Maltese Government has introduced new rules for the calculation of VAT on the leasing of pleasure yachts. Ecovis Malta explain how the VAT is calculated correctly.
Global yachting destinations are increasing and consumer preference is moving away from the traditional Mediterranean and Caribbean waters, to less familiar destinations such as the Asia Pacific and the Middle East, and thus outside EU territorial waters. Against this background, the Maltese Authorities have published new VAT guidelines on the leasing of pleasure yachts and implemented an improved method to determine the place of use and enjoyment of the yacht throughout the term of the lease.
In general, the decision to impose and charge Maltese VAT on yacht leasing depends on the fulfilment of the following criteria:
- The lessee must be a non-taxable person for VAT purposes.
- The duration of the lease must be for a period exceeding ninety days.
- The lessor must be established or operating through a permanent establishment in Malta.
- The lease must commence in Malta as this must be the place where the yacht is put at the disposal of the lessee.
Calculating the Chargeable VAT
Upon commencement of the lease, the lessor is obliged to charge the VAT due from the lessee in the following manner:
- for the first tax period, where the lease commences at least thirty days prior to the end of the said tax period, or
- for the first two tax periods, where the lease commences less than thirty days prior to the end of the first tax period.
Thereafter, VAT is only charged on that part of the lease which is deemed to take place in EU territorial waters. In order to determine the actual effective use and enjoyment of the yacht, the lessee must retain and thereafter provide the lessor with technological and documentary data proving the location of the yacht throughout the lease period. With this information, the lessor is then in a position to calculate the “preliminary ratio”. This is arrived at by dividing the effective use and enjoyment of the yacht within EU territorial waters by the effective use and enjoyment of the yacht within and outside EU territorial waters.
Preliminary ratio =
Actual effective use within EU territorial waters
Actual effective use within and outside EU territorial waters
The preliminary ratio is used to calculate the provisional taxable value which will be subject to VAT during the first year of the lease and tax is charged on this amount at a rate of 18%.
Ongoing VAT Basis
Upon the lapse of the first year of the lease, the lessor must establish the actual ratio, which is calculated in the same way as the preliminary ratio, but using the data from a whole year. The actual ratio is used to determine the exact lease value subject to Maltese VAT. Any adjustments to the VAT which has already been paid will be disclosed in the following tax return, explain the colleagues at Ecovis.
This actual ratio is to be used as the preliminary ratio for the following year or period, as the case may be. At the end of the year or period, the actual ratio is calculated once more, based on the same criteria stipulated above, and any difference in the VAT liability on the revised taxable value of the lease is adjusted in the following VAT return. This exercise is repeated up to the termination date of the lease agreement.