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EU VAT on Yacht solutions

March 2017 - Transport. Legal Developments by Chetcuti Cauchi Advocates.

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The yachting industry sails across a dynamic regulatory environment, increasingly leading to more paperwork, administration, checks and procedures.  In this context, and considering that yachts are generally a leisure escape, yacht owners are constantly looking for straight forward solutions that allow them to sail their yachts worry-free.  Malta has been at the forefront in providing such solutions and finding a balance between what are usually deemed two opposing needs: those of proper regulation and application of procedures on the one hand, and enjoyment of the yacht without unnecessary and unwarranted restrictions, on the other.   

Malta’s solution for pleasure yachts is characterized by practical as well as fiscal advantages whereby a yacht owner may register a yacht in Malta in less than three days and potentially be in a position to pay an effective rate of Value Added Tax (VAT) of 5.4% commensurate to the use of the specific yacht in  European Union (EU) waters.

With special focus on pleasure yachts and super-yachts, Malta’s success in the maritime industry finds its basis on two main pillars:

The Reputability of its Flag and Register

Over the years, Malta has emerged as a flag of choice guaranteeing professional guidance and non-bureaucratic procedures. Malta’s shipping registry retains its status as the largest maritime registry in Europe and the sixth largest in the world.  Particularly, Malta is considered a world leader in the registration of pleasure yachts and super-yachts mainly due to logistical as well as legal advantages.

The registry has maintained its positive reputation for its straightforward procedures for yacht registration, provisional registration of a pleasure yacht obtainable within one to three days. Whilst enjoying competitive registration and renewal fees, a twenty-four hour, seven days a week service is guaranteed, utterly useful in emergency situations.  Additionally, minimum technical requirements apply for pleasure yachts, allowing yacht owners to freely design their vessels.  Malta has a flag state inspectorate to ensure adherence to international standards, whilst no restrictions apply in relation to the nationality of the master, officers and crew serving on vessels flying the Maltese flag.

The Possibility of Fiscal Planning and VAT payment minimisation in the context of Yachts and Super-Yachts used for pleasure purposes.

In the case of yachts and super-yachts registered as pleasure yachts in the European Union (EU), Malta offers an effective and favourable regime for VAT payment, potentially down to an effective VAT rate of 5.4%, through a leasing structure.  

Malta’s solution comes handy in a context where yacht owners generally have difficulty in understanding the VAT principles applicable to the purchase of a pleasure yacht to be sailed in EU waters.  Additionally, the amount of VAT payable on such an acquisition might be a considerable expense to take into consideration when purchasing a vessel.

As per the EU Customs Code and its implementing provisions, the rules regulating the use of pleasure yachts in EU waters revolve around two main factors:

whether the yacht is owned by persons or entities established in the EU or otherwise; and whether the yacht shall be used in the EU temporarily or permanently.

Yachts owned by persons or entities established outside the EU, or more specifically outside the customs territory of the community, and which will be used for a short time in the EU, may be temporarily brought into and used for private purposes in the EU, and this without the need to pay customs duties or VAT. In such cases the yacht has to be placed under the ‘temporary importation procedure’. Once put under the temporary importation regime, a yacht may be freely used in the EU with no further customs formality up to 18 months.

In cases of yachts owned by a person or entity established in the EU for private use whether temporary or otherwise, or in all other cases where the private use of the yacht in EU waters is not temporary, VAT implications arise. In such cases VAT liability arises for yachts purchased in or formally imported into the EU.  The applicable rate of VAT in the EU varies widely ranging from the lowest percentage being 17% and cresting at 27%. In Malta the standard VAT rate is 18%.

The Maltese solution is based on the economic activity of a Maltese company that purchases the yacht and leases it out.  On the yacht being made available to the lessee in Malta, VAT is payable in Malta on the lease of the yacht as a supply of services, given that supply of services is taxable according to the use of the yacht within the territorial waters of the European Union.  Such VAT is payable at a rate proportionate to the time that the yacht is deemed to be used and sailed in EU waters, taking into consideration the yacht’s propulsion and length.  A sailing yacht of twenty-four meters and over is deemed to sail in the EU for 30% of its time and, hence, 30% of the standard 18% rate of VAT is due (5.4%).  At the expiration of the lease period and sale of the yacht, a certificate confirming that VAT has been paid in relation to the particular yacht is issued by Malta’s VAT Commissioner allowing the free movement of the yacht within EU waters.

Dr Silvana Zammit B.A., M.A.(Law), LL.D.

Silvana is a gaming law specialist advising on regulatory aspects, taxation & general matters relating to the gaming industry.  Silvana is an active member of the Malta Remote Gaming Council & the Chamber of Advocates. Silvana also heads our Transport Practise Group which services clients in the maritime, aviation and general transport industries.

For additional information about yachting, please read:

The Yachting Industry in Malta

Malta VAT Yacht Solutions