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Is this the end of Leasing 'as we know it' ?
In 2018, the EU Commissioners threatened Cyprus and Malta with infraction procedures in relation to their popular Leasing Schemes for superyachts stating that under the Mercedes-Benz ruling, the concept was a lease purchase and, as a result, were not entitled to “use and enjoyment” rates. As a result of this, both jurisdictions withdrew their respective schemes.
Earlier this year, with great fanfare, Malta introduced a revised lease scheme but this still did not satisfy the Mercedes-Benz ruling and was once again halted soon after its release. At the same time, the Cypriot authorities discreetly introduced a revised lease scheme. However the EU Commissioners have since issued a notice giving Cyprus two months to explain how their new scheme complies with the ECJ rulings. We understand that since the reintroduction of the Cypriot leasing scheme, no structures have been approved and the new scheme will be withdrawn shortly.
It is clearly evident that the EU will no longer allow any jurisdiction to provide a structure whereby goods can be acquired over a lease period with reduced rates of VAT and obtaining a VAT paid status at the end of the lease period. This has been governed by two EU judgements:
- EON Asset Management case
- Mercedes-Benz case
The EON Asset Management judgement ruled that lease purchase schemes were the ‘supply of goods’ and operational leases were the ‘supply of services’. Only supplies of services were entitled to use reduced ‘use and enjoyment’ rates of VAT.
The Mercedes-Benz judgement provided two tests and failure of either test resulted in the scheme being ruled as a lease purchase and therefore not entitled to use the “use and enjoyment” rates of VAT. These tests were:
1. Is the amount paid by the lessee in lease payments equal to or more than the acquisition cost of the goods by the lessor?
2. Is there an economical expectancy that, at the end of the lease period, the lessee will acquire the goods?
Unfortunately, the two respective leasing schemes failed both of these tests.
The demise of both of these leasing schemes has seen a recent upsurge in superyachts entering the Rental Solutions operated out of Monaco and Cyprus as both solutions comply to the tests set out in the Mercedes-Benz judgement. The rental payments are equivalent to the depreciation (far short of the acquisition cost) and there is no expectation for the lessee to acquire the yacht at the end of the lease period.
Therefore in the current market, and for superyacht owners with an EU footprint, the Rental Solutions are now the only alternative to paying the VAT in full for yachts operating privately.