Report: New Guidelines on the hiring of pleasure yachts (Malta Leasing)

At long last Malta has published some, but not all of the guidelines to allow Maltese leasing to re-commence.

The first thing to note is that the old “use and enjoyment” rules based on the length of the vessel have been consigned to the history books. Now VAT on the lease is payable solely on time spent in and out of European waters. 

But there is still an awful lot left undocumented which provides some concern.

How long is the minimum term of the lease? This is unclear but it could be as short as four months or as long as the Lessee wants.

Will the client receive a VAT paid certificate at the end of the lease? In theory Yes, but only if certain conditions are complied with such as a requirement for a minimum length of use within European waters and this has not been put in writing by the Authorities. The notion that one could acquire a yacht, enter into a twelve-month lease and then export it for twelve months and pay 0% VAT to then apply for a VAT paid certificate upon re-entry into European waters (to Malta) is quashed. 

Is there a residual price to pay on exit from the lease? Unclear.

What profit should the Lessor make? This too remains unclear but is to be negotiated between the Lessor and Lessee.

Does the UBO own both Lessor and Lessee companies? Yes, and that remains as before, however as the Lessor and Lessee are connected parties and can determine the period in EU waters, thus having a material effect on the VAT rate, there is potential that the scheme now falls foul of the Weald case.

Does the yacht need to go to Malta at the beginning and end of the Lease? Yes, on both occasions.

Does the Lessee need to pay both the lease payment as well as the VAT on that lease payment? Again this is unclear and, if there is no lease payment, then is it classed as a true lease?

Is this EU approved? Apparently so but with so many details still undefined, clarification in writing would be beneficial to the industry as a whole.

Without going in to too much detail, the new structure is certainly more onerous than before and will involve bigger payments of VAT to the Maltese Government and higher associated costs for the owner as the rigorous record keeping and accounting requirements are a lot more stringent.

For the “average” 24m yacht, this could mean paying the VAT in full at 18% as most do not ever leave EU waters. The only benefit is that the VAT can be spread over five or more years. And, of course, until the owner receives the VAT paid certificate at the end of the chosen lease period, the yacht cannot engage in charter activity.

But for a large yacht the savings could be enormous. Provided the client is prepared to spend the majority of the lease period outside EU waters, especially at the beginning of the period when the initial rate of tax is determined, the final rate could be as low as 4/12 x18% of the value of the hull. 

So there are clearly some huge advantages to this new lease however as we head towards a new summer season, the cons certainly outweigh the pros at the moment until such time as the rules become more defined.

There is no “one size fits all” solution for yacht owners in today’s marketplace, and all the alternatives such as registering the yacht as commercial, paying the VAT in full, taking advantage of paying the VAT at a reduced rate in Malta or deferring payment through Monaco or Cyprus Rental have their advantages and disadvantages. It all comes down to what suits the client’s requirements!

Should you wish to discuss the above in finer detail, please do not hesitate to Contact the Dominion Marine team in the usual manner:

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