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On the
24/11/2005, the Maltese VAT Department published its guidelines on the
VAT treatment of yacht leasing. These regulations have clarified
the taxation of yachts which are lease-purchased to third parties by a
Maltese Company.
A
financial leasing agreement (lease-purchase) of a pleasure craft is an
agreement whereby the lessor (the owner of a craft = the Malta Company)
leases it to a third party (lessee) with an option in favour of the
lessee to purchase the boat at a reduced price at the end of the lease.
With
careful planning, these guidelines mean that the lessee of the yacht can
now become the owner of an EU VAT-paid yacht by paying as little as
6.18% VAT on the original value of the yacht. However tax and costs on
the transactions will have an incidence on the final outlay raising the
total outlay by about 2%.
The
Maltese VAT Department has established that when a Maltese company buys
a pleasure yacht and lease-purchases it to third parties, then VAT is
due on the lease at the normal rates of VAT in Malta, i.e. 18%, since
this is a supply of a service deemed to be supplied in Malta. But
VAT is payable only on that portion of the lease during which the yacht
is in EU waters. However, since it is very difficult to establish this
with precision, the Department has issued its own “presumed” length of
stay during which the yacht is presumed to have been in EU waters and
thus the Department will charge VAT according to this table as follows:
|
Type of yacht |
% of lease subject to VAT |
Effective rate of VAT |
|
Sailing boats or motor boats over 24 metres in length |
30% |
30% of consideration x 18% |
|
Sailing boats between 20.01 to 24 metres in length |
40% |
40% of consideration x 18% |
|
Motor boats between 16.01 to 24 metres in length |
40% |
40% of consideration x 18% |
|
Sailing boats between 10.01 to 20 metres in length |
50% |
50% of consideration x 18% |
|
Motor boats between 12.01 to 16 metres in length |
50% |
50% of consideration x 18% |
|
Sailing boats up to 10 metres in length |
60% |
60% of consideration x 18% |
|
Motor boats between 7.51 to 12 metres in length (if registered
in the commercial register) |
60% |
60% of consideration x 18% |
|
Motor boats up to 7.5 metres in length (if registered in the
commercial register) |
90% |
90% of consideration x 18% |
|
Craft permitted to sail in protected waters only |
100% |
100% of consideration x 18% |
Taking the first type of craft as an example, a
sailing yacht over 24 metres in length will now be presumed to have
sailed in EU waters for 30% of the time during which it was
lease-purchased and therefore the VAT payable on the lease is the normal
rate of VAT (18%) but only for 30% of the duration of the lease, i.e.
5.4% VAT on the value of the lease-purchase.
Conditions
-
The
boat must come to Malta, possibly at the beginning of the lease
agreement or alternatively at the time when the purchase-option is
exercised; the presence of the yacht in Malta at one of these times
is a condition imposed by the VAT Department and cannot be waived.
-
The
financial leasing agreement shall be between a Maltese company and
any
Maltese or foreign person or company.
-
Prior approval shall be sought in writing from the Commissioner of
VAT who
is to confirm the rate applicable according to the use in EU
territorial waters
(depending on the size and propulsion of the craft), as well as the
acceptability
of the value of the craft as declared. For this purpose a valuation
certificate of
the craft shall be submitted with the application for approval.
-
An
initial contribution shall be paid by the lessee to the lessor
amounting to
50% of the value of the craft.
-
The
Lease instalments shall be payable every month and the lease
agreement
shall not exceed 36 months
-
The
lessor shall be expected to make a profit from the leasing agreement
over
and above the value of the boat
-
Any
purchase value at the end of the lease agreement shall not be less
than 1%
of the original value of the craft, and this will be subject to the
standard rate of
VAT at 18%
-
The
Malta Company makes at least 10% profit
out of the transaction.
By way
of illustration, a 25 metre yacht is owned by our client and has a
market value of Euro 1,000,000. Our client will sell his boat to a
Malta Company
of which he will be the shareholder. Alternatively,
if our client is buying a yacht from a third party, the third party will
sell the yacht directly to the
Malta Company. The
Malta Company
will then lease-purchase the boat to our client who
will have an option to purchase the boat at the end of the lease.
The VAT
and tax implications of the transaction shall be as follows:
a) Sale by Mr. X to
the Malta Company (or purchase by the
Malta Company
from Mr. X’s supplier) for 1,000,000 (market value
of the yacht). There are no tax implications or VAT implications on this
transaction both in the case where Mr. X is selling the boat to the
Malta Company
(private sale) and even if the
Malta Company
buys the boat from an EU or non-EU supplier. The
Malta Company
will at this stage register the boat under the
Maltese flag.
b) Lease-purchase by
the Malta Company
to our client
(i) Our
client is to pay 50% of the value of the boat on the date of the
contract
(ii) Mr. X is to pay not more than 36 monthly
instalments to the
Malta Company
to make up for the balance of the value of the boat
(plus 10% profit element for the
Malta Company). In our example the balance
is 500,000 and therefore lessee will make 36 monthly payments of 16,667
each as lease payments; this will give a payment of 600,000 and in
effect means that the
Malta Company
makes a profit of 100,000 on the transaction.
c) Purchase option by our client: our client is to pay 1% of the
original value at the end of the lease to the
Malta Company to become the full owner of
the yacht and can transfer the yacht to his name (if desired).
Tax and VAT implications:
a) on
50% of the value, VAT is paid at 18% but only on 30% of the lease,
therefore 500,000 x 18% x 30% = 27,000
b) on the instalments, VAT is paid at 18% but only on 30% of the lease,
therefore 17,000 x 36 x 18% x 30% = 33,048
c) on the redemption of the yacht, on the payment of the 1% value
(10,000) VAT is due at 18% = 1,800
d) on the profit element made by the
Malta Company (11% of the value (110,000)
tax is due at 4.17% = 4,58
Therefore the total tax and VAT due is a total of 66,435.
This equates to 6.65% of the original price of the boat of 1,000,000 and
in effect means that the lessee would, at the end of the transaction, be
the owner of an EU VAT registered boat having paid 6.65% in total as VAT
and tax on the whole transaction. And the structure also has the
advantage that the tax and VAT is paid over a maximum three year period,
thus helping cash flow problems.
Provided that certain conditions and certain aspects of the transactions
are strictly adhered to, the Department of VAT will issue a certificate
to the owner that VAT has been fully paid in Malta on the boat once the
lessee has paid all the tax and VAT due.
Of course, fees and expenses will be incurred for the valuation of the
boat, the registration of the boat under the Maltese flag, the
registration of the
Malta Company and the VAT procedures that
need to be followed.
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