With 2010 just around the corner, various individuals will surely be thinking about New Year resolutions. It seems that various countries are also pondering about New Year resolutions, and in particular to changes in their VAT regulations. The United Kingdom will be reverting to the standard rate of VAT which was applicable prior to December 2008 i.e. 17.5% and the European Community will be introducing the so called “VAT Package”.

A change in the VAT laws of the Isle of Man in January will leave its mark on the yachting industry. Many yacht-owners are already re-flagging under the Malta flag due to the tax and VAT incentives available in this jurisdiction. The Isle of Man VAT system is currently under scrutiny, and thus different persons are availing themselves of the Malta VAT treatment on yacht leasing whereby a reduced rate of VAT is paid on the purchase of the yacht.
 

VAT Yacht Leasing Treatment

Persons who register their yacht under the Malta flag have an option to benefit from special VAT treatment on yacht leasing. As a general rule, VAT on the supply of services is charged according to where the service is provided. Accordingly, the raison d’ętre behind this special treatment is VAT is charged according to how much time the yacht spends in EU waters.

Consequently, it can be assumed that the larger the yacht is the lesser time the yacht will spend in EU territorial waters. Therefore the Malta VAT department has provided a table whereby an indication of VAT payable on the purchase of the yacht is charged according to the size and type of the yacht. This table can be found in the following link.

In order for this treatment to be availed of various conditions have to be met. First of all there has to be the incorporation of a Maltese shipping organization, who will for all intents and purposes own the yacht. This shipping organization will thus enter into a lease agreement with a third party whereby the yacht will be leased to the third party for a period of time and on termination of such term the third party will have the option to buy the said yacht.

The end effect of such a transaction will be the issuance on the part of the Malta VAT department of a VAT paid certificate whereby it will certify that VAT has been paid on the yacht.

Chetcuti Cauchi Advocates will guide you with the set up of this structure.