Malta is the largest maritime registry in Europe and the 6th largest in the world. Particularly, it is one of the largest registries in Europe for pleasure yachts and superyachts. A need therefore arises for new initiatives to be undertaken to maintain Malta’s prominent position in such sector, while at the same time remaining compliant with European Union’s laws. Consonant with this, on 30 March 2020 the Commissioner for Revenue (CfR) has published an amended version of the Guidelines regarding the VAT treatment of pleasure yacht leasing.
As a bit of background to the matter, the CfR took note of the issue that lessors of pleasure boats will not be capable of assessing “at the date of each (VAT) chargeable event the extent to which the pleasure boat is effectively used and enjoyed by the lessee within and outside EU territorial waters in those situations where lease payments are payable in advance by the lessee to the lessor”. This is important because as per the Guidelines, no VAT is to be charged when the yacht is effectively used and enjoyed within non-EU or international waters.
With the aim of resolving this issue through the amended guidelines, the CfR has ordered that for all leases commencing on or after 1 November 2018, the lessor shall not take into account the expected effective use and enjoyment of the pleasure boat by the lessee outside EU territorial waters.
Instead, the lessor shall procure from the lessee reasonable documentary and/or technological data to determine the actual effective use and enjoyment by the lessee of the pleasure boat within and outside EU territorial waters so as to obtain an “actual ratio” of actual effective use and enjoyment outside EU territorial waters based on the provided data.
As it would not be achievable to obtain this data until the use and enjoyment of the yacht takes place, the full applicable VAT for the first (and second) tax period shall be charged as follows:
- Where the lease commences at least 30 days prior to the end of the tax period in which the lease commencement date falls (“the first tax period”), the lessor shall charge the full VAT due on the consideration payable by the lessee for the said first tax period; and
- Where the lease commences less than 30 days prior to the end of the first tax period, the lessor shall charge the full VAT on the consideration payable by the lessee for the first tax period and the subsequent tax period (“the second tax period”).
Thereafter, once the ratio is determined, an “Excess of Output Tax” shall be calculated, which is the difference between the VAT charged (according to (a) and (b)) and the result of the “Actual Ratio” multiplied by the taxable value charged for the period, multiplied by the standard rate of VAT.
This adjustment to tax will then be made in the tax return for the period immediately following the first or second tax period, as mentioned above.
Should you have any further queries regarding the technicalities as to how this shall work, please do not hesitate to contact Alex Beetham at firstname.lastname@example.org
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