Yachting is an ever-growing industry in Malta. By virtue of guidelines issued by the Office of the Commissioner for Revenue, the overall VAT incidence incurred on the leasing of a yacht can be reduced substantially depending on the use made by the yacht.

Back in 2005, the VAT Department issued guidelines on the VAT treatment of the leasing of yachts by a Malta company (the “Guidelines”). In 2019, on the basis of strength from experience and knowledge acquired in such industry, the VAT Department issued a new set of Guidelines on the matter. Whilst still based on Article 59A of the EU VAT Directive, the new Guidelines reflect recent EU developments and best market practices.

In terms of the Guidelines, Maltese VAT on a lease taking place in Malta will be charged on the portion of the lease covering effective use and enjoyment of the yacht within EU waters. No VAT will be charged on the portion of the lease covering effective use and enjoyment of the yacht within non-EU or international waters.

In order to benefit from the Yacht Leasing Guidelines the following conditions must be satisfied, a distinction is made between long-term leases and other leases:

General Conditions

• Lessor must possess a valid Maltese VAT identification number;
• Yacht must be placed at the disposal of the lessee in Malta;
• Lessor and lessee must enter into a yacht leasing agreement, which agreement must be presented to the VAT Department;
• Prior approval must be sought from the VAT Department in writing for the lessor to apply Maltese VAT on the basis of effective use and enjoyment;
• Lessor must maintain adequate and appropriate records to demonstrate effective use and enjoyment within/outside the EU territory; and
• An annual declaration must be filed with the Commissioner for Revenue within the prescribed timeframe.

Conditions for Long-Term Leases

In addition to the above listed conditions, long-term leases must abide by the below conditions:

• Lessor must be established for VAT purposes in Malta; and
• Lessee, who can be established in or outside Malta, must be a non-taxable person, i.e. a person who does not lease in the yacht for business purposes.

The 2019 Yacht Leasing Guidelines lay down the conditions for the Commissioner to exercise his discretion and approve that the lessor levies VAT only on the portion of the lease covering effective use and enjoyment within the EU.

For any information on the implementation of the guidelines kindly contact anthonypace@kpmg.com.mt and stephanpiazza@kpmg.com.mt.