The Maltese VAT Department has issued a scheme through which yacht owners are allowed to sail freely within EU waters while at the same time benefit from a considerably reduced effective VAT rate payable on the value of the yacht acquired.The scheme commences with the acquisition of a pleasure yacht by a Maltese company. This would be subject to VAT in Malta at the standard rate of 18%, but the Maltese company would have the right to deduct such input VAT incurred, since in return it will be carrying out an economic activity consisting in the leasing of the yacht to a lessee (resident or not resident). This means that the effective VAT incurred until this stage is nil.The leasing of the yacht is considered to be a supply of service for VAT purposes and is therefore taxable on the use of the yacht made within EU territorial waters. Obviously, calculating the portion of time during which a yacht would have sailed within EU territorial waters is considerably complex, and for this reason, the VAT Department has established means based on the length and mode (sailing or motor) of the yacht in question.Type of Yacht% of lease taking place in EUComputation of VATSailing yachts or motor yachts over 24 metres in length30%30% of consideration x 18%Sailing yachts between 20.01 to 24 metres in length40%40% of consideration x 18%Motor yachts between 16.01 to 24 metres in length40%40% of consideration x 18%Sailing yachts up to 10.01 to 20 metres in length50%50% of consideration x 18%Motor yachts between 12.01 to 16 metres in length50%50% of consideration x 18%Sailing yachts up to 10 metres in length60%60% of consideration x 18%Motor yachts between 7.51 to 12 metres in length60%60% of consideration x 18%Motor yachts up to 7.5 metres in length90%90% of consideration x 18% By applying these VAT rates, at the end of the lease agreement the overall effective VAT rate incurred upon the acquisition of the yacht could be lowered to as low as 5.4%. Other conditions which must also be satisfied include:The yacht must come to Malta, preferably at the start of the lease agreement; Prior written approval from the Maltese VAT Department is required;The lessee must pay to the lessor an initial contribution of 50% of the value of the yacht; The lease instalments must be payable each month up to a maximum of 36 months; The lessor is expected to make a profit from the lease agreement; The final purchase value of the yacht, if purchased by the lessee from the lessor, must be at least equal to 1% of the original value of the yacht.