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The European Court of Justice’s decision in the Bacino case may have caused a number of obfuscations, which in order to be clarified as much as possible resulted in a number of standpoints taken by the Maltese VAT Department.

In the Bacino case it was held that the chartering of yachts to private customers for their private pleasure would constitute an activity which would incur VAT irrespective if navigation thereof is carried out on the high seas. As a result, the VAT exemption which was previously applied in general to all chartering of yachts on international waters has now become inapplicable when the end customer is a private person making private enjoyment of the yacht.

The place of supply for short-term (which for VAT purposes is taken to be a period not exceeding 90 days) chartering of yachts, whether with crew or not, has firmly remained the place where the yacht is put at the disposal of the customer, in other words where the customer takes physical possession of it. Therefore, based on the Bacino case, the short-term chartering of a yacht to private persons for pleasure purposes which embarks from Malta will be subject to the standard 18% VAT rate in Malta. Nevertheless, the guidelines provide that, subject to certain conditions being satisfied, Maltese VAT should only be levied on that part of the charter that is deemed to take place in EU territorial waters.

Similarly, to the VAT Leasing scheme for yachts (please click here, the guidelines provide means by which to establish a VAT rate which specifically represents the portion of the yacht’s movement taking place in EU territorial waters:

Type of Yacht

% of lease taking place in EU

Computation of VAT

Sailing/motor yachts or motor yachts over 24 metres in length

30%

30% of consideration x 18%

Sailing yachts between 20.01 to 24 metres in length

40%

40% of consideration x 18%

Motor yachts between 16.01 to 24 metres in length

40%

40% of consideration x 18%

Sailing yachts up to 10.01 to 20 metres in length

50%

50% of consideration x 18%

Motor yachts between 12.01 to 16 metres in length

50%

50% of consideration x 18%

All other yachts

100%

100% of consideration x 18%

 

Before applying this VAT treatment, written authorisation must be obtained from the Maltese VAT Department. Sufficien information and data about the yacht in question must be duly provided to the VAT Department before any decision is taken.

 Normal expenses incurred directly in the provision of the services incurring VAT are subject to the normal input tax deduction rules.  However, with respect to costs for the fuelling and provisioning incurred by the supplier of a yacht charter (which would be for the private enjoyment of the charter customers), any input VAT incurred thereon may only be claimed if these are then re-sold/re-invoiced separately to the charter customer.  The supply of these goods to the charter customers would have to be charged at the full 18% standard rate of VAT.