New Guidelines on the VAT treatment of Pleasure Boats

Dr Josef Cachia  -  4/March/2019

With a booming yachting industry in Malta, the VAT department has issued updated rules and guidelines on the VAT treatment incurred when leasing pleasure boats, which guidelines are still based on Article 59a of the EU VAT Directive. Malta always strives to remain one of the main shipping and yachting jurisdictions in the world and thus the new guidelines reflect the best market practices in the industry.

The VAT paid shall be based on the use of the vessel in EU territorial waters and therefore, should a vessel not be used in EU territorial waters, the VAT paid shall be reduced. Therefore, in terms of the VAT guidelines, no VAT is due on the use and enjoyment of a vessel if the vessel is being used outside EU waters. The rules go into further detail on how the effective use of the vessel is calculated.

The rules also make a distinction between short term and long-term leasing of Yachts. A short-term lease is deemed to be one which is not more than 90 continuous days of possession and use, while a long-term lease is deemed to be one which exceeds the 90-day period.  

To be able to benefit from the scheme, the below considerations must be satisfied:

  • The Lessor of the yacht must have applied for and have in his possession a valid Maltese VAT number
  • The yacht subject to the lease must be made available to the lessee in Malta
  • The parties must enter into a proper yacht leasing agreement, which agreement must be provided to the VAT department and must also be approved
  • The VAT department must also approve the applicability of the VAT payable in writing and in terms of effective use and enjoyment.
  • Proper records of effective use must be kept by the lessor.
  • An annual declaration in the required form must be presented to the VAT department.

Additionally, there are further requirements for long term leases:

  • The Lessor must be established in Malta for VAT purposes.
  • The Lessee must be a non-taxable person and thus a person who does not enter into similar agreements for yacht leasing business.
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