VAT treatment of short-term yacht chartering

VAT treatment of short-term yacht chartering- Thursday, August 08, 2013

In July 2013, the Malta VAT Department issued new Guidelines whereby a reduced rate of Malta VAT will apply on short-term yacht charters starting in Malta. These guidelines are very similar and follow to an extent the interpretation currently being applied to long-term leases of yachts.

Short-term charter agreement and its treatment for Malta VAT purposes

A short-term charter of a yacht is an agreement whereby the yacht owner/operator contracts the use of the yacht for a consideration with a crew or on a bare boat basis for not more than 90 days.

A short-term charter of a yacht to be used for leisure purposes is a supply of service which for VAT purposes is subject to the standard rate of VAT of 18%. The place of supply is the place where the yacht would actually be placed at the disposal of the customer, in this case Malta. The new Guidelines provide that VAT on this supply would be limited to that portion of the use of the yacht within EU territorial waters.

Calculation of the use of the yacht within EU territorial waters

It is very difficult to physically trail the movements of a yacht in order to determine the period during which the yacht is used within EU territorial waters and the period during which it is used outside Malta.

Thus, the Guidelines have set out estimated percentage periods during which the yacht is deemed to be made use of within EU territorial waters. These percentages are set according to the length of the yacht and its means of propulsion (power or sailing). The standard rate of VAT of 18% is only applied on the established percentage of the charter deemed to be related to the use of the yacht within EU territorial waters. The table below indicates the applicable established percentage portions:

Yacht type % of charter deemed to be taking place in the EU Computation of Malta VAT
Sailing boats or motor boats over 24 metres in length 30% 30% of taxable value X 18%
Sailing boats between 20.01 and 24 metres in length 40% 40% of taxable value X 18%
Motor boats between 16.01 and 24 metres in length 40% 40% of taxable value X 18%
Sailing boats between 10.01 and 20 metres in length 50% 50% of taxable value X 18%
Motor boats between 12.01 and 16 metres in length 50% 50% of taxable value X 18%
All other boats 100% 100% of taxable value X 18%

Conditions

The VAT treatment as per above table would be subject to the following conditions:

  • The supplier of the yacht charter shall be a person registered for VAT purposes in Malta.
  • The contract must indicate the place where the charter commences (i.e. Malta), the charter price and a statement that the yacht shall sail outside EU waters. The VAT Department reserves the right to request proof of any payment in connection with the charter.
  • The supplier of the charter has to produce sufficient documentation to identify the yacht with regards to the hull number, port of registry, registration number and any other documentation to confirm the size and type of the yacht.

Input VAT

The supplier of the charter is entitled to claim back the input VAT incurred on the fuelling and provision of the boat provided that these goods would be sold to the client of the charter under a separate contract and invoiced separately from the charter service. The full standard rate of VAT of 18% applies on such supplies. No input VAT may be claimed by the supplier of the charter if the cost of fuel and other provisions are paid by such supplier on behalf of the client and the cost is merely recharged at no mark up.

Furthermore, subject to the standard provisions found in the Malta VAT legislation, the supplier of the charter would also be entitled to claim the input VAT incurred on fuel purchased for the outward journey of the yacht to its next port of destination after the completion of the charter.

For more details and information please contact the firm’s tax partner Stephen Balzan on sbalzan@emd.com.mt.