• Service: Tax, Global Indirect Tax
  • Type: Regulatory update
  • Date: 12/12/2013

Cyprus – VAT relief for owners of lessees of pleasure boats and yachts 

GITB Cyprus

Can mixing up business with pleasure result in reduced VAT costs?

Under a special Cypriot regime, the owners and lessees of pleasure boats and yachts can benefit significantly from a reduction in the VAT element payable on the cost of leasing such boats. Although the regime was introduced back in March 2012, we believe that not all interested parties are aware of its existence and resulting benefits. Furthermore, a number of minor changes have been affected to the regime since its introduction to address the effects of increases in tax as well as VAT rates.

Conditions of the regime

A number of conditions must be satisfied in order to avail of the relief introduced by this regime.

  • a) a lease agreement must be concluded between a Cyprus established company and any physical person and/or legal person irrespective of their origin.
  • b) an initial lump sum payment of at least 40 percent of the value of the vessel must be paid to the lessor.
  • c) the pleasure boat/yacht must sail to the republic of Cyprus within one month from the date of signing the lease agreement. A request for extension can be made to the VAT Commissioner.

Furthermore, the lease agreement referred to at (a) above needs to take account of the following points in order to qualify for relief:

  • it should include monthly rental payments which cannot cover a period of more than 48 months.
  • the lessor should expect a profit margin of more than 8 percent of the total value of the pleasure boat/yacht (prior to 27 May 2013 the required percentage was 10 percent).
  • the final payment at the end of the finance lease, which essentially triggers the transfer of the legal ownership of the vessel to the lessee, should not be less than 4 percent of the value of the vessel which represents the lessor’s total profit from the leasing operation.

VAT relief available under the regime

The amount of VAT ultimately payable to the tax authorities by an owner/lessor will depend on the extent to which the vessel is to be used outside the EU. Essentially, non EU usage will reduce the VAT amount payable. However, instead of having to compute the amount of actual non EU usage, Cypriot VAT legislation includes a number of tables/charts which designate a particular percentage of non EU usage depending on the type of vessel (e.g. sail boat, motor boat etc) and its length.

For example, a sailing boat, with length greater than 24 meters, is considered as being used 20 percent of the time within and 80 percent outside EU waters. The lessor is therefore liable to charge and account for Cypriot VAT on only 20 percent of the lease payments, while no VAT is accountable on the remaining 80 percent, which relates to the time the boat is used outside EU waters.

In order for relief to apply, a boat owner must apply for the advanced written approval of the Cypriot VAT Commissioner. An application form/certificate is required outlining the value of the pleasure boat/ yacht and the designated percentage use in EU/Non EU waters.

The new regime of pleasure boats/yachts has already received positive feedback from existing and potential owners and has stimulated registrations under the scheme.

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Global Indirect Tax Brief - December 2013

GITB - December 2013
Global indirect tax brief brings together articles on international VAT developments, written by KPMG member firms'.