By way of background, in 2005, the VAT Department in Malta issued guidelines on the VAT treatment of the long-term leasing of yachts by a Maltese VAT-registered company. In view of the inherent difficulties in determining the exact period of time which the yacht spends inside and outside EU territorial waters, the yacht leasing guidelines provide that VAT will only be due on a percentage of the lease based on a presumption as to the time that a yacht spends within EU territorial waters. The guidelines establish the maximum percentage for the portion of the lease subject to VAT in Malta based on the size and means of propulsion (sailing or motor) of the yacht. Once the percentage is determined, the standard VAT rate of 18 percent is applied to the lease portion. The minimum percentage of time that a yacht could be deemed to spend in EU waters is 30 percent for boats over 24 meters in length, resulting in a minimum effective VAT charge of 5.4 percent. Certain conditions must be satisfied for the Yacht Leasing Arrangement to apply.
The change in the place of supply rule
Until the end of 2012, the long-term leasing of yachts by suppliers established in Malta to non-taxable persons, such as private individuals, was invariably subject to Maltese VAT. The term ‘long-term’ refers to the continuous use and possession of the yacht for ninety days or more. With the new place of supply rule, the long-term leasing of a yacht to a non-taxable person falls within the scope of Maltese VAT law only if the yacht is actually taken over by the lessee in Malta and the supplier has a place of business or fixed establishment in Malta. Accordingly, it has become of utmost importance for a Maltese company wishing to avail itself of the Yacht Leasing Arrangement to have its place of business located in Malta and to grant physical control of the yacht to the lessee in Malta. Evidence should be maintained to substantiate the location where the yacht is made available to the customer. Failure to satisfy these conditions would shift the place of supply outside Malta if the customer is not established in Malta or does not have his permanent address or usual residence in Malta.