The
Maltese VAT Department has just published a guideline about the taxation
of yachts which are lease-purchased to third parties by a Maltese
company.
For the purposes of these guidelines, a lease-purchase is seen as
a situation whereby a Maltese company purchases a yacht and leases it to
a third party with an option in favour of the third party to purchase
the boat at a reduced price at the end of the lease.
Until
the publication of this guideline, lease-purchasing was something of a
touch-and-go situation as regards the payment of VAT and the new guide
lines seek to regularize the payment of VAT on this type of operation
related to yachts.
A
consequence however of these new guidelines is that with careful
planning, the lessee of the yacht can now become the owner of an EU
VAT-paid yacht by paying as little as 6.18% VAT on the original value of
the yacht. However tax and costs on
the transactions will have an incidence on the final outlay raising the
total outlay by about 2%. Further details can be provided on
request.
The
VAT Department in Malta has established that when a Maltese company buys
a pleasure yacht and lease-purchases it to third parties, then VAT is
due on the lease at the normal rates of VAT in Malta, i.e. 18%,
since this is a supply of a service deemed to be supplied in
Malta. But the
Department has further established that VAT is payable only on that
portion of the lease during which the yacht is in EU waters.
However, since it is very difficult to establish this with
precision, the Department has issued its own “presumed” length of
stay during which the yacht is presumed to have been in EU waters and
thus the Department will charge VAT according to this table as follows:
|
Type
of yacht
|
%
of lease subject to VAT
|
Effective
rate of VAT
|
|
Yachts
over 24 metres in length
|
30%
|
5.4%
|
|
Sailing
yachts between 20.01 and 24 metres in length
|
40%
|
7.2%
|
|
Motor
yachts between 16.01 and 24 metres in length
|
40%
|
7.2%
|
|
Sailing
yachts between 10.01 and 20 metres in length
|
50%
|
9%
|
|
Motor
yachts between 12.01 and 16 metres in length
|
50%
|
9%
|
Taking
the first type of craft as an example, a sailing yacht over 24 metres in
length will now be presumed to have sailed in EU waters for 30% of the
time during which it was lease-purchased and therefore the VAT payable
on the lease is the normal rate of VAT (18%) but only for 30% of the
duration of the lease, i.e. 5.4% VAT on the value of the lease-purchase.
In
order to take advantage of this situation, it is required that the value
of the yacht is established prior to the transaction between the Maltese
company and the lessee. It is
further required that 50% of its value is paid by the lessee at the
outset to the financing company and that the lease shall not be for more
than 36 months; it is also required that the final purchase price shall
in no case be less than 1% of the boat’s original value and that the
Maltese company makes at least 10% profit out of the transaction.
These financial transactions are however book entries and no real
transfers of cash need take place.
Let
us take an example of a 25 metre yacht that is owned by Mr. X and has a
market value of Euro 1,000,000.
Mr. X will sell his boat to a Maltese company of which Mr. X will be
the undeclared beneficial owner. Alternatively,
if Mr. X is buying a yacht from a third party, the third party will sell
the yacht directly to the Malta company. The
Malta company will then lease-purchase the boat to Mr. X who will have an option
to purchase the boat at the end of the lease.
The
VAT and tax implications of the transaction shall be as follows:
a) Sale by Mr. X to
Malta company (or purchase by the Malta company from Mr. X’s supplier) for
1,000,000 (market value of the yacht). There
are no tax implications or VAT implications on this transaction both in
the case where Mr. X is selling the boat to the Malta company (private sale) and
even if the Malta company buys the boat from an EU or non-EU supplier.
The Malta company will at this stage register the boat under the Maltese
flag.
b) Lease-purchase
by Malta company to Mr X
(i) Mr X is to pay 50% of the value of the boat
on the date of the contract
(ii)
Mr. X is to pay not
more than 36 monthly instalments to the Malta company to make up for the balance of the value of the
boat (plus 10% profit
element for the
Malta company). In our example the balance is 500,000 and therefore
lessee will make
36 monthly
payments of
16,667 each as lease payments;
this will give a payment of 600,000
and in effect
means that the Malta
company makes a profit of 100,000 on the transaction.
c) Purchase
option by Mr X: Mr X is to pay 1% of the original value at the end of the lease
to the Malta company to become the full owner of the yacht and can transfer the
yacht to his name (if desired).
As
explained, all these transactions are in fact book entries and no
transfer of funds from Mr. X to the Malta company are required.
Tax
and VAT implications:
a)
on 50% of the value, VAT is paid at 18% but
only on 30% of the lease, therefore 500,000 x
18% x 30% = 27,000
b)
on the instalments, VAT is paid at 18% but only
on 30% of the lease, therefore 17,000 x 36
x 18% x 30% = 33,048
c)
on the redemption of the yacht, on the payment
of the 1% value (10,000) VAT is due
at 18% = 1,800
d)
on the profit element made by the Malta Company (11% of
the value (110,000) tax is due at 5% = 5,500
Therefore
the total tax and VAT due is a total of 67,348.
This
equates to 6.75% of the original price of the boat of 1,000,000 and in
effect means that the lessee would, at the end of the transaction, be
the owner of an EU VAT registered boat having paid 6.75% in total as VAT
and tax on the whole transaction. And the structure also has the
advantage that the tax and VAT is paid over a maximum three year period,
thus helping cash flow problems.
Provided
that certain conditions and certain aspects of the transactions are
strictly adhered to, the Department of VAT will issue a certificate to
the owner that VAT has been fully paid in Malta on the boat once the
lessee has paid all the tax and VAT due.
The
conditions are as follows:
a)
that the yacht is brought to Malta preferably at the time of the
finance-lease or alternatively at the time when the purchase-option is
exercised; the presence of the yacht in Malta at one of these times is a
condition imposed by the VAT Department and cannot be waived
b)
that the transaction is reported in advance to the VAT Dept with
all details
c)
the Malta Company makes a profit of at least 10% on the transaction
d)
the instalments are not more than 36 months (but can be less)
e)
the final redemption price is not less than 1% of the original
value.
There
are of course certain fees and expenses that will be incurred in the
valuation of the boat, in the registration of the boat under the Maltese
flag, in the registration of the Malta company and in the VAT procedures that need
to be followed.
Should
you be interested in making further enquiries, we would be delighted to
hear from you. Please note however that further details and
information is not provided on a free basis and therefore before
proceeding further, you will be asked to sign a retainer agreement with
our firm.
If
you would like to contact us please CLICK
HERE.
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