The Malta VAT department issued Guidelines and an anti-avoidance Notice on 28 February, 2019 setting out the various conditions which are to apply where the lessor of a pleasure yacht wishes to utilise the provisions of the Third Schedule to the VAT Act by reference to the actual "effective use and enjoyment" of the yacht within and outside EU territorial waters. The Guidelines take into account the rules in the European Union's VAT Directive for the determination of the place of supply of services where the effective use and enjoyment thereof is partially outside the EU.
Maltese VAT at the rate of 18% is chargeable on the portion of the lease payments which are attributable to effective use and enjoyment of the yacht within EU territorial waters. The Guidelines outline in detail how lessors are expected to calculate preliminary, temporary, and actual ratios of effective use and enjoyment of the yacht within and outside EU territorial waters.
When can the Guidelines be utilised ?
These Guidelines are only applicable where :
- The lease commences after 1 November, 2018;
- The lessor is a Maltese entity registered for Malta VAT purposes;
- The lessee is a non-taxable person;
- The lease payments are payable in advance;
- The pleasure yacht is actually used and enjoyed in any annual period;
- Specific approval is granted by the Commissioner; and
- The calculations in terms of the Guidelines are properly effected by the lessor.
What should the Lessor obtain from the Lessee ?
The Guidelines require the Lessor to obtain from the lessee appropriate technological data and/or documents to show the actual effective use and enjoyment of the yacht by the lessee within and outside EU territorial waters.
The monthly rental amount should reflect a profit element for the lessor whilst also taking into account the appropriate annual depreciation of the yacht depending on its value at the commencement of the lease. GANADO Advocates can assist its clients with the relevant calculations depending on the specific values and other relevant factors for each yacht.
Adjustments of VAT based on Actual Use and Enjoyment
Throughout the lease period, VAT at the rate of 18% is chargeable on the portion of the rental amount which is attributable to effective use and enjoyment in EU territorial waters. The preliminary, temporary and actual ratios in terms of the Guidelines are to be calculated by the lessor based on the technological data and documents provided by the lessee showing the actual effective use and enjoyment of the yacht within and outside EU territorial waters. GANADO Advocates can provide its clients with detailed advice as to how these calculations are to be effected by lessors on an ongoing basis in specific scenarios.
It is expected that anti-avoidance measures will be adopted by the Maltese VAT authorities to ensure that there are no abuses of these rules, including the filing of annual declarations by lessors to provide easily accessible information to the VAT authorities.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.