Short-term Yacht Charters
On the 29th July 2013, the VAT Department introduced reduced rates of VAT applicable to short-term yacht charters commencing in Malta and taking place, in whole or in part, outside of EU waters. A short-term yacht charter is defined as a charter agreement for a period not exceeding 90 days, regardless of whether such charter is crewed or bareboat.
The short-term charter of a yacht commencing in Malta for leisure purposes would normally be taxed at the standard Malta VAT rate of 18%. According to these new VAT guidelines, the yacht is considered to be used partly in the EU territorial waters and consequently VAT at the rate of 18% is chargeable only in respect of the time that the yacht is deemed to remain within EU territorial waters during the charter period. The proportion of time spent within EU territorial waters is established according to the length of the yacht and its means of propulsion (power or sailing) as set out in the following table:
|Yacht type||% of charter deemed to take place in the EU||Computation of VAT|
|Sailing boats or motor boats over 24 metres in length||30%||30% of taxable value X 18%|
|Sailing boats between 20.01 to 24 metres in length||40%||40% of taxable value X 18%|
|Motor boats between 16.01 to 24 metres in length||40%||40% of taxable value X 18%|
|Sailing boats between 10.01 to 20 metres in length||50%||50% of taxable value X 18%|
|Motor boats between 12.01 to 16 metres in length||50%||50% of taxable value X 18%|
|All other boats||100%||100%Taxable value X 18%|
The main conditions which would need to be satisfied in order for the reduced VAT rates to apply to short-term yacht charters are the following:
- The owner/operator of the yacht charter must be registered for VAT in Malta.
- The yacht must be contractually placed at the disposal of the charterer for the commencement of the charter in Malta. The charter agreement must also include the charter price and a statement that the yacht shall sail outside EU waters. The VAT Department reserves the right to request proof of payment in connection with the charter.
- Application must be made to the Malta VAT Department for the approval of the proposed charter agreement and the reduced VAT rate. Upon submission of such application, the owner/operator of the charter is requires to produce sufficient documentation to identify the yacht (hull number, port of registry, registration number, length and propulsion).
- Provided that the conditions are met to the satisfaction of the Maltese VAT Director General, the applicant shall be informed in writing regarding the applicable portion of the charter fee which would be subject to VAT.
It is noteworthy that in yacht charter transactions, the owner/operator of the charter is entitled to claim input tax incurred on the fuelling and provision of the yacht, as long as (i) the fuel and/or provisions are sold to the customer of the charter under a separate contract or (ii) they are invoiced separately from the charter service at the standard rate of 18% VAT.
Moreover, the supplier of the charter would also be entitled to claim 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.