Yacht Leasing Structure

In November 2005, the Maltese VAT Department introduced reduced rates of VAT in relation to leasing arrangements with respect to yachts, entered into between a Maltese yacht-owning company as lessor and any lessee, which could effectively reduce the applicable VAT rate on such transactions to as little as 5.4%.

The VAT treatment for the leasing agreement:

Whilst the monthly lease charges by the lessor to the lessee are subject to VAT at the standard Malta VAT rate of 18%, it is deemed that the yacht will be only be used partly within EU territorial waters and consequently VAT is chargeable only in respect of the portion that the yacht is deemed to be within EU territorial waters during the lease period. The VAT Guidelines indicate that this percentage will be determined according to the type of the craft as demonstrated in the following table:

Type/ Length

% of lease subject to VAT

Effective rate of VAT

Yachts over 24 metres 30% 5.40%
Sailing yachts between 20.01 and 24 metres 40% 7.20%
Motor yachts between 16.01 and 24 metres 40% 7.20%
Sailing yachts between 10.01 and 20 metres 50% 9%
Motor yachts between 12.01 and 16 metres 50% 9%
Sailing yachts up to 10 metres 60% 10.80%
Motor yachts between 7.51 to 12 metres in length (if registered in the commercial register) 60% 10.80%
Motor yachts up to 7.51 metres (if registered in the commercial register) 90% 16.20%

The salient features of the yacht leasing structure can be summarised as follows:

  • A Maltese company would be set up and this would become the new owner of the yacht. The company would also be registered with a VAT number in Malta;
  • The yacht may be registered under the Malta flag or any other EU flag;
  • The Maltese company (“Lessor”) would lease the yacht to another person, being another Maltese or foreign person or company – The Lessee;
  • A lease agreement would be entered into whereby the Lessor would contract the use of the yacht to the Lessee in return for a consideration;
  • The lease agreement entered into between the parties may not be for less than 12 months or exceed 36 months;
  • What would attract the payment of VAT is the lease of the craft as a supply of services. The supply of services is taxable according to the use of the yacht within the territorial waters of the European Union;
  • Since it is very difficult to trail the physical movement of a yacht to establish the period of time that it spends in EU waters and the time it spends outside such waters, the Guidelines provide that an acceptable measure would be the length of the yacht and is propulsion;
  • The yacht would be delivered by the Lessor to the Lessee in Malta and will therefore need to be present in Malta at the start of the lease;
  • An initial contribution is to be paid by the Lessee to the Lessor amounting to at least 30% of the value of the yacht at the beginning of the lease period;
  • The balance would be divided in monthly instalments. VAT would be charged at 18% on each monthly instalment on the basis of the established percentage as per the above schedule;
  • Should the Lessee opt to purchase the yacht at the expiration of the lease period, he may do so at a separate consideration. Any purchase value at the end of the lease agreement shall not be less than 1% of the original value of the yacht, and this will be subject to the standard rate of VAT at 18%;
  • At such stage and provided all VAT due has been paid, the VAT department would issue a VAT paid certificate indicating that VAT has been paid in full;
  • Prior to the commencement of the above process, approval on a case by case basis needs to be sought from the Director General for VAT in Malta.

For further information about how GVZH Advocates can help you with your yachting legal requirements, kindly contact us on transport@gvzh.com.mt.