The VAT Department in Malta has recently issued new guidelines regarding VAT treatment on short-term yacht charters. A short-term charter is considered an agreement whereby the yacht owner contracts the use of the yacht for consideration. This applies to yachts either with a crew or on a bareboat basis.
The short-term yacht charter is used for leisure and is considered a supply of a service taxable at a standard rate of VAT. The place of taxation where the yacht would have been physically given to the consumer. However, the rate of taxation would be limited in accordance with the use of the yacht within the territorial waters of the EU.
Estimated percentages for VAT
Since it would be very difficult to determine the amount of time that the yacht would spend in and outside the territorial waters of the EU, the VAT department in Malta has established estimated percentages. These percentages depend on the length of the yacht and its means of propulsion.
For instance, a sailing yacht between 20 to 24 metres in length is considered to spend only forty per cent (40%) of its charter within EU territorial waters. A motorboat between 12 to 16 metres in length is deemed to spend fifty per cent (50%) of its charter within EU territorial waters.
The standard rate of tax, which currently stands at eighteen per cent (18%), will then be applied on the established percentage of the charter, following its presumed use within EU territorial waters.
Conditions under short-term yacht chartering in Malta
The VAT Department in Malta does, however, impose several conditions in applying VAT on short-term yacht chartering in Malta:
- The term of the charter may be for a maximum of ninety (90) days
- The supplier of the yacht charter shall be a person registered for VAT in Malta
- The yacht charter agreement shall indicate the place of commencement of the charter, the charter price and a statement that the yacht shall sail outside EU waters. The VAT department may request proof of payments in connection with the charters
- The supplier of the yacht charter shall, on application, produce sufficient documentation to identify the technical specifications of the yacht, including the hull number, port of registry, registration number
- Once the documents mentioned in point 4 above have been submitted to the VAT department, the supplier shall be informed in writing regarding the applicable portion of the charter fee that would be subject to VAT
- Approval is to be sought in writing from the VAT department. Further conditions may be imposed, including checks on the yacht that the latter has been used outside EU waters.
The charter supplier may claim input tax on fuelling and provision of the boat if such goods would be sold to the clients of the charter under a separate contract. It also applies if the latter are invoiced separately to the charter service.
The supply of these goods to the charter client would be made at the full standard rate of VAT. Once the charter has been completed, the charter supplier would also be entitled to claim input VAT incurred on fuel for the yacht’s outward journey to its next port.