Malta Tax Update – VAT incentives for Short-term Yacht Chartering

The Malta VAT department has issued Guidelines regarding the short-term chartering of yachts by persons registered for VAT in Malta.  The Guidelines take into account the rules in the European Union’s VAT Directives for the determination of the place of supply of services where the effective use and enjoyment thereof is partially outside the EU.

In terms of the Maltese VAT Act and the EU VAT Directives, a short term charter of a pleasure yacht is one whose duration is not more than 90 days. For such short term charters, the place of supply for VAT purposes is the place where the yacht is put at the disposal of the customer, namely where the customer takes physical possession of the yacht. The Guidelines apply to short term charters where the yacht is put at the disposal of the customer in Malta.

As it is assumed that chartered yachts of a certain size would be used and enjoyed both within and outside the territorial waters of the EU, the Guidelines provide guidance as to the deemed percentage use of the chartered yacht within the EU. The longer the yacht, the more it will be deemed to be used and enjoyed outside the EU, and thereby falling outside the scope of Maltese VAT.

Accordingly, Malta VAT at the rate of 18% is only payable on that portion of the charter which is deemed to be for the use and enjoyment of the yacht within EU territorial waters. Any yacht whose length exceeds 24 metres will derive the highest benefits since only 30% of the charter fees will be subject to Maltese VAT.

Deemed use within EU waters

The short-term chartering of yachts for pleasure purposes is a taxable supply of services subject to Maltese VAT at the standard rate of 18%. However, the Guidelines have established the following deemed percentages of use and enjoyment of such yachts within the EU depending on the type and size of the yachts:

Main features of a short term charter

The main features of a Malta short term charter of a yacht which benefits from the Guidelines are the following:

• The supplier of the yacht charter must be a person who is registered for VAT in Malta;
• The yacht charter contract must indicate Malta as the place where commencement of the charter occurs together with an indication that the yacht will be sailing outside the EU;
• An application must be submitted to the Director General (VAT) for approval of the proposed charter and a determination of the applicable deemed percentage of the charter fees on which Maltese VAT is chargeable;
• The supplier of the charter must produce sufficient information to the Malta VAT department with respect to the identification, type and size of the yacht;
• Evidence of payment of charter fees, even if a prepayment, must also be provided to the Malta VAT department at the time of application;
• After granting its approval, the Malta VAT department may perform checks or request information to verify that the yacht was actually used outside EU territorial waters, and such checks / requests may also be made after the charter has been completed.

For further information, kindly contact Dr Stephen Attard or Ms Christine Cassar Naudi.