New Maltese leasing contracts

Let’s take a look at how Maltese yacht leasing has changed

by Federico Santini*

IN PREVIOUS ISSUES WE COVERED THE MAJOR CHANGES ON HOW VAT is levied on Italian and French leasing contracts following new requirements established by the European Commission; this issue will focus on the new scheme for yacht leasing in Malta. The European Commission had actually started an infringement procedure on Maltese yacht leasing, as it previously applied flat-rate percentages on the reduction of the VAT tax base.

M/Y Vespucci, photo by Guillaume Plisson
M/Y Vespucci, photo by Guillaume Plisson

To accommodate this procedure and to maintain an instrument which in the last decade has attracted many yacht owners and contributed to make the Maltese Registry one of the most popular in the world, on 28th February 2019 the Maltese tax authorities issued new VAT guidelines. These guidelines have abolished the flat-rate percentage used in the tax base and introduced (for contracts signed on or after 1st November 2018) the principle that VAT applies to the actual use of the yacht in and outside EU territorial waters, as calculated by a special formula. This mechanism consists in the provisional application of full VAT on the amount due under the lease during the first tax period and, if the lease begins less than 30 days before that period ends, then also on the amount payable during the second tax period. According to the case, once the first or second period ends, the mechanism also provides for the calculation of a “Preliminary Ratio”, which is a percentage based on the information provided by the user as to the actual usage of the yacht in EU waters during the period in question.

Avvocato febbraio 2021

The Preliminary Ratio retrospectively assesses the percentage of the amount due under the lease that is liable for VAT in the first tax period. If the lease begins less than 30 days prior to the end of that first tax period, then it also includes the second tax period.

This information must be provided by the lessee and must be supported by technical or technological data so that the owner (the lessor) can determine how much the yacht has actually been used in and outside EU waters up to the end of the first tax period. The Preliminary Ratio will be used to retrospectively determine the percentage of the amount due under the lease to be charged with VAT during the first tax period and, if the lease has commenced less than 30 days prior to the end of the first tax period, also in the second tax period. Any difference between the full VAT provisionally charged and the amount of VAT that is actually due based on the Preliminary Ratio is considered a VAT credit that the owner can lay off against VAT due in the subsequent tax period. The Preliminary Ratio is the provisional parameter for the application of VAT on amounts due the following tax year. At the end of that, the Actual Ratio will be determined, based on documentation provided by the lessee on how much the yacht has been used. This ratio is the amount of VAT that is actually owed, and eventual differences (whether debits or credits) from the Preliminary Ratio will be adjusted by paying more or less VAT the following year.

The amounts to be paid each year of the lease are determined by the good’ value. This decreases every year because of depreciation, and the amounts are therefore reduced proportionately each year.

This is how to calculate the percentage of lease payments that are subject to VAT according to actual yacht usage. But it should be stressed that leasing in Malta has an additional advantage in terms of VAT reduction, in contrast to what happens in Italy and France, where leasing has a largely financial nature. The lease value, which corresponds to the value of the yacht and represents the VAT tax basis, decreases according to certain annual depreciation percentages. These vary according to the original purchase price of the yacht and are established by Malta’s “Subsidiary Legislation 517.03 (Taxable Value of Used Pleasure Boats) Regulations”. For example, for yachts whose original purchase price does not exceed 10 million euros, 20% depreciation is established for the first year, and 10% for the following three, then 20% in the fifth year, and lower percentages in subsequent years. As a consequence, the amounts due for each year of the lease are determined based by the value of the good, which decreases annually because of depreciation.

At the end of the lease period, the yacht can be purchased by the lessee at its residual value which corresponds to the original purchase price minus overall depreciation according to the percentages listed above. VAT on the residual value is charged at the full 18% VAT rate.

(New Maltese leasing contracts – Barchemagazine.com – February 2021)