The VAT Department in Malta has recently issued new guidelines regarding the treatment of VAT on short-term yacht charters. A short-term charter, in accordance to the guidelines is considered to be an agreement whereby the owner of the yacht contracts the use of the yacht for a consideration, either with a crew or on a bare boat basis.
The short-term yacht charter, used for the purposes of leisure, is considered for VAT purposes to be a supply of a service which is taxable at a standard rate of VAT and the place of taxation is considered to be the place where the yacht would have been physically given to the consumer. The rate of taxation would however be limited in accordance to the use of the yacht within the territorial waters of the EU. Since it would be very difficult to determine the amount of time that the yacht would spend in the territorial waters of the EU and the amount of time that the yacht would spend outside the territorial waters of the EU, the VAT department in Malta has established estimated percentages of the amount of time a yacht is considered to spend in and out of EU territorial waters, where such percentages depend on the length of the yacht and its means of propulsion. Therefore, for instance a sailing yacht between twenty (20) to twenty four (24) metres in length is considered to spend only forty per cent (40%) of its charter within EU territorial waters, whilst a motor boat between twelve (12) to sixteen (16) metres in length is considered 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, in accordance with its presumed use within EU territorial waters.
The VAT department in Malta does however, impose a number of conditions to be followed 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 give an indication of the place of commencement of the charter, the charter price and a statement that the yacht shall said 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 and further conditions may be imposed by the same, including checks on the yacht that the latter has been used outside EU waters.
Input tax on fuelling and provision of the boat may be claimed by the supplier of the charter, provided that such goods would be sold to the clients of the charter under a separate contract or that 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. 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, once the charter has been completed.