Maltese Leasing Update

Posted On: 04 Mar 2019

Malta is the largest maritime registry in Europe and the 6th largest in the world. It is also one of the largest registries in Europe for pleasure and commercial yachts. Malta’s success can be largely attributed to two principle factors – it’s reputable flag state, and secondly, the attractive fiscal planning around VAT and leasing.

However, in early 2018, The European Commission (EC) announced that it had opened infringement procedures against Cyprus, Greece and Malta in relation to the VAT treatment of yacht leasing operations. This formed part of the general drive by the Juncker Commission, led by Pierre Moscovici, to investigate tax disparities within the European Union and the mechanism for levying VAT on yachts in these jurisdictions.

The EU commissioners raised questions regarding whether or not Maltese Leasing met the tests set out in the European Court of Justice ruling (Mercedes case) in determining if Maltese Leasing is a ‘supply of goods’ or a ‘supply of services’. Only a supply of services can benefit from the use and enjoyment relief which generates the effective VAT rates of 5.4%, 7% or 9% applied to Maltese Leasing.

The outcome of the test determined that it was deemed to be a ‘lease purchase’.  This decision was based on the assumption that the lessee is expected to acquire the yacht at the end of the lease period.  As a result of this, the Maltese authorities have taken action and are not accepting further applications for Maltese Leasing in its current form. In addition, they are also undertaking plans to look at implementing a revised lease.  This new lease would be in the form of a ‘supply of services’ and would enable the use and enjoyment relief and associated reduced VAT rates to be applied. Under these ‘supply of services’ rules any benefits will be realised during the lease period and not at the end of the term.

So what happens next?

As we go to print on our newsletter, Malta has just published its new leasing guidelines.  Like the rest of the yachting industry, we will need some time to properly digest and interpret what the full scope of these changes mean for potential yacht owners.  But from initial industry reaction, it would appear that the new guidelines reflect recent EU developments and best market practices, whilst still offering an attractive proposition for yacht owners.  We will of course provide further details on the changes in due course.