Ship Registration

Any vessel can be registered under the Maltese flag and need not be owned by a Maltese registered company or by a person habitually resident in Malta.

Advantages include:

• low company formation and ship registration costs in Malta
• complete Malta tax exemption to owners, charterers and financiers of Maltese ships of over 1,000 net tons; this exemption may also be extended to smaller ships
• no restrictions on the nationality of the master, officers and crew
• no restrictions on the sale or transfer of shares of a company with ship registration in Malta
• no restrictions on the sale and mortgaging of ships registered in Malta
• no trading restrictions and preferential treatment to Maltese ships in certain ports twenty four hour, seven days a week service in respect of urgent matters
• Malta is an international maritime centre providing the whole range of maritime services
• The operation of commercially registered yachts for chartering purposes using a company in Malta is very tax advantageous
• There is no VAT on chartering contracts and VAT paid on purchases by the Maltese company can be reclaimed

VAT ON PLEASURE YACHTS

Since November 2005 Malta has enjoyed a beneficial position in relation to the payment of VAT on pleasure yachts. The regulations which were published in November 2005 cover the treatment for the purposes of VAT of yachts which are “lease purchased” to third parties by Companies registered in Malta. The aim of the scheme is that of assisting yacht owners to pay VAT on their yachts at an attractive rate so as to place them within free circulation within the EU

A “lease/purchase” of a pleasure craft for the purpose of VAT treatment on Malta, is an agreement whereby the owner of a pleasure craft, being a Company registered in Malta, leases it to a third party (who can be the beneficial owner of the Company) with an option in favour of the third party (as lessee) to purchase the vessel at a reduced price at the end of the lease.

With careful planning, these guidelines mean that the lessee of the yacht can now become the owner of an EU VAT-paid yacht by paying as little as 6.5% VAT on the original value of the yacht.

The Maltese VAT Department has determined that when a Maltese company buys a pleasure yacht and lease/purchases it to a third party, then VAT is due on the lease at the normal rates of VAT payable in Malta (currently 18%) since this is a supply of a service deemed to be supplied in Malta. VAT is, however, only payable on that portion of the lease during which the yacht is in EU waters.

The raison d'etre of this scheme is not to lower the applicable 18% without any reason, but rather because it is anticipated that yachts of a certain length spend only a part of their time in EU waters and a far greater time outside EU waters
Since it is very difficult to establish this with precision, the Department has issued its own "presumed" length of stay during which the yacht is presumed to have been in EU waters and thus the Department will charge VAT according to the following table:

Taking the first type of craft as an example, a sailing yacht over 24 metres in length will therefore be presumed to have sailed in EU waters for 30% of the time during which it was lease/purchased and therefore the VAT payable on the lease is the normal rate of VAT (18%) but only for 30% of the duration of the lease, ie. 5.4% VAT on the value of the lease-purchase.

Conditions

In order for such a transaction to benefit from this reduced liability to VAT certain conditions have to be satisfied:

• The vessel must come to Malta, possibly at the beginning of the lease agreement or alternatively at the time when the purchase-option is exercised. This condition cannot be waived.
• The lease/purchase agreement must be between a Maltese company which owns the vessel and any Maltese or foreign person or company.
• Prior approval must be sought in writing from the Commissioner of VAT who will confirm the rate applicable according to the use in EU territorial waters (depending on the size and whether it is a sailboat or a motor boat) as well as the acceptability of the value of the craft as declared. For this purpose a valuation certificate of the craft must be submitted with the application for approval.
• An initial contribution shall be paid by the lessee to the lessor amounting to 50% of the value of the craft.
• The lease instalments must be payable every month and the lease agreement must not exceed 36 months
• The lessor will be expected to make a profit from the leasing agreement over and above the value of the boat
• Any purchase value at the end of the lease agreement must not be less than 1% of the original value of the craft, and this will be subject to the standard rate of VAT at 18%
• The Maltese Company as lessor must make a profit of at lease 10% from the transaction.

These financial transactions are however book entries and no real transfers of cash need take place.
Provided that the relevant conditions are fulfilled and provided that the requirements of these transactions are strictly adhered to, the Department of VAT will issue a certificate to the owner that VAT has been fully paid in Malta on the boat once all the taxes and VAT have been paid.

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