The maritime sector remains one of Malta’s ever growing industries, with Transport Malta recently announcing a registered growth of 13.6% throughout the year 2013. It has in effect registered a growth of 18.1% over the previous year 2012 in the registration of superyachts over 24 metres in length. This confirms Malta’s Maritime Flag as the European leader in the maritime sector, as the largest merchant flag in the European Union and the 7th biggest in the whole world.
Malta’s growth in the maritime sector emanates from a variety of key factors. The registration of a ship, yacht or superyacht in Malta does not only come with a list of benefits and advantages, but has also proved to be an expeditious matter. Besides reliability, minimum bureaucracy and value for money, benefits and incentives are offered to owners of both commercial and pleasure yachts flying the Maltese flag.
Amongst other benefits that commercial yacht owners may avail themselves of, the Minister for Finance established Guidelines with respect to the Value Added Tax (VAT) Treatment of Short-Term Yacht Chartering. These guidelines were introduced as a direct response to a ruling handed down by the European Court of Justice in 2010, known as the Bacino Case1. Through this ruling, it was clarified that in the event that a vessel is leased to natural persons to use it strictly for leisure purposes (and therefore not for their own financial gain, outside the sphere of economic activity), the hire service does not meet the conditions for VAT exemption set out in Article 15(5) of the Sixth Directive2. Article 15(5) requires that the short-term chartering of vessels is made for the purpose of navigation on the high seas and the carrying of passengers for reward or for the purpose of commercial, industrial or fishing activities. In order that the hiring of such vessels becomes capable of the exemption under this provision, the lessee of the vessel concerned must use it for an economic activity.
In order to encourage commercial activities, the said Guidelines address situations in which a short-term chartering agreement is entered into between the owner of the yacht and a natural person, for the chartering of a yacht exclusively for leisure purposes and against a reward.
Short-term chartering activities (for a term up to 90 days) are considered as a supply of services that is subject to VAT at the standard rate applicable in the place where the yacht is put at the disposal of the Customer. In Malta’s case, the charter would be subject to VAT at the standard rate of 18%. With the introduction of the Guidelines, a reduced VAT rate shall apply according to the portion of the use and enjoyment of the yacht within the territorial waters of the European Union. Since in practice it is difficult to determine the actual amount of time spent by the yacht within or outside EU territorial waters, the VAT rate applicable shall be based on the length of the yacht and the method of propulsion. By way of example, in the case of a sailing or motor boat of 24m or over considered to be used in the EU only 30% of the time, the VAT applicable on the lease shall be 30% of the consideration multiplied by the applicable VAT rate of 18%, amounting to 5.4%.
The Guidelines include a number of terms and conditions subject to which the VAT treatment of short term yacht chartering shall apply, such as that the supplier of the yacht charter shall be a person registered for VAT in Malta, and that the charter agreement shall indicate certain details such as the place where the charter commences and the charter price. Together with the application seeking authorisation from the Maltese VAT Department to apply for the VAT Treatment in question, the supplier of the charter is required to submit sufficient documentation that identifies the yacht.
The supplier of the yacht charter is entitled to claim input VAT incurred on the fuelling and provisioning of the yacht, provided that these goods are invoiced separately from the lease to the person chartering the yacht.
This move by the Maltese Government has certainly created a more attractive environment for the short-term chartering of yachts and superyachts, contributing further to the success enjoyed by the Malta Maritime Flag and the Maltese maritime sector in general.
By Dr. Daniela Cassar
- Etat du Grand-Duche de Luxembourg, Administration de l’enregistrement et des demains v. Pierre Feltgen, Bacino Charter Company SA (C-116/10)” 22nd December 2010.
- Sixth Council Directive 77/338/EEC, overridden by Article 148 of Council Directive 2006/112/EC.