The Cyprus VAT Service has launched new guidelines on VAT
payments applicable under the Yacht Leasing Scheme. As a result,
effective VAT rates can be reduced to as little as 3.4% of the
initial value of a yacht - less than the equivalent in other
favoured jurisdictions, including Malta.
Under the Scheme, a Cypriot company can purchase a pleasure
yacht and enter into a lease-sale agreement for the yacht with a
third-party lessee – an individual or company
irrespective of their location. Since this is a service deemed to
be supplied in Cyprus, VAT is due on the lease at the normal rates
of VAT in Cyprus – currently 17% – but is
payable only on that portion of the lease which the yacht spends in
To avoid the difficulty of establishing the exact length of
stays in EU waters, the VAT Service has issued its own percentage
scales based upon "presumed" lengths of stay for
different types and lengths of yacht. Motor and sailing boats over
24-metres in length are deemed to spend only 20% of their time in
EU waters (compared to 30% under the Malta equivalent scheme) to
give an effective VAT rate of 3.4%, while motor boats below
8-metres and sailing boats below 10-metres are deemed to spend 60%,
giving an effective VAT rate of 10.2%.
The yacht, which can be registered anywhere within the EU, must
arrive in Cyprus within one month of the date of inception of the
lease agreement and the initial lease payment must amount to at
least 40% of the value of the yacht. Further lease payments are
payable on a monthly basis, and the lease period must under no
circumstances exceed the period of 48 months (36 months in
The lessee may purchase the yacht at the end of the lease
period, for a final consideration of not less than 5% of the
initial value of the yacht. The VAT authorities will then issue a
certificate to the lessee confirming full payment of the total VAT
liability. The lessor is expected to make a total profit from the
leasing agreement of at least 10% on the initial value of the
Prior approval from the VAT Commissioner is required for every
application of the Yacht Leasing Guidelines.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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A new legislation, according to which the Tax Department will have the authority to tap into bank accounts of taxpayers without a court order in order to obtain any unsettled taxes, is expected to be enacted soon.
Companies which are incorporated in Malta are deemed to be resident and domiciled in Malta and chargeable to tax on a world-wide basis, irrespective of where the income generating activitiy is carried out.
Third country nationals may take up residence in Malta in terms of the Global Residence Programme Rules (GRP) Rules.
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