The closing of infringement proceedings against Malta on the 30th October 2020 by the European Commission with respect to the VAT Treatment of leasing of yachts sealed the welcome conclusion of many months of negotiations and discussions between the Maltese authorities and the Commission. The widely applied previous Guidelines relating to Yacht Leasing were withdrawn by the Maltese authorities during the course of such discussions and were earlier this year replaced by revised Guidelines on the place of supply of the hiring of pleasure yachts.
These Guidelines represent a new landscape in the interpretation to be given to the principle of use and enjoyment as enshrined in the VAT Directive when applied to the use and enjoyment of yachts. Whereas for many years a considerable number of Member States including Italy, France and Malta applied this principle with reference to the presumed use of yachts within and outside EU waters based on their length, this year sees a cohesive shift by Member States towards the measurement of actual time that yachts spend within and outside EU waters in so far as the calculation of VAT due on leasing arrangements is concerned.
While the general principle is that full taxation in Malta is applicable where the place of supply of the service is determined to be Malta, the Guidelines provide for a method of adjustment based on the actual effective use and enjoyment of a pleasure yacht within and outside EU waters. The revised Guidelines establish that this is to be calculated by reference to the period of time when the pleasure yacht is used and enjoyed outside and within EU territorial waters.
For the purpose of this calculation, the Lessee is to provide the Lessor with documentary and/or technological date (including logs retained by the master of the pleasure boat as well as any GPS/AIS data) as the Lessor can reasonably obtain from the Lessee to determine the actual effective use and enjoyment by the Lessee of the pleasure yacht within and outside EU territorial waters during the lease period.
Malta has always been at the forefront of offering solid, reliable solutions to yacht owners depending on their individual requirements and the intended use of their yacht. The recent announcements by France and Italy of the withdrawal of their respective fixed rate VAT deductions and the measurement of actual time spent by yachts outside the EU follows the publication by Malta of the revised Guidelines earlier this year. This development undoubtedly signifies welcome certainty for owners and a homogeneous approach in the application of these rules by the Member States concerned.
We may therefore look ahead with optimism to a 2021 season whereby clients may avail themselves of a number of legal tools to be applied to the use of their yachts in accordance with best practices and in compliance with EU interpretations and ECJ judgements.
Originally Published by Fenech & Fenech, December 2020
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