Malta: Short Term Yacht Chartering Newsletter

Guidelines for the VAT treatment of short-term yacht chartering

The Ministry for Finance in conjunction with the Maltese VAT Department has recently issued guidelines on the VAT treatment of short-term yacht chartering.

These guidelines are particularly relevant following the CJEU's decision in Bacino wherein it was confirmed that charters of yachts to private customers are not VAT exempt.

The guidelines provide the possibility for Maltese VAT to be charged only on that portion of the short-term charter which is deemed to take place in EU territorial waters.

This development therefore extends to short-term yacht chartering the VAT treatment which has been applied to long-term charters for a number of years.

For VAT purposes, a 'short-term' yacht charter, being the charter of a yacht, whether with crew or not, for a period not exceeding 90 days, is deemed to take place in the country where the vessel is put at the disposal of the customer.

Accordingly, and in the light of the CJEU's ruling in Bacino (Case C 116/10), Maltese VAT at the standard rate of 18% should be applied where the yacht is put at the customer's disposal in Malta.

Nevertheless, the guidelines provide that, subject to certain conditions being satisfied, Maltese VAT should only be levied on that part of the charter that is deemed to take place in EU territorial waters. Such view is based on the 'use and enjoyment' principle enshrined in the EU VAT Directive (Council Directive 2006/112/EC).

How is the 'use and enjoyment' of the yacht within EU waters calculated?

Given the difficulty of physically tracking the precise movement of a yacht between EU and non-EU waters, the VAT Department has, as in the case of long-term charters of yachts, held that such determination is to be made by reference to the yacht's size and mode of propulsion as indicated in the following table:

Is this VAT treatment applicable automatically?

The Guidelines stipulate that the supplier of the yacht charter must request in writing authorisation from the Maltese VAT Department to apply the above described VAT treatment to a specific short-term charter. Furthermore, such request may only be made where the supplier of the yacht charter is registered for VAT purposes in Malta.

The said application must be accompanied by sufficient documentation to identify the yacht (such as yacht's hull number, port of registry and further documentation confirming the size and type of yacht).

The Director General (VAT) should, if satisfied that the above-mentioned conditions are met, inform the applicant in writing regarding the applicable portion of the charter fee which should be subject to Maltese VAT.

Is the supplier of the yacht charter entitled to claim back input VAT?

Operations qualifying for the 'use and enjoyment' rule are subject to the normal input tax deduction rules. However, the guidelines specify that the supplier of the yacht charter is only entitled to claim input VAT incurred on the fuelling and provisioning of the yacht provided that these goods are invoiced/ sold separately to the client. The supply of these goods to the charter client fall outside the scope of the 'use and enjoyment' rule and would have to be charged at the full standard rate of VAT (i.e. 18%).

Furthermore, the guidelines clarify that the supplier of the yacht charter is also entitled to claim input VAT incurred on fuel purchased for the outward journey of the yacht to its next port of destination after the completion of the charter.

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.