The Maltese Inland Revenue Department has, on the 28^th of February, 2019, issued new guidelines on the treatment of VAT in transactions relating to the long-term leasing of pleasure yachts.

As per the new guidelines, VAT is to be charged on the portion of the lease which is effectively enjoyed within EU territorial waters, and therefore a ratio of such needs to be established. The burden of proving the portion of use and enjoyment within EU territorial waters has now been completed based on the Lessor of the vessel; he is now made responsible to prove such by maintaining adequate records and supporting evidence to determine the location of the effective use of the yacht. Thus, for the Lessor to benefit from a reduced VAT rate, he must prove that the vessel has been enjoyed and used outside the territorial waters of the EU.

In order for the new guidelines to apply, the following conditions must be satisfied:

The Lessor must be established in Malta and must be registered for VAT in Malta;

• The Lessee must be a non-taxable purpose and therefore the use of the yacht cannot be for commercial purposes;
• The yacht needs to be made available to the lessee by the lessor at the time of commencement in Malta;
• The lessor and lessee must enter into a formal lease agreement which will need to be approved by the VAT department and approval must be issued from the VAT department before applying the Maltese VAT rates based on the effective use and enjoyment;
• The lessor must file an annual declaration in a format acceptable to the Commissioner for Revenue; and
• Quarterly VAT returns must be filed.