Explaining how the VAT Yacht Leasing Scheme Table Works
The VAT Yacht Leasing Scheme table makes a distinction between a sailing yacht, a motor yacht and their respective size. It is presumed that the bigger the yacht, the more time it will spend outside the EU territorial waters. The VAT department cannot request proof of the time spent in EU and outside of the EU as it is impossible to determine.
Looking at the first type of boat, a sailing boat or motor boat over 24 metres in length is presumed to sail 30% of its time during the lease, in EU territorial waters. As previously mentioned, the lease will be charged at the normal VAT rate of 18%, but in this case only on 30% of the lease. This will leave us with a 5.4% VAT rate on the total value of the lease.
Mr A incorporates a new company in Malta and the company (which would be the lessor) purchases a 26 metre motor boat from Italy. The consideration of the yacht is €1,500,000 excluding VAT. VAT would not be paid in Italy due to the VAT Yacht Leasing Scheme.
The newly set up company enters into an agreement with Mr A (who can also be the lessee) whereby he agrees, as requested by the Malta lease agreement to pay 50% of the consideration of the yacht, in this case €750,000 and monthly lease payments.
Since the yacht is larger than 24metres, then the VAT charged is Eur750,000 x 18% x 30% = Eur40,500.
The minimum lease period will be of 36 months and the company has to make at least 10% profit. Therefore the remaining €750,000 and the €150,000 (10% profit of €1,500,000) will be settled in equal monthly instalments over the duration of the lease agreement, thus this will result in monthly instalments of €25,000 excluding VAT.
The effective amount of VAT to be paid in this case would be, €25,000 x 18% x 30% = Eur1,350 on a monthly basis for 36months, totaling to Eur48,600.
At the end of the lease the lessee will have the option to pay a consideration equal to 1% of the original value of the yacht and become the rightful owner of the yacht. In this case the normal 18% Vat rate will be applied on the whole 1% (€1,500,000 x 1%= €15,000 x 18%= 2,700).
The total amount of VAT to be paid when using the Malta lease agreement is €91,800 which results at an effective rate of 6.12%.
Should the Malta lease agreement not been applied, the VAT to be paid would have been €270,000. This means than the yacht owner saved Eur178,200.