Following the introduction of Legal Notice 231 of 2023 ("Legal Notice"), the Commissioner for Tax and Customs (the "CfTC") has issued guidelines to further facilitate the application of the newly introduced 12% reduced VAT rate to the hiring of pleasure boats in Malta.

VAT which is chargeable on the hiring of pleasure boats in terms of the Fourth Schedule to the VAT Act on or after 1st January 2024, if satisfying necessary conditions, will now be charged at the reduced VAT rate of 12%.

The guidelines issued by the CfTC provide clarity as to what conditions must be satisfied for the application of the reduced rate. First and foremost, the place of supply of the hiring of such pleasure boat must be Malta, in terms of Part Two of the Third Schedule to the VAT Act. Furthermore, the reduced 12% VAT rate is to be applied for a period of 5 weeks, equivalent to 35 days. When calculating the 5-week period, it is essential to factor in any prior agreements that the taxable person may have entered into with the same customer for the hiring of the same pleasure boat or other pleasure boats of the same kind within the previous 12 months from the start of the date of the current hire. Should the agreement entered into by a taxable person for the purpose of hiring of a pleasure boat exceeds this 5-week within 12 months timeframe, the reduced rate shall only be applicable for the initial 5 weeks, and any duration beyond this shall be subject to the default 18% VAT rate.

The guidelines further provide that where a taxable person provides a package of supplies that encompasses various elements, each subject to different VAT treatment, the entire package may be subject to the reduced 12% VAT rate if the principal component is the hiring of the pleasure boat which satisfies the above-mentioned conditions. It is essential to clarify that not all items can be subject to the reduced VAT rate; rather, only supplies commonly offered during the course of hiring a pleasure boat may be eligible for the reduced rate.

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.