26 April 2024

Special 12% VAT Rate For Yacht Charters Commencing In Malta

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The most notable local development from a VAT /tax perspective in the realm of superyachts is undoubtedly the introduction of a special 12% VAT rate on charters commencing in Malta.
Malta Tax
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The most notable local development from a VAT /tax perspective in the realm of superyachts is undoubtedly the introduction of a special 12% VAT rate on charters commencing in Malta. This was introduced by the Malta tax authorities by virtue of Legal Notice 231 of 2023 titled the Value Added Tax Act (Amendment of Eight Schedule) Regulations, 2023 with effect from 1st January of this year. Subject to a number of conditions, charters will be able to benefit from a special 12% rate which is therefore lower than the standard 18% Malta VAT rate.

The Malta tax department also published guidelines to accompany the Legal Notice to better assist the industry in the application and interpretation of these Regulations.

These were also followed by the recent publication of a Port Notice by Transport Malta, which clarifies that visiting yachts calling at Malta for the purpose of commencing a charter operation and/or for berthing/mooring purposes and/or to receive a service but whose normal course of operations and navigation is outside Maltese territorial waters, are exempt from complying with the provisions of the Commercial Vessels Regulations. However, such yachts must provide a copy of the registration document indicating the commercial status of the yacht and if applicable a valid licence or permit to operate commercially as may be required by their flag state.

Conditions for the application of the special VAT rate:

  1. The main conditions for a yacht charter to qualify for the reduced 12% VAT rate are as follows:
  2. The place of hiring e. the place where the yacht is put at the disposal of the charterer, must be in Malta.
  3. The charter must be conducted in accordance with a charterparty agreement concluded for a specified term.

The total charter period with respect to a particular yacht or yachts of the same kind does not exceed 5 weeks (35 days) during the previous twelve (12) months ending on the date of the beginning of the existing charter period.

The Guidelines also clarify that where a taxable person provides mixed supplies, consisting of goods and services which are subject to different VAT treatment, such supplies may constitute a single composite supply for VAT purposes. In that case, the applicable VAT treatment for such a single composite supply is the same VAT treatment applicable to the principal component of that supply. In this case therefore the principal component would be the charter which, subject to the above conditions, may be subject to the 12% special VAT rate. In light of this, the Guidelines clarify that supplies which may benefit from the 12% VAT rate are those supplies which are typically made available during the course of a charter. Supplies which are provided upon specific request of the charterer, or goods which are not of a consumable nature, or goods which are not available upon placing the yacht at the disposal of the charterer would not deemed to form part of a single composite supply and cannot benefit from the 12% VAT 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.

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