VAT Leasing

In 2019 the Ministry of Finance in Malta published the New Guidelines outlining the mechanisms to ensure that VAT is ultimately charged by the lessor to the lessee on the portion of the lease that reflects the actual effective use and enjoyment within EU waters. Pursuant to the New Guidelines the criterion of effective use and enjoyment is no longer calculated on the basis of the length and means of propulsion of the yacht. The legal basis of the New Guidelines is Article 59a of the European VAT Directive and Article 56 of the Malta VAT Act which regulate the place of supply of services to prevent double taxation, non-taxation or distortion of competition. Building also on the principles laid down by the CJEU , inter alia, in the Mercedes Benz Financial Services case, if the purchase of the yacht at the end of the lease period is not the only economically rational choice, the lease qualifies as a supply of a service.  

Item 8(2) of Part 2 of Schedule 3 of the Malta VAT Act provides that “the place of hiring, other than short-term hiring, of a means of transport to a non-taxable person shall be the place where the customer is established has his permanent address or usually resides. However, the place of hiring a pleasure boat to a non-taxable person, other than short-term hiring, shall be the place where the pleasure boat is actually put at the disposal of the customer, where this service is actually provided by the supplier from his place of business or a fixed establishment situated in that place.” The Commissioner may with regards to services the place of supply of which is governed by Item 8 referred to above, consider the place of supply of any or all of those services, if situated within Malta, as being situated outside the Community if the effective use and enjoyment of the services takes place outside the Community.  

The New Guidelines lay down the conditions for yacht leasing to be considered as a supply of service and treated as such. The conditions are the following;

  • The lease commences after 01st November 2018

  • Place of supply of the lease must be Malta

  • The yacht must be physically present in Malta at the commencement of the lease.

  • The lessor must be established in Malta and be VAT registered.

  • There must be a lease agreement to be submitted to the CFR

  • The lease requires the prior approval of the CFR

  • The lessor must maintain adequate and appropriate records to demonstrate effective use and enjoyment within/outside EU waters given that the use and enjoyment is now calculated by reference to distance covered.

  • The calculations must be properly effected by the lessor.


The New Guidelines also provide for a number of anti-abuse measures to ensure that the mechanisms enshrined in the guidelines are not applied incorrectly and VAT is properly accounted for by the lessor. Briefly, the anti-abuse measures are the following;

  • Approval letter issued at the discretion of the VAT Dept.

  • Annual Declaration to be filed with the VAT Dept. with lease details.

  • Standard rate of VAT applicable on fees for having access to the yacht.

  • Stationary but still enjoyed criterion which is also subject to the standard rate of VAT, that is, 18%.



For more information on the Malta VAT Leasing Rules please contact us.