Yachts and Malta – Tax, VAT and all that goes with it
The past few years have seen numerous published articles talk about Malta being the number one EU destination for maritime excellence. Many of these articles concentrate on the niche area of what makes Malta advantageous for commercial and pleasure yachting, so in this article I thought it would be both interesting and useful to pull together some of the key details into one place to allow readers to get an overall feel of what Malta (as a maritime jurisdiction) is all about – particularly from a tax perspective.
VAT Inspections
As tax authorities around the globe seek new ways to strengthen their controls over business transactions within their jurisdictions, VAT is becoming a wider issue every day with more and more governments being forced to oppose the shadow economy in order to receive the money they are owed based on existing legislation. Needless to say the yachting industry has seen its own fair share of controversy and knee jerk reactions in this regard.
There also still remains some individuals, inexperienced in the ownership and operation of a yacht, who are of the opinion that if a yacht is owned through a VAT registered company, they can recover any and all VAT incurred on the cost of purchasing and running of the yacht by merely chartering it out a few times a year to friends or family members.
The reality is that tax authorities have now tightened up on rules and inspections so that only bona-fide charter businesses can actually make this work. It is becoming the norm for customs authorities in many of the Mediterranean ports to carry out unannounced inspections to review log book entries, look in detail at charter contracts, request proof of prior payment of charter fees and review importation documentation (DAU) for offshore registered yachts; all with the intention of proving whether or not a charter is genuine.
Importation
The importation of a yacht, intended for commercial use, into Malta is subject to the standard rate of 18% VAT. However, there is a VAT deferment scheme available which replaces the need to physically pay over the 18% VAT to the tax authorities. A bank guarantee is required in this case and the guarantee must be the equivalent of 20% of the VAT amount which is due on the importation of the yacht. The bank guarantee has to remain in place for 4 months, after which time it is expected that business activities would have started and a VAT return would have been submitted.
Flag Registry
The Maltese flag is not only a flag of confidence but a flag of choice. Its good standing is not only evidenced by the many leading ship owning and ship management companies who register their vessels here, but also by international banks and financiers who continue to recommend ship registration with the Maltese register. Malta is in fact now home to the largest ship register in the EU and the 6th largest in the world, and continues to provide a convenient, cost effective and secure choice for yacht owners.
Commercial yachts owned by Maltese or EU citizens or by corporate bodies established in Malta can be registered under the Maltese flag. Non-EU owners can also register a commercial yacht under the Malta flag provided a resident agent (such as Abacus) is appointed.
The administration of the Maltese flag is carried out by Transport Malta, is driven by safety considerations and is fully compliant with international standards and obligations. The flag registration process itself is also highly efficient and allows yachts to provisionally register under the Maltese flag for 6 months, after which time all registration requirements must be fulfilled.
Tonnage Tax
Yachts registered on the commercial register that do not carry cargo and carry no more than 12 passengers may be eligible to benefit from the ‘tonnage tax scheme’. This tax package enables commercial yacht owners to pay a fixed annual tonnage tax in lieu of paying any income tax, depending on the tonnage of the yacht. Yachts in commercial use and in the classes listed below will qualify for the special tonnage tax scheme:
- Yachts of no less than 15m and no more than 24m in length;
- Superyachts of more than 24m and less than 500 gross tonnage (‘GT’);
- Superyachts of more than 24m in length, of more than 500GT but less than 3,000GT.
Yachts under finance
The registration of commercial yachts under the Maltese Flag is also attractive to financiers. Malta boasts of a reliable legislative framew
framework that provides a high degree of protection to financiers, thus assuring peace of mind while facilitating financing opportunities to owners. It is also worth noting that Maltese law permits the insertion of covenants on the mortgage instrument, to limit or prohibit the transfer of the vessel and/or the registration of further mortgages of the yacht without the prior written consent of the financier. Mortgages also provide financiers with self-help remedies such as the right to take possession of the yacht and the right to sell the vessel without taking recourse to complex court procedures. In fact, enforcement procedures contemplated in Maltese law are non-bureaucratic, effective and efficient.
Stamp duty
There is an exemption from stamp duty on the registration of a tonnage tax ship under the Merchant Shipping Act. This means that no stamp duty would be chargeable on the sale or transfer of a tonnage tax ship or a shareholding.
Income tax
In the case that a company does not qualify as a shipping organisation (as described above), the company may claim a 6/7ths refund of the income tax paid in Malta. Malta does not level any withholding tax on the distribution of a dividend. This results in a net effective income tax rate of 5%.
Social Security Contributions
Where a licensed shipping organisation employs persons who are not resident in Malta and who are officers or employees on board a yacht, the organisation in respect of such officers and employees are exempt from any social security contributions payable under the Social Security Act.
Charter activities starting in Malta
Malta continues to emerge as an international centre of excellence for chartering operations backed by a high standard of yachting services and talented pool of professionals. It has a unique geographical position and connectivity to major airports renders Malta an attractive hub for chartering operations.
To sustain the growth of the chartering industry the Malta VAT authorities have implemented a special regime which allows chartering activities to be charged with a reduced rate of VAT. This is subject to certain conditions which include the charter must commence in Malta and the charter period cannot exceed 90 days. VAT on charter
fees may then be calculated on the basis of the length and means of propulsion of the yacht at the following rates:
Motor Yachts
Length % of lease subject to VAT Effective rate of VAT
Over 24 metres in length 30% 5.4%
Between 16.01 and 24 metres 40% 7.2%
Between 12.01 and 16 metres 50% 9%
Sailing Yachts
Length % of lease subject to VAT Effective rate of VAT
Over 24 metres in length 30% 5.4%
Between 20.01 and 24 metres 40% 7.2%
Between 10.01 and 20 metres 50% 9%
Written by Samantha Snow, client services manager at, Abacus Corporate Services Limited.
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