Cyprus Yacht Leasing Scheme

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The Cypriot VAT Department has published guidelines on the VAT Treatment of yacht leasing schemes applicable to pleasure yachts, thereby allowing yacht owners to benefit from the most attractive VAT regime within the EU during the currency of the lease agreement, and, at the end of the leasing scheme when they exercise the option to acquire the craft, acquire an EU VAT paid certificate on the pleasure yacht.

Closely modeled around a similar VAT scheme in use in Malta, Cyprus – Lowest VAT 3.4% on Yacht Leasing Schemes, represents however, a marked improvement on the Maltese scheme. Not only does it allow for lower levels of VAT, as low as 3.80% compared to Malta’s 5.4%, but also softer lease repayments over a maximum of four (4) years in lieu of Malta’s three (3).

Furthermore, the benefits to the Cypriot yacht leasing scheme, may, through the use of Cyprus non-resident companies (which are afforded tax exempt status) – further reading below – be further extended to the lessor, thereby ensuring significant tax savings for both contractual parties to the yacht leasing agreement.

What is a Yacht Leasing Agreement?

In order to avail oneself of the advantageous VAT scheme, a financial leasing agreement must be entered into by a lessor and a lessee, whereby the lessee is granted the option to purchase the sea-craft at the end of the lease.

On pain of nullity, the lessor must be a Cyprus-registered entity (Cyprus Shipping Company) and the owner of the craft being made subject to the yacht leasing agreement. The craft may be brought either directly from the owner or if the craft is new, directly from the yacht-builder. Cyprus imposes no nationality restrictions on the lessee which may be a physical or legal person.

What is the Applicable Rate of VAT

The Cypriot yacht leasing scheme hinges on the assumption that pleasure yachts may sail freely outside territorial waters, and that the larger the craft, the less time, the less time the craft shall be confined to EU waters. By analogy, the same reasoning has been extended to yacht leasing.

The Cyprus VAT Department issued clear guidelines setting the deemed proportion that the craft shall be deemed to be in EU waters. For the purposes of the scheme, a distinction is made on the propulsion of the pleasure yachts – crafts divided broadly into sailing and motor-powered crafts.

For VAT purposes, the leasing of the yacht is considered as a supply of services with the right of deduction of input VAT by the lessor. This supply of services by the lessor, is taxable at the basic VAT rate of 19% but only to the extent that the leased yacht is used within the territorial waters of the European Union (EU). A specific condition which applies is that the lessor must be a company registered in Cyprus.

The lessee may be an individual or legal person, irrespective of residence / place of incorporation.

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Contact one of our officers to initiate the incorporation of a Cyprus registered company and start reaping the full benefits of an onshore, low-tax, EU jurisdiction. Simply fill in the contact box below or contact us by email on enquiries@fbscyprus.com

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