EU Yacht Registration Scheme Comparison – Cyprus & Malta

Applicable Rate of VAT – Sailing Boats

In March 2012, the Cyprus VAT Authorities issued specific VAT Guidelines for a Yacht Leasing Scheme. The Scheme, which bears more than a resemblance to a similar yacht leasing scheme introduced by Malta in 2007, does however, present some innovative changes, and represents a viable and highly interesting alternative to its Maltese counterpart.

Similarly to Malta, VAT is paid only on the proportion of the lease during which the craft is in EU waters, with the underlying rationale that the bigger the craft, the less time it shall be confined to local territorial waters. Although Cyprus has a standard VAT rate of 17% (marginally better than Malta’s standard VAT rate of 18%), it does apply a significantly lower percentage to the applicable rate of VAT, meaning that there is a very important VAT saving to be made on vessels of an identical length (or less).

The applicable rate of VAT in Cyprus and Malta may be concisely summarised as follows:

Type of yacht (Sailing) % of lease subject to VAT Effective rate of VAT (Cyprus) Effective rate of VAT (Malta)
Over 24 metres in length – online calculator * 20% Cyprus 30% Malta 20% of consideration x 17% = 3.4% 30% of consideration x 18% = 5.4%
From 20.01 to 24 metres in length – online calculator * 30% Cyprus 40% Malta 30% of consideration x 17% = 5.1% 40% of consideration x 18% = 7.2%
From 10.01 to 20 metres in length – online calculator * 50% Cyprus 50% Malta 50% of consideration x 17% = 8.5% 50% of consideration x 18% = 9%
Up to 10 metres in length – online calculator * 60% Cyprus 60% Malta 60% of consideration x 17% = 10.2% 60% of consideration x 18% = 10.8%
Protected waters only – online calculator * 100% Cyprus 100% Malta 100% of consideration x 17% = 17% 100% of consideration x 18% = 18%

*Note: Please allow a few seconds for the online calculator to load Applicable rate of VAT – Motor Boats

Similarly to sailing boats, the same principle applies to crafts which have motorised means of propulsion – i.e VAT is paid only on the portion of the lease during which the craft is in EU waters. Cyprus and Malta differ not only with regard to the applicable rate of VAT, but more significantly have different length thresholds, with the Cyprus regime, particularly favourable to smaller craft.

A succinct summary outlining the different VAT rates and lengths may be summarised in the following table:

Type of yacht (Motor) % of lease subject to VAT Effective rate of VAT (Cyprus) Effective rate of VAT (Malta)
Over 24 metres in length – online calculator * 20% Cyprus 30% Malta 20% of consideration x 17% = 3.4% 30% of consideration x 18% = 5.4%
From 16.01 to 24 metres in length – online calculator * 40% Malta N/A (see below) 40% of consideration x 18% = 7.2%
From 14.01 to 24 metres in length – online calculator * 30% Cyprus 30% of consideration x 17% = 5.1% N/A (see above)
From 12.01 to 16 metres in length – online calculator * 50% Malta N/A (see above) 50% of consideration x 18% = 9%
From 8.01 to 14 metres in length – online calculator * 50% Cyprus 50% of consideration x 17% = 7.5% N/A (see above)
From 7.51 to 12 metres in length – online calculator * 60% Malta N/A (see above) 60% of consideration x 18% = 10.8%
Up to 8 metres in length – online calculator * 60% Cyprus 60% of consideration x 17% = 10.2% N/A (see above)
Up to 7.5m metres in length – online calculator * 90% Malta N/A (see above) 90% of consideration x 18% = 16.2%
Protected waters only – online calculator * 100% Cyprus 100% Malta 100% of consideration x 17% = 17% 100% of consideration x 18% = 18%

*Note: Please allow a few seconds for the online calculator to load Conditions of Financial Leasing Agreement

The two jurisdictions also have marked changes in the maximum lease period and the initial deposit to be paid by the lessee. Cyprus has a s “softer” regime than Malta, allowing the lessee to pay just 40% of the value of the craft as opposed to 50% of the value if the same craft is acquired under the Maltese regime. Furthermore, the maximum duration of the lease agreement is possible over a lengthier period in Cyprus than in Malta (thereby allowing for better cashflow management).

The conditions of the financial lease agreement may be summarised as follows:

Description Malta Cyprus
Lessor Malta Company Cyprus Company
Lessee No nationality restrictions No nationality restrictions
Initial contribution to be paid by lessee (as percentage of vessel) 50% 40%
Periodical payments of lease installments Monthly Monthly
Maximum lease period 36 months 48 months
Minimum profit margin by lessor 1% 10%
Minimum rate of interest to accrue to lessor during currency of lease No set minimum 5%
Final installment of yacht payment (as percentage of original value of the yacht) 1% 5%
Applicable rate of VAT of final instalment of yacht payment 18% 17%

Registration Process

The scheme may be availed of, if the following procedure is adhered to:-

(i) Prior Approval from VAT Commissioner;
The applicant must apply to the local VAT Department, for a prior confirmation of the applicable rate of VAT. A summary of the craft details must be presented to the VAT commissioner to determine applicable VAT details.

(ii) Register Company;
Subject to the clearances re: statutory due diligence, the incorporation of a Maltese or Cypriot Company is a relatively straight-forward process, which is expedited in a few working days. Our firm always retains a quota of Cyprus shelf-companies for swift and effective deployment, rendering the registration process even faster.

Of critical importance, is the fact that the Company must as owner of the craft, have specific objects inserted in its Memorandum and Articles of Association, empowering it to operate, charter and manage yachts.

(iii) Company applies for VAT;
Immediately after incorporation, the Maltese or Cypriot Company must apply for registration of a VAT number with the relevant VAT Department. The process is typically swifter in Cyprus (four working days) as opposed to Malta (seven to ten working days).

(iv) Company enter into lease agreement;
Following the attainment of a Valid VAT number, the Maltese or Cypriot Company must enter into the lease agreement with the lessee.

(v) Submission of Lease agreement and supporting documentation to VAT Department;
The Company shall submit a copy of the lease agreement, together with the details of the yacht (certification, specification list, surveyor’s valuation, bill of sale if bought new etc;) to the local VAT Department and apply for the applicable rate of VAT. This step would merely formalize and crystallize the earlier decision taken in step (i) above.

(vi) VAT Department issues letter of approval
The local VAT Department shall, upon having attained all the supporting documentation set forth in paragraph (iv) above, issue a letter of approval, confirming the applicable rate of VAT.

Test case

Having set the benchmarks regarding the applicable checkpoints involved in the process, the following test-case illustrates the marked differences that exist between the two jurisdictions. For the purpose of his comparative test-case, the following scenario shall apply:-(i) The yacht is worth twenty million Euro (€ 20,000,000);

(ii) The yacht has a length of thirty-five (35) metres;

(iii) The duration of the lease agreement shall run for the maximum period allowed by law; and

(iv) The Company shall sell the craft to the lessee, at the end of the lease period for a profit (the minimum prescribed by law).

Description Malta Cyprus
Initial contribution to be paid by lessee (as percentage of vessel) EUR 10,000,000 EUR 8,000,000
VAT percentage of initial contribution 5.4% 3.4%
Amount of VAT due on initial contribution (i) EUR 540,000 EUR 272,000
Outstanding balance during currency of lease agreement EUR 10,000,000 EUR 12,000,000
Periodical payments of lease installments Monthly Monthly
Maximum lease period 36 48
Final installment of yacht payment (as percentage of original value of the yacht) 1% 5%
Amount on final installment (in money value) EUR 200,000 EUR 11,000,000
Balance to be paid on initial installment to penultimate installment EUR 9,800,000 EUR 5,500,000
Monetary value of monthly installment – from initial installment to penultimate installment EUR 280,000 EUR 234,042
VAT percentage of initial installment to penultimate installment 5.4% 3.4%
Amount of VAT due on initial contribution EUR 15,120 EUR 7,958
Total amount of VAT from initial installment to penultimate installment (ii) EUR 529,200 EUR 374,000
Amount on final installment (in money value) EUR 200,000 EUR 1,000,000
Applicable rate of VAT of final instalment of yacht payment 18% 17%
Amount of VAT due on final contribution (iii) EUR 36,000 EUR 170,000
Total Amount of VAT paid Sum total of (i), (ii) and (iii) EUR 1,105,200 EUR 816,000
Total VAT saving from standard rate EUR 2,494,800 EUR 2,584,000

VAT Paid Certificate
When the lessee exercises the option to acquire the craft at the end of the lease, and furnishes evidence thereof (i.e. invoice and the applicable bill of sale), the Maltese or Cypriot VAT Department shall issue a VAT paid certificate – i.e a formal attestation that all VAT due has been paid on the craft.

Income Tax Implications for lessor

The Lessor shall be subject to payment of income tax on the trading income (as well as any interest derived therefrom) arising from the yacht lease scheme. Malta allows a very substantial tax credit for income arising out of active trading income (leaving a tax leakage of just 5%) as illustrated in the table below. However, the applicable tax rate applies under the Cyprus scheme is even more beneficial – the use of non-resident companies allows Cyprus entities to be taxed at 0% (in lieu of the standard 10% rate applicable to Cyprus resident companies).

The applicable rate of Income Tax may be calculated as follows:

Description Malta Cyprus (non-resident company)
Minimum profit margin by lessor (as percentage of consideration) 1% 10%
Minimum profit margin by lessor (money value) EUR 200,000 EUR 2,000,000
Minimum rate of interest to accrue to lessor during currency of lease (as percentage of consideration) 0% 10%
Minimum rate of interest to accrue to lessor during currency of lease (money value) EUR 0 EUR 1,000,000
Corporate Tax Rate (Malta) 35% 0%
Tax credit (shareholder’s refund) 6/7ths of 35% N/A
Ultimate Tax leakage EUR 5,000 EUR 0

Previous Cyprus Yacht VAT Calculator

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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