Council Directive 2008/8 EC of the 20th February 2008 amending Directive 2006/112/EC as regards the place of supply of services introduces new rules on the place of supply of means of transport.
The general principle remains that where services are supplied to non-taxable persons (which includes a person or entity not engaged in business activities), the place of supply of services i.e. the Member State in which Value Added Tax (VAT) would be payable, is the place where the supplier has established his business. This amending directive introduces an exception to this principle, which exception will come into effect as from the 1st January 2013, whereby 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. "Short term" hiring is defined as the continuous possession or use of the means of transport throughout a period of not more than thirty days and, in the case of vessels, not more than ninety days.
The shifting of the place of supply of services rules to the place of establishment of the customer, should it have been extended to the hiring of pleasure yachts, would effectively have meant that although the company leasing out a pleasure yacht would have been a shipping organisation established under Maltese law and based in Malta, the rule would have rendered VAT payable at any place in which the customer is established.
However following timely intervention by Malta at European Union level during the negotiations and drafting of this amending directive, a provision has been introduced targeting specifically the place of hiring of a pleasure boat to a non-taxable person other than short-term hiring. In this case the place of supply of the service is the place where the boat is actually placed at the disposal of the customer provided that this service is actually rendered by the supplier from his place of business or a fixed establishment situated in that same place.
Therefore in the case where a Maltese company grants a pleasure yacht on lease to a Maltese or foreign individual or corporate entity, the place of supply of this service would be Malta in so far as the vessel is actually placed at the disposal of the lessee in Malta.
For the purposes of VAT, the lease of a pleasure yacht by a Maltese shipping organisation to a Maltese or foreign person or company is a supply of services, which supply of services is taxable according to the percentage of time the yacht is used within European Union territorial waters. Upon the optional purchase of the lessee of the yacht at the termination of the financial leasing arrangement, a VAT paid certificate is issued by the VAT department provided all requirements prescribed by the authorities have been satisfactorily complied with.
It is to be noted that the VAT treatment of pleasure yachts is dealt with on a case by case basis and is influenced by factors such as the place of acquisition of the yacht, whether it is a new or second hand build, its tax history, its make, build and price. It is therefore essential that expert advice is obtained prior to tackling the payment of VAT on the purchase of a pleasure yacht both to ensure the adoption of a tailor made approach that is as cost effective and efficient as possible and also to ensure conformity with all relative rules and regulations on the matter.
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.
