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17 September 2008
EU Directive 2008/8/EC of February 20 2008, amending EU Directive 2006/112/EC as regards the place of supply of services, introduced new rules on the place of supply of means of transport.
As a general principle, where services are supplied to non-taxable persons (including a person or entity not engaged in business activities), the place of supply of services (ie, the member state in which value added tax (VAT) would be payable) is the place where the supplier has established its business. The amending directive introduces an exception to this principle, which will come into effect on January 1 2013. The exception provides that the place of hiring (other than for short-term hiring) of a means of transport to a non-taxable person will be the place where the customer is established, has its permanent address or usually resides. ‘Short term hiring’ is defined as the continuous possession or use of a means of transport for a period of no more than 30 days and, in the case of vessels, for a period of no more than 90 days.
If this shift in the place of supply of services rules were extended to the hiring of pleasure yachts, it would effectively mean that although a company leasing out a pleasure yacht is a shipping organization established under Maltese law and based in Malta, VAT would be payable in any place where the customer is established.
However, following timely intervention by Malta during the negotiations and drafting of this amending directive, a provision has been introduced specifically targeting the place of hiring (other than for short-term hiring) of a pleasure boat to a non-taxable person. In this case the place of supply of the service is the place where the boat is placed at the customer’s disposal, provided that the supplier renders this service from its place of business or a fixed establishment situated in that same place.
Therefore, when 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 is Malta, as the vessel is placed at the lessee’s disposal in Malta.
For the purposes of VAT, the lease of a pleasure yacht by a Maltese shipping organization to a Maltese or foreign person or company is a supply of services which is taxable according to the percentage of time the yacht is used within EU territorial waters. Upon the lessee’s optional purchase of the yacht at the termination of the financial leasing arrangement, the VAT Department will issue a VAT-paid certificate, provided that all the authorities' prescribed requirements have been satisfactorily complied with.
The VAT treatment of pleasure yachts is dealt with on a case-by-case basis and is influenced by factors such as:
It is therefore essential that expert advice is obtained prior to tackling the payment of VAT on the purchase of a pleasure yacht, to ensure both the adoption of a tailor-made approach that is as cost-effective and efficient as possible, and conformity with all relative rules and regulations on the matter.
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