Current Affairs
EU issues warning to Malta about VAT on the leasing of yachts

In recent days the European Commission has once again warned the Maltese Government that if, within two months, it does not send a satisfactory response on the application of VAT on leasing yachts, it will move to the second stage of the formal investigation procedure on breaches of European Union rules. If a country does not comply, the Commission may bring the case before the European Court of Justice.

Professionals involved in this industry who are towing the same line as the government stressed the need for the European Commission to ensure that there is no discrimination between different Member States.

Malta is considered a world leader in the registration of yachts and a highly reputable jurisdiction for fiscal and legal services it offers boat-owners.

Dr Alison Vassallo who operates the Yacht section of the Chamber of Commerce explained that the industry pours a lot of money in many other sectors estimated at around € 100 million per year and this figure does not include the income from taxes and registration of yachts.

“Obviously when a yacht arrives in Malta, apart from the tax benefits offered by the jurisdiction there are a number of other industries that provide services to these yachts, including provisions, supplies, marinas, the ship-yard where they carry out repairs and maintenance …”

In the Maltese flag register there are more than 800 yacht often hired for sailing in European waters or beyond.

According to European Union rules, VAT must be paid on yacht rentals used in Member State waters. waters of the Member States. About 12 years ago, Malta started to apply tax using a mechanism which was very similar to other countries like France and Italy.

Two and a half years ago, the European Commission sought to clarify how Malta was applying VAT on the lease of these yachts. After a series of discussions between the Maltese authorities and the European Commission, almost a year ago Malta reviewed the system which was being applied and published guidelines on tax on yacht rental.

Notwithstanding, a few days ago the European Commission sent a warning to the Maltese Government because of possible infringements of European Union law on VAT. In a formal notice, the Commission argued that the way Malta was applying VAT was incorrect and that tax should be calculated on the length of time the yacht is leased. The Commission also requested other countries including Italy and France to revise their interpretation of the same rules. Dr Vassallo stressed the importance that the Commission ensures that these rules are the same for everyone.

“It has to ensure that there is a level playing field and this can only be done if there is no form of discrimination in the way the laws of different states members is applied”

Malta has two months to advise the European Commission with a satisfactory response of how it will review the application of VAT on the leasing of yachts. If the Commission is not satisfied with the response, it can send a so-called reasoned opinion, which is a formal request for the country to comply with European law before the Commission considers bringing the case before the Court the European Union. Operators in the industry told TVM they are confident a solution will be found.

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