Following the publication of Legal Notice 231 of 2023 last October, a reduced VAT rate of 12% became applicable in relation to the hiring of pleasure yachts, effective 1 January 2024. The Malta Tax and Customs Administration (MTCA) has recently issued comprehensive guidelines in this regard in order for stakeholders to better understand the implementation of this amendment.
The reduced VAT rate is contingent on the cumulative duration of such agreements within a 12-month period not exceeding 5 weeks. The guidelines stipulate that 5 weeks shall mean a total of 35 days. In cases where the hiring of a pleasure yacht exceeds this term, the reduced rate of 12% would only apply to the first period, and the remaining period would be subject to the default rate of 18%.
The reduced VAT rate is also dependent on the hiring of the pleasure yacht taking place in Malta. The place of supply in cases of short-term hiring (up to 90 days) is considered to be the place where the pleasure yacht is made available to the customer. On the other hand, the place of supply in cases where the hiring of the pleasure yacht exceeds 90 days would be the place where the customer is established, has a permanent address or usually resides.
The guidelines also cater for the relationship between the reduced 12% VAT rate and other supplies provided by the person hiring the pleasure yacht. Where a taxable person is involved in the provision of different goods and services which are subject to differing VAT treatment, the notion of a single composite supply for VAT purposes could kick in. In this case, the applicable VAT treatment would be that in relation to the principal component of that supply. Where the principal component of a single composite supply is the hiring of a pleasure yacht at the reduced 12% rate, then this rate would apply to the whole package of supplies.
To access the MTCA guidelines, please click here.
Do not hesitate to contact us should you wish to learn more or discuss the potential impact of this reduced VAT rate.
