Following the Introduction of Legal Notice 231 of 2023, the Malta Tax and Customs Administration has published new VAT guidelines on pleasure boat rentals where the tax becomes chargeable in terms of the Fourth Schedule to the VAT Act on or after 01st January 2024.
With effect from 01st January 2024, the hiring of a pleasure boat to a person according to an agreement for any term, or part of a term, or that when added to the term of a previous hiring of the same goods, or other goods of the same kind, to the said person during the previous twelve (12) months ending on the date of the existing hiring does not exceed five (5) weeks, will have a special VAT rate of 12% provided that the hiring of the pleasure boat takes place in Malta. The guidelines indicate that five (5) weeks shall mean a total of 35 days.
Article 40 of Council Implementing Regulation (EU) No 282/20111 clarifies that in respect of the place of supply of a short-term hiring of a pleasure boat, the place where a pleasure boat is actually put at the disposal of the customer shall be the place where the customer or a third party acting on his behalf takes physical possession of that pleasure boat.
The Guidelines explain that if the hiring of a pleasure boat exceeds five (5) weeks, the reduced rate of 12% would only apply to the first part of that term and the default rate of 18% would be applicable to the remaining term. For example, if a company hires a pleasure boat to a person for a continuous six (6) week term, the first five (5) weeks will be subjected to 12%, whilst the last week will be subject to the default rate of 18%. Nevertheless, if a company hires out a pleasure boat to different people exceeding the period of five (5) weeks within a 12-month period, as long as the supply of each hiring would be Malta and it is hired to a different person each time, the 12% reduced rate would apply respectively to each hiring.
It is important to note that the reduced rate of 12% shall not apply to the provision for consideration of seating or space on board a pleasure boat with other passengers to whom such seating or space is separately supplied for consideration, and other such supplies.
The Guidelines also outline the interaction which exists between the 12% VAT rate and other supplies provided by the person hiring the pleasure boat. In fact, where a taxable person provides a package of supplies consisting of the provision of goods and services, which includes various elements subject to differing VAT treatment, it may constitute a single composite supply for VAT purposes. In such a case, the VAT treatment applying to such a single composite supply shall follow the VAT treatment applicable to the principal component of that supply. Therefore, where the single principal component of a single composite supply is a supply of hiring of a pleasure boat subject to the reduced rate of 12%, then the said reduced rate would apply to the whole package of supplies.
Interestingly, the guidelines do not provide a definition of what constitutes a pleasure boat. However, a pleasure boat may be interpreted as referring to a small ship which is defined in the Small Ships Regulations (S.L 499.52) as follows:
“Small ship means a craft under twenty-four metres in length employed solely in the navigation within the territorial waters of Malta, whether mechanically driven or not, and whether privately or commercially used; and includes, but is not limited to, all types of craft such as sailing boats, yachts, fishing vessels and other craft used for fishing like caiques, luzzijiet and frejgatini, cabin cruisers, speedboats, jet skis, dinghies, passage boats and other Maltese traditional boats, paddleboats, canoes, personal water craft, aircushioned craft etc.;”
Upon registration of a small ship with the Small Ships Registry at the Authority for Transport in Malta, operators of small ships seeking to use their small ship commercially, are then granted a Commercial Vessel Certificate provided the requirements of the Authority are adhered to. This permits the operators to hire out their pleasure boats. Therefore, is understood that these owners and operators will benefit from this new 12% VAT rate in the rental of their pleasure boats.
The guidelines may be accessed through the following link: https://cfr.gov.mt/en/inlandrevenue/legal-technical/Documents/Guidelines%20-%2012%20percent%20VAT%20on%20pleasure%20boats.pdf
Av. Jodie Darmanin
Junior Associate
Mifsud & Mifsud Advocates
For more information you can contact one of our Team Members at Mifsud & Mifsud Advocates.
