FFF-Legal

The Maltese Inland Revenue Department has published guidelines on the tax treatment of finance leasing of yachts.  The guidelines apply in respect of yacht finance leasing arrangements not exceeding 4 years -arrangements of 4 years or more are governed by different rules. The purpose of these guidelines is to determine the level of income that is taxable in the hands of the lessor and the type of deductions that the lessee is entitled to claim.

The guidelines set out the following rules:

• the lessor is subject to tax on the finance charge, being the difference between the total lease payments received from the lessee and capital expenditure effected by the lessor in the acquisition of the yacht
• the lessee is entitled to claim a deduction from chargeable income in respect of the (a) the finance lease payments made to the lessor, (b) yacht maintenance and servicing, (c) repairs and (d) insurance
• the lessee is also allowed capital allowances in respect of the yacht. Shifting of the wear and tear burden onto the lessor is not allowed
• where the lessee exercises an option to purchase the yacht at the end of the lease, the purchase price received by the lessor will be treated as a sum of a capital nature and not subject to tax in the hands of the lessor.

The above guidelines complement the current VAT guidelines on yacht finance leasing and strengthen Malta’s position as a tax efficient jurisdiction for conducting yacht leasing activities. For details about the VAT treatment of yacht finance leasing operations please click here.

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