DOWNLOAD updated guidelines for the Yacht Leasing Scheme HERE
Why the Yacht Leasing Scheme
The guidelines issued by the Cypriot VAT authorities introducing the Yacht Leasing Scheme in 2012 (“the Scheme”) which is similar to the schemes in Malta and Italy have further strengthened the Cyprus Registry’s reputation as one of the most desirable registries in the EU.
VAT is payable where a yacht is used either wholly or partially in EU waters. According to the Scheme the percentage of the purchase value of the yacht subject to VAT is determined according to the type and size of vessel allowing for significant savings and the reduction of the effective VAT rate to as low as 4.71%. On 30/1/2014 the VAT Department issued amended guidelines for the Scheme repealing the guidelines under Circular No. 163.
What is a leasing agreement under the Scheme
A leasing agreement qualifies under the Scheme where it is an agreement reached between the owner of a yacht (“the Lessor”) if the Lessor is a Company duly registered in Cyprus, and the entity seeking to use the yacht (“the Lessee”) for consideration. The Lessee may be a physical or legal person of any nationality or place of registration. The aforementioned lease agreement may also include a provision for the Lessee to purchase the yacht at the end of the lease period for separate/additional consideration from that paid for the lease.
VAT on the lease agreement
For the purposes of VAT, a lease constitutes the provision of services which is taxable at the present rate of 19%, to the extent that the yacht is used in EU waters. Log books or other such documentation is not used under the Scheme to calculate the amount of time that a yacht is in EU waters, for reasons of practicality. Instead this is calculated based on the size and type of yacht. The applicable rates appear at tables 1 and 2.
Example: A yacht with a length of 16metres is considered to be within EU waters 30% of the time and 70% outside of EU waters. Therefore, VAT is payable by the Lessor on only 30% of the lease consideration. The remaining 70% is not subject to VAT so the effective VAT rate on the lease agreement is reduced to 5.7%.
The Scheme will apply where all the following conditions are met: Conditions under the Scheme
- the Lease agreement is between a company duly registered in Cyprus and a Lessee with no nationality restrictions;
- the yacht must arrive in Cyprus within 1 month from the execution of the lease agreement;
- the Lessee must make an initial payment at least 40% of the yacht’s value to the Lessor;
- lease payments must be monthly, for no less than 3 months and no more than 48 months;
- the Lessor is expected to make a profit of at least 8% of the total value of the yacht. At the commencement of the lease agreement, the total amount of the lease payments (on which VAT due is calculated) must be increased by half of this profit (i.e. by 4%);
- the final payment for purchase of the yacht, if the Lessee exercises their right to purchase must be no less than 4% of the total value of the yacht. As of 13/01/2014 this final payment is subject to 19% VAT; and
- the prior written approval of the VAT Commissioner must be obtained for an application under the Scheme.
The profit of 8% plus the 4% additional interest payable in the monthly instalments will be subject to the Corporate tax rate of 12.5%.
Purchase of a sailing boat with a length of 26m for €2,000,000.00 – lease agreement for 48months
- Applicable VAT for lease based on Table 1 is 20% (20% x 19% = 3.8%)
- Profit margin of 8% must be maintained for corporate tax reasons (€160,000.00)
- On the first instalment 40% of the value of the yacht is paid along with 3.8% VAT = €30,400.00
- The balance of and ½ profit paid in 48 month instalments (VAT at 3.8%) = €48,640.00
- Purchase option payable at the end of the lease plus 19% VAT on that amount = €15,200.00
- Ownership of the vessel passes to individual lessee with Certificate of VAT paid
Total VAT payable €94,240.00 (@ the average rate of 4.71%) as opposed to mainstream VAT liability of €380,000.00 @ 19%. Therefore, a saving is made of €285,760.00 Our team of specialist lawyers can assist you with all aspects of the Yacht Leasing Scheme including:
- application to the VAT Commissioner for approval of the proposed scheme;
- incorporation and administration of the relevant Cyprus legal entity;
- drafting and seeing to the execution of the relevant lease agreement;
- managing the importation process and registering the yacht with the Cyprus Registry; and<
- administering both VAT compliance and leasing arrangement
This publication has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained herein without obtaining professional advice. This information should not be relied upon as a substitute for such advice.For more information please contact us at firstname.lastname@example.org; +357 25 823 593