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David Lindsay
Up to Lm10 million has been apparently raised in a scheme to attract yacht registration to Malta with the carrot of a 5 percent VAT rate, MaltaToday has learned.
Grappling with the state of public finances these days is anything but smooth sailing for Malta’s new government, as the country’s downward-spiralling public debt and deficit are both falling increasingly under the European Union’s magnifying glass.
However, the sly fund-raising exercise inherited from former finance minister John Dalli is expected to help government bring the state of public finances back to an even keel.
As a result of this legacy, the government is thought to have raked in millions of pounds with its value added tax incentive for yacht buyers, which expired on 31 March.
Furthermore, if speculation reaching MaltaToday’s offices ends up holding water, the figure could even range into the eight-figure region – welcome news for those now tasked with harnessing Malta’s mounting fiscal strain.
The VAT break was announced soon after November’s budget and allowed yachts being registered in Malta to receive a hefty tax discount, paying only five per cent VAT on such vessels. Once Malta accedes to the EU come 1 May, all such vessels registered in Malta prior to accession will be considered as EU VAT-paid vessels.
The crafty exercise, certainly alluring to all those at home and abroad who were on the verge of purchasing and accordingly registering their vessels, was carried out in a rather low key – and for good reason. Had the measure been trumpeted, it would have undoubtedly have been met with strong resistance from the European Commission and with even stiffer opposition from France, which imposes a strict tax regime when it comes to registering yachts.
Regardless of the political risk, the incentive appears to have successfully tapped what was identified as a golden niche opportunity that Malta was in a position to capitalise upon in its lead up to EU accession.
According to the legal notice LN 384 of 2003, the VAT rate on certain seafaring vessels was lowered to five per cent between 1 December and 31 March. The vessels affected were yachts and other vessels for pleasure or sport including rowing boats and canoes and sailboats, with or without motors; sail boats and motor boats of a length exceeding 7.5 metres.
Prior to the incentive, yachts registered under the Maltese flag were exempted from paying VAT as long as the vessel in question remained in EU waters no more than 18 out of every 24 months, while in some cases the stipulation was six out of every 12 months. Once the time limit was elapsed, the vessel would have to be taken out of EU territorial waters or pay the VAT within the EU’s VAT regime.
However, Malta’s offer presented an attractive means of circumnavigating the rule, by allowing yacht owners the option of registering their vessels in Malta’s tax-friendly waters and paying a VAT rate, upon importation, of just five per cent. Once Malta accedes to the EU, the vessel would then be allowed to remain in EU territorial waters indefinitely without risk of further taxation.
Many yacht owners are thought to have seized the opportunity. These include owners of yachts registered outside the EU allowed to remain within EU territorial waters for only a limited amounted of time; yacht owners who already have their vessels registered in Malta but enjoy only limited access to EU waters; and those with intentions of purchasing a yacht within an EU member state prior to 31 March and who are looking to avoid paying VAT in the country of purchase since the vessel is being exported to Malta.
While hard figures are difficult to extract from the authorities in what are still the early days of tallying for the VAT Department the exercise has undoubtedly been lucrative. The final results are expected after mid-May, when the VAT Department will be in full receipt of all payments.
david@newsworksltd.com
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