On 13 March 2012, the Cyprus VAT Authorities published guidelines clarifying the VAT treatment of Yacht Leasing Schemes, effectively introducing the most attractive VAT yacht regime in Europe. As a result, by using the new Cyprus Yacht Scheme VAT can potentially be reduced to as low as 3.8% of the initial value of the pleasure yacht, less than the 5.4% applicable in Malta under their corresponding Yacht Leasing Scheme.
Under the VAT on Yacht Leasing Scheme Regulations of 13 March 2012, only a percentage of the lease value should be subject to Cyprus's standard VAT rate of 19%. Depending on the size of the yacht concerned, the effective rate of VAT will vary between 3.8% to 11.4% of the lease value. The variation is by reference to length, type of yacht (motor or sailing) and the yacht's percentage of use within EU territorial waters.
The assumptions of the new guidelines related to the Cyprus Yacht Leasing Scheme, with regards to size of the vessel versus percentage of time spent in EU territorial waters are as follows:
For yachts licensed for use only within Cyprus waters, the effective VAT rate will remain 19%.
Important conditions regarding the Financial Leasing Agreement that should be taken into account while considering the Cyprus Yacht Leasing Scheme include the following:
The procedure for the approval of the VAT scheme is summarized below as follows:
To illustrate the above, the following is a numerical example depicting the VAT and Corporate Income Tax arising from the yacht registration and leasing scheme:
VAT due on Yacht Leasing Scheme
It should be noted that once the lessee exercises the option to acquire the yacht at the end of lease period, and furnishes the VAT Department with supporting documentation of the same (i.e. invoice in relation to the aforesaid 2.5% and the applicable bill of sale), the Cypriot VAT Department will proceed to issue a VAT paid certificate confirming that all VAT due has been paid on the yacht.
Corporate Income Tax Due of Scheme
CypCo, being the lessor, is a Cyprus company, which if tax resident is subject to Corporate Income Tax (CIT) at the flat rate of 12.5%. Although in theory the CypCo can also be a non resident Cyprus company (i.e. company whereby management and control is not exercised in Cyprus) and thus not subject to Cyprus tax, we do not advise this due to foreign tax implications that may be created.
As such, CypCo, if tax resident in Cyprus, would be subject to 12.5% CIT on the €100,000 profit that would ensue during the life of the lease agreement, hence €12,500 (all administration expenses such as accounting, audit etc. will be disallowed for tax purposes for maintaining the 5% profit margin).
Savva & Associates and our team of VAT experts can assist you with the full implementation of a Cyprus Yacht Leasing Scheme, substantially decreasing your VAT exposure upon purchase of a pleasure yacht. We are able to assist fully with the setting up and ongoing administration of the appropriate yacht-owning company in Cyprus, yacht registration, outfitting of the yacht if necessary and handling all arrangements on your behalf.
For more information regarding the Cyprus Yacht Leasing Scheme, please contact Charles Savva at +357 22 516 671, or by email email@example.com.