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VAT Yacht Leasing Scheme

Contributed by Fiducenter (Cyprus) Ltd
03 May, 2012


Contributed by Fiducenter (Cyprus) Ltd [www.fiducenter.com.cy]


The Cyprus VAT Authorities issued Circular 163 on 13 March 2012, providing guidelines on the practical application of the Yacht Leasing Scheme.

Under the Scheme, a Cypriot company can purchase a pleasure yacht and enter into a lease agreement with the lessee, which can be an individual or company irrespective of their location or place of residence. The effective VAT rate on lease payments, based on the scheme, can be as low as 3.4% of the initial value of a yacht - less than the equivalent in other favoured jurisdictions. The lease agreement can also provide the possibility to the lessee to purchase the yacht at the end of the lease term, at a price expressed as a percentage of the initial cost. The details of the scheme are explained below.

For VAT purposes, leasing of a yacht is a taxable supply, deemed to be supplied in Cyprus, subject to the standard VAT rate, which currently stands at 17%. This, however, holds only to the extent that the yacht is used within EU waters.

To avoid the difficulty of keeping log books in order to establish the exact duration of the lease spent in EU waters, the VAT Authorities issued percentage scales based upon “presumed” lengths of use in EU waters based on the length of the yacht and its way of operation (i.e. motor or sailing). Motor and sailing boats over 24-meters in length are deemed to spend only 20% of their time in EU waters (compared to 30% under the equivalent scheme of competitive jurisdictions) to give an effective VAT rate of 3.4%. The detailed percentages are as follows:

Motor Boats

Sailing Boats

Length - Meters

% of usage in EU waters

Effective VAT %

Length - Meters

% of usage in EU waters

Effective VAT %

> 24

20

3.4

> 24

20

3.4

14.01 – 24

30

5.1

20.01 – 24

30

5.1

8.01 – 14

50

8.5

10.01 – 20

50

8.5

= 8

60

10.2

= 10

60

10.2


All of the following conditions must be satisfied in order for the Yacht Leasing Scheme to apply:

  • the lease agreement must be between a Cyprus company and a physical or legal person, irrespective of his origin or place of residence;
  • the yacht must arrive in Cyprus within one month from the date of inception of the lease agreement;
  • the initial lease payment must amount to at least 40% of the value of the yacht;
  • further lease payments are payable on a monthly basis, and the lease period must under no circumstances exceed the period of 48 months;
  • the lessor is expected to make a total profit from the lease agreement of at least 10% on the initial value of the yacht. At the time of inception of the lease agreement the total lease payments on which the VAT is calculated is increased by 50% of this margin;
  • The lessee may purchase the yacht at the end of the lease period, for a final consideration of not less than 5% of the initial value of the yacht. This final consideration is subject to the standard rate of VAT. The VAT authorities will then issue a certificate to the lessee confirming full payment of the total VAT liability.
  • Prior approval from the VAT Authorities is required for every case in which the Yacht Leasing Scheme is intended to be applied. The application must be accompanied, among other, by a certification confirming the value of the yacht as well as the lease agreement.

The scheme, together with the attractive tax regime applicable for Cyprus companies with the flagship 10% Corporation Tax rate (the lowest in the EU) is expected to give a prominent place to Cyprus on the map of attractive jurisdictions for ownership and operation of a yacht for commercial reasons.

Considering the very low effective rates of VAT that can be achieved, together with some other provisions of the scheme such as the maximum term of the lease, Cyprus becomes a very attractive choice in the field.



George Savvides

Partner

george.savvides@fiducenter.com.cy
www.fiducenter.com.cy
Phone: 357 25 50 40 00 Fax: 357 25 50 41 00


© Fiducenter (Cyprus) Ltd

All rights reserved.

No part of this publication may be reproduced, sorted in a retrieval system, or transmitted, in any form or by means, electronic, mechanical, photocopying, recording or otherwise, without the prior written consent of Fiducenter (Cyprus) Ltd.

The information provided in this publication does not constitute legal, tax or investment advice and no responsibility is accepted for any loss occasioned directly or indirectly as a result of persons acting, or refraining from acting, wholly or partially in reliance upon it.




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