In an effort to encourage the use of Cyprus as a host jurisdiction for yachts, the government has decided on 13 March 2012 to further strengthen the yachting industry in Cyprus by introducing the so called “yacht leasing regime”. Following from this move, local administrations hastened the construction of marinas in the coastal towns of Cyprus (such as Limassol and Ayia Napa), which are aimed at improving the attractiveness of Cyprus as a touristic maritime destination.
The VAT and Income Tax authorities have issued a set of guidelines and rulings in respect of the (Corporate) Income Tax and VAT treatment of yachts leased by Cyprus companies. The effective VAT rate on the leasing of yachts can potentially be reduced to as low as 3.8% of the initial value of the pleasure yacht, which is less than the 5.4% applicable in Malta under their corresponding Leasing Scheme.
The introduction of a percentage of time during which a vessel is deemed to sail within EU territorial waters according to its size and type (motor or sailing boat), was implemented to overcome the practical difficulties with assessing such duration in real time.
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 calculated by reference to length, type of yacht (motor or sailing) and the yacht’s percentage of use within EU territorial waters. 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 when considering the Cyprus Yacht Leasing Scheme include the following:
- The yacht must arrive in Cyprus within one month of the date of the lease agreement. Any postponement to the above can be granted only by the Cyprus VAT Commissioner. The delay in any case cannot exceed the lease period whereby the right of purchase can be exercised.
- The lease agreement shall be between a Cyprus resident company, registered for VAT in Cyprus, and any legal or physical person, irrespective of their nationality or domicile. It should be noted that full anonymity and confidentiality can be preserved through corporate structures.
- Initial lease fee should be at least 40% of the value of the yacht.
- Lease payments should be payable on a monthly basis, along with the applicable VAT based on the rates described above.
- The lease period should not be for less than 3 months (90 days) and cannot exceed 48 months (in comparison to 36 months in Malta).
- The yacht may be purchased outright by the lessee at the end of the lease period. The final payment should not be less than 4% of the initial value of the yacht. Such final payment is subject to VAT at the standard rate of 19%.
- A yacht valuation certificate should be submitted along with the leasing agreement and application for approval to the Cyprus Commissioner to confirm the effective VAT rate in each case. Every application for yacht leasing is considered separately on a case-by-case basis and requires separate written approval by the Cyprus VAT Commissioner.
- The purchase will be confirmed by the VAT Department in the form of a certificate, stating the total VAT liability.
- The profit from the lease agreement derived by the lessor should not be less than 8% of the initial value of the yacht. In addition, due to the dispersal of lease payments, the lessee shall pay interest of not less than 5% of the value of the yacht.
- At the time of commencing the lease agreement, the total of lease payments that are taken into consideration for calculating the total VAT payable, should be increased by the 50% of the profit i.e. 4%.
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.