VAT TREATMENT IN REGARD TO SHORT & LONG TERM YACHT LEASING

The below is written with the purpose to provide an insight on VAT treatment in regard to short and long term Yacht leasing, relating to Cyprus tax resident companies, being owners of yachts.

Under the Cyprus VAT Act, the leasing of sea going vessels, is zero VAT rated, providing it falls under a certain category.

Specifically, Paragraph 3.-(a) of Schedule 6 provides:

“The supply, modification, repair, maintenance, chartering and hiring of sea-going vessels, which fall in to the following categories:

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  1. Ships used for navigation on the high seas and carrying passengers for reward, or used for the purpose of commercial, industrial or fishing activities;
  2. Ships used for rescue or assistance at sea, or for inshore fishing;
  • The supply, hiring, repair and maintenance of articles including fishing equipment, incorporated or used for the exploitation of any ship of sub paragraph (a) above”.

Under the above paragraph, for the leasing of a vessel to be subject to the zero VAT rate, the lessee must use it to carry passengers or perform commercial, industrial or fishing operations at a reward and also navigate at high seas. Albeit, in most cases the zero rate does not apply, as the lessee of the yacht is using it for private purposes.

Short term hiring of yachts

Paragraphs 3 (1) to (2) of Part 1 of Schedule 13 provides:

3.- (1) Subject to sub-paragraphs (3) and (4) of this paragraph, a supply of services consisting of the short-term hiring of a means of transport, is to be treated as made in the country in which the means of transport is actually put at the disposal of the person by whom it is hired.

(2) For the purposes of this Schedule the hiring of a yacht is “short-term” if it is hired for a continuous period not exceeding ninety days, (if the means of transport is a vessel).

The above paragraph essentially determines where a transaction involving the short term leasing of a yacht, takes place. The provisions of these paragraphs covers both leases to business and non-business person.

Consequently, where the yacht is leased to either an EU-VAT registered person or a NON-EU person and EU individual (final consumer), for less than 90 days and the yacht is handed over in:

  1. A member state, the place of supply, is the other member state (other than Cyprus), and VAT is payable in that Member State, pending applicable VAT registration thresholds.
  2. A non-EU member state, the place of supply is the non EU member state and NO EU VAT is payable, (however enquiries must be made with local professionals to establish where any VAT implications arise).

Paragraphs 3 (3) of Part 1 of Schedule 13 provides:

(3) Where—(a) a supply of services consisting of the hiring of a yacht would otherwise be treated as made in the Republic, and

(b) the services are to any extent effectively used and enjoyed in a country which is not a member State, the supply is to be treated to that extent as having been made in that country.

Paragraph 3(3) of Part 1 of Schedule 13 simply provides that if the leasing is charged to a Cyprus established person but the yacht is used and enjoyed in a non-Member State, the place of supply is in that non-Member State i.e. not subject to Cyprus VAT

Paragraphs 3 (4) of Part 1 of Schedule 13 provides:

(4) (a) a supply of services consisting of the hiring of a yacht would otherwise be treated as having been made in a country which is not a member State, and

(b) the services are to any extent effectively used and enjoyed in the Republic, the supply is to be treated to that extent, as made in the Republic.

Paragraph 3(4) of Part 1 of Schedule 13 simply provides that if the leasing is charged to a non-EU established person, but the yacht is used and enjoyed in Cyprus, the place of supply is Cyprus i.e. subject to Cyprus VAT.

Conclusion regarding short term leasing

Where the yacht is leased to individuals under a leasing agreement for less than 90 days, the place of supply is always the Country where the yacht is made available/handed over to the customer (the same applies to short term leases to business persons).

Where the yacht is made available to any person within EU, the place of supply is the specific country in EU and the lessor must apply to register and account for VAT in that country, pending registration threshold applicable.

Where the yacht is made available to a lessee in a non-EU Member State, no EU VAT is payable, however the local law may be applicable.


Long-term hiring of a yacht

Paragraphs 14A of Part III of Schedule 13 provides:

14Α.- (1) Subject to paragraphs 3(3) and (4) of this Schedule and subparagraph (2) above, a supply to a person who is not a relevant business person («the recipient») of services consisting of the long-term hiring of a yacht is to be treated as made in the country in which the recipient is established.

(2) A supply to a person who is not a relevant business person (“the recipient”) of services consisting of the long-term hiring of a yacht; which is actually placed at the disposal of the recipient, at the supplier’s business establishment, or some other fixed establishment of the supplier, is to be treated as made in the country where the pleasure boat is actually placed at the disposal of the recipient.

What we need to first examine in paragraph 14A is sub paragraph (2), and if it does not apply then examine sub paragraph (1).

Sub paragraph (2) provides that where a yacht is leased long term (over 90 days) to a non-business individual/customer, the place of supply is where the yacht is handed over to the customer provided the lessor has a business or fixed establishment in the country the pleasure boat is handed over. If no such establishment exists, then the place of supply of long term leasing is where the recipient is established (sub paragraph (1)).

In other words, where a Cyprus Company, (owner of the yacht) has a business or fixed establishment in e.g. France and hands over the pleasure yacht to any non-business customer in France, the place of supply is France hence leasing charges are subject to French VAT (pending registration threshold). Where no such establishment exists in France, the place of supply is where the customer is established (sub-paragraph (1) of 14A).

Assuming that the yacht is leased long term to a Greek individual, and the yacht is disposed in France but the Cyprus Company does not have a FE in France, the place of supply is Greece i.e. where the customer permanently resides.

Assuming the yacht is lease long term to a Canadian individual and the yacht is disposed anywhere in the EU but the Cyprus Company does not have a FE in the Member State of disposal, the place of supply is Canada i.e. where the customer permanently resides hence outside the scope of EU VAT.

Conclusion regarding long term leasing

Where the yacht is leased to non-business customers under a leasing agreement for more than 90 days, the place of supply is always the Country where the customer (lessee) is established. However where the lessor has a business or FE in the country where the yacht is made available/handed over to the individual, the place of supply is the country the lessor has the business or fixed establishment in.

Where the yacht is made available to a non-business EU customer under a long term lease, the place of supply is in EU and the lessor must apply to register and account for VAT in the specific EU country, pending registration threshold applicable.

Where the long term lessee is a USA resident the place of supply is USA and no EU VAT registration is required.

Conclusion

Where the yacht will be leased short term, to non-business customers, the place of supply is where the yacht is placed at the disposal of the customer. This means that, if the yacht is made available/handed over in any EU member state, the Cyprus lessor must apply to register in that member state and charge local VAT, pending registration threshold of the specific country.

Where the yacht is leased long term, the place of supply is where the customer is established, and if the customer is a resident in any EU member state, the Cyprus lessor must register in the EU state the customer permanently resides, pending registration threshold applicable. Where, however, the Cyprus lessor has a business or fixed establishment in the member state the yacht is actually placed at the disposal of the customer, the place of supply of the long term lease is that member state and not where the customer permanently resides.

Assuming that, the lessor is not liable to register for VAT purposes in Cyprus, on the grounds that none of the short or long term leasing transactions take place in Cyprus, nevertheless, the lessor is entitled to apply to register voluntarily.

Savva & Associates aims to work with clients to ensure their Cyprus, international and personal structures are established and administered to the highest level of international standards. Our highly experienced and qualified team will ensure the correct structuring of your Companies and provide comprehensive advice in all VAT and Tax matters.

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