Yachting & Shipping Practice

YACHT OWNERSHIP

YACHT LEASING

ADVANTAGES

MORTGAGES

SHIP REGISTRATION IN MALTA

INTERNATIONAL OWNER REQUIREMENTS

YACHT OWNERSHIP
At MA&A, through our offices in Malta as well as through affiliates in most jurisdictions which are in their own way advantageous in certain aspects relating to yacht registration and management, we are able to provide comprehensive services to yacht owners and managers, including the planning of international tailor made tax efficient structures, and the legal and tax advice involved from the simple ownership of a leisure yacht, to the commercial ownership on a large scale, finance, insurance and issues related to crew and manning.

At MA&A we provide consultancy through the various stages involved in the ownership of a Yacht:

Finance – Purchase – Registration

Whenever finance is needed, or whether it is advantageous to obtain finance in the first place, at MA&A we study the various options available to purchasers internationally, and our highly specialised legal team assists clients in negotiating finance opportunities with Marine Finance institutions, taking into consideration all relevant factors in particular those dealing with security, repayment and personal obligations.

As to the purchase of a Yacht of whatever size, and whether it is a new building or a second hand vessel, our legal team provides specialized advice and negotiations to ensure that our clients, whether purchasing or selling, are covered in all aspects and that the intentions of our clients are represented in the terms and conditions of each contract.

At MA&A we assist in the choice of the ideal flag taking into consideration a number of factors such as the reputation of the flag, the recognition of the flag internationally (in particular for tax and VAT purposes), the initial and yearly costs, succession implications, employment obligations, nationality restrictions and insurance issues.
Registration is also viewed in the light of international owners wanting to retain anonymity with regard to their purchase, or wanting to settle the shares in the company owning their yacht in a trust to avoid complications relating to succession an inheritance.

Registration of a Yacht in under the Maltese Flag
The advantages of registering a yacht under the Maltese Flag are not limited to the reputation of the flag, and benefits range from financial and fiscal advantages to employment incentives.
Registration and yearly maintenance of the registration are obtained at minimum costs, and the provisional registration of a yacht can be obtained within twenty four hours of the filing of the necessary documents, with the permanent registration taking place within six months from the provisional registration upon all documentation being received by the Authority.
The set up and registration of a company to own the yacht, whenever this is required, are also inexpensive, and the advantages of reduced personal liability, and the anonymity offered by the ownership of a yacht through a company generally attract owners to go for this option. The transfer of shares within the company owning the yacht is also exempt from taxation, and likewise a Maltese company owning a Maltese registered yacht is not taxed on the sale and mortgage of such yacht. MA&A offers back office and registered office services at very competitive prices with regard to the company set up to own the yacht, and all related administration is handled by MA&A.

Furthermore, Maltese law imposes no restrictions on the nationality of the owner, crew, officers or captain.

Recently, the law has also been amended to allow the ownership of a yacht by what is referred to as ‘International Owners’, without the requirement that a company is set up in Malta, and in this case MA&A is appointed as resident agent, enabling us to sign all documentation relating to the registration of the yacht on behalf of the owner.

VAT Advice 
As a rule, yachts which are used within the EU waters, and all yachts owned by EU citizens must be VAT paid and must have a VAT paid certificate. At MA&A we give tailored advice on all VAT issues, including the possibilities of Temporary Importation of a non-EU vessel into EU waters, and the periods of time which may be spent within EU waters by a non-EU registered vessel in EU waters. Malta is one of the EU jurisdictions offering substantial VAT reductions by means of Lease structures. The jurisdiction offering most over all benefits with regard to this structure is Malta, since the law does not impose that the Lessor and the Lessee must have a different beneficial owner, and nor is it imposed that the Lessor must be a financial institution. Furthermore, Malta offers the lowest base rate of VAT at 18 %.

At Maltese law, for the purpose of VAT, the lease of the yacht is considered a supply of services with the right of deduction of input VAT by the lessor, where such right applies. This supply of services is taxable according to the use of the craft, attributed within the territorial waters of the European Union (EU), provided that the lessor is a Maltese company (including a commercial bank) which is leasing the craft to any Maltese or non-Maltese person or company.
The guidelines issued by the Maltese Vat Department establish the estimated percentage portion of the lease based on the time that the craft is used within the territorial waters of the EU. These percentages are set according to the length of the craft and its means of propulsion (power or sailing).

The standard rate of VAT of 18% is only applied on the established percentage of the lease, deemed to be related to the use of the craft in EU territorial waters. The minimum rate is paid on a yacht of 24 meters or bigger, where the ‘vatable’ portion is established at 30% with an effective rate of VAT and tax of between 5.4 and 6.2 per cent.
In order to benefit from the Maltese VAT lease scheme, the boat must come to Malta, possibly at the beginning of the lease agreement. A financial leasing agreement is drawn up between a Maltese company and any Maltese or foreign person or company. Prior to the set up, approval is sought in writing from the Commissioner of VAT who is to confirm the rate applicable according to the use in EU territorial waters (depending on the size and propulsion of the craft), as well as the acceptability of the value of the craft as declared. For this purpose a valuation certificate of the craft is submitted with the application for approval.

Payments are divided into two phases – An initial contribution is paid by the lessee to the lessor amounting to 50% of the value of the craft. Subsequently, Lease instalments are paid every month by the lessee to the lessor, and the law (guidelines) requires that the lease agreement should not exceed 36 months

Furthermore, the lessor is expected to make a profit from the leasing agreement over and above the value of the boat, and the purchase value at the end of the lease agreement must not be less than 1% of the original value of the craft, and this will is subject to the standard rate of VAT at 18%

If the lessee opts to purchase the craft at the end of the lease, a VAT paid certificate is issued to the lesseeprovided that all VAT due has been paid.

YACHT LEASING 
GUIDELINES REGARDING VAT TREATEMENT OF YACHT LEASING 
A financial leasing agreement of a pleasure craft is an agreement whereby the lessor (the owner of a craft) contracts the use of the craft to the lessee (the person who leases the craft) in return for a consideration. In addition, at the end of the lease period, the lessee may opt to purchase the craft at a percentage of the original price.

One is to note that the transactions referred to below are book entries, and no real cash transfer needs to take place.

For the purpose of VAT, the lease of the craft is a supply of services with the right of deduction of input VAT by the lessor, where such right applies. This supply of services is taxable according to the use of the craft, attributed within the territorial waters of the European Union (EU), provided that the lessor is a Maltese company (including a commercial bank) which is leasing the craft to any Maltese or non-Maltese person or company.


How the use of crafts within EU territorial waters is calculated

The guidelines issued by the Maltese Vat Department establish the estimated percentage portion of the lease based on the time that the craft is used within the territorial waters of the EU. These percentages are set according to the length of the craft and its means of propulsion (power or sailing).

The standard rate of VAT of 18% is only applied on the established percentage of the lease, deemed to be related to the use of the craft in EU territorial waters. The table below indicates the established percentage portions according to the type of craft:

Type of craft % of lease subject to VAT Effective rate of VAT
Sailing boats or motor boats over 24 metres in length 30% 5.4%
Sailing boats between 20.01 to 24 metres in length 40% 7.2%
Motor boats between 16.01 to 24 metres in length 40% 7.2%
Sailing boats between 10.01 to 20 metres in length 50% 9%
Motor boats between 12.01 to 16 metres in length 50% 9%
Sailing boats up to 10 metres in length 60% 10.8%
Motor boats between 7.51 to 12 metres in length (if registered in the commercial register) 60% 10.8%
Motor boats up to 7.5 metres in length (if registered in the commercial register) 90% 16.2%
Craft permitted to sail in protected waters only 100% 18%

In order to apply these guidelines the following conditions apply:

• The boat must come to Malta, possibly at the beginning of the lease agreement.
• The financial leasing agreement shall be between a Maltese company and any Maltese or foreign person or company.
• Prior approval shall be sought in writing from the Commissioner of VAT who is to confirm the rate applicable according to the use in EU territorial waters (depending on the size and propulsion of the craft), as well as the acceptability of the value of the craft as declared. For this purpose a valuation certificate of the craft shall be submitted with the application for approval.
• An initial contribution shall be paid by the lessee to the lessor amounting to 50% of the value of the craft.
• The Lease instalments shall be payable every month and the lease agreement shall not exceed 36 months
• The lessor shall be expected to make a profit from the leasing agreement over and above the value of the boat
• Any purchase value at the end of the lease agreement shall not be less than 1% of the original value of the craft, and this will be subject to the standard rate of VAT at 18%
If the lessee opts to purchase the craft at the end of the lease, a VAT paid certificate will be issued to the lessee provided that all VAT due has been paid.

Example:
Craft with a length of 25 metres the value of which is of Euro 1,000,000
Down payment:
Initially the lessee is to pay the lessor half of the value of the Yacht which amounts to Euro 500, 000:
500,000 x 30% = 150,000 (note that the ‘Vatable’ portion is only 30% since the craft exceeds 24 metres)

VAT = 150,000 @ 18% = Euro 27,000
Vat on the first payment is of Euro 27, 000 and therefore total amount due for the first instalment including VAT is of Euro 527,000

Instalments:
It is through the instalments that the profit is made, since the law requires that at least 10% profit is made by the lessor. For this reason 36 monthly instalments are calculated at the amount of Euro 16, 667 which amount to 600, 000 and therefore 10% profit is made on the total amount of Euro 1, 000, 000. Furthermore, on this 10% profit, the company is to pay income tax, and share holders who are not Maltese Citizens are effectively taxed at 5% and therefore Euro 5, 000 are to be added to the VAT which is paid on the whole transaction.
36 monthly instalments of 16, 667 x 30% = 5,000
VAT = 5,000 @ 18% = 900 and this means that VAT on the instalments is of Euro 900 monthly. Furthermore, as stated above, since a profit of Euro 100, 000 is being made over the 36 months by the lessor, this profit is taxed at 5% and therefore Euro 5,000 are due in taxes.

Redemption:
1% of value = 10,000
VAT = 10,000 @ 18% = 1,800

Apart from the VAT paid on this 1% of the value, the lessor also has to pay tax at 5% when the share holders are not Maltese Citizens. Therefore, including the tax paid on the 10% profit paid by the lessor, and the tax on the 1% value of the yacht when (and if) the yacht is bought by the lessee from the lessor at the termination of the lease amounts to Euro 5, 500.
Summarily, on the above mentioned yacht which exceeds 24 Metres, Vat is paid at Euro 27, 000, on the first payment, Euro 900 on each of the 36 monthly instalments, and Euro 1,800 on the final sale. In addition Euro 5, 500 is the amount of Tax payable by the lessor on the profit made and on the final transfer. This amounts to a total of Euro 66, 700. Therefore the total amount of tax and Vat paid works out at an average of 6.6%, and provided all conditions are strictly adhered to after the sale, one may apply for a certificate that the yacht is Vat Paid.

ADVANTAGES OF REGISTERING A SHIP IN MALTA

  • Malta has one of the largest ship registries worldwide and the main reason for such success is that Maltese registered ships benefit from various advantages.
  • Malta is an E.U. member and vessels flying the Maltese flag are deemed to be E.U. Vessels.

  • The Maltese Flag has been upgraded to the White list on the Paris MoU, making unnecessary controls less likely on ships flying the Maltese flag.
  • Malta also has bilateral agreements with foreign governments where Maltese Ships receive preferential treatment in respect of Port charges and taxes.

  • Low costs and swift registration of the owning or operating company and of the vessel.
  • Complete exemption from all local taxes favour owners, charterers and financiers of Maltese ships in respect of profits derived from the ownership, sale, operation, chartering and financing of Maltese ships;

  • Exemption from all duties and other charges in respect the sale or transfer of a ship and the allotment of any share or stock of a company owning such a ship; and from succession duties, capital gains tax, VAT and also in respect of exchange control formalities.
  • All types of vessels, from pleasure yachts to oil rigs, may be registered although there may be some restrictions on vessels of twenty-five years or more. .

  • No restriction on nationality of Masters, owners and crew.
  • No restrictions on sale and mortgaging of Maltese ships.

  • It is possible to register ships which are under construction as well as other marine structures such as oil floating docks, floating hotels pontoons and barges.
  • Simple procedure for the closing of the registry.
  • Easy and immediate access to the decision makers of the shipping industry minimizing costly delays.

  • Bareboat charter registration both inwards and outwards; and the certificate of registry may be issued in the name of the vessel’s charterer (including a time charterer).
  • Low costs, including registration, tonnage dues and professional fees both for the registration and administration of company and vessel.

  • Time necessary for the registration of the company is 24 hours. The vessel can be registered on the next day.
  • Adequate safeguards to the mortgagees making the finance of Maltese vessels more secure and attractive for the banks.

  • The Malta Maritime Authority also offers a twenty four hours service seven days a week providing emergency services.

MORTGAGES
Primarily one is to note that foreign mortgages are recognised and granted the same status as mortgages under the Maltese Shipping Act provided such foreign mortgages are validly recorded in terms of the relevant foreign law and certain other conditions are fulfilled.
With regards to Malta, the registration, transfer, amendment and discharge of mortgages may be effected immediately on the presentation of the relative documents to the Registrar (the 1986, 1988, 1990 and 2000 amendments introduced important safeguards in respect of registered mortgages thus making financing of Maltese ships more attractive.)
Maltese mortgages provide good security for banks and other financial institutions because they enjoy a high ranking position and furthermore a ship-owner may not delete a vessel from the Maltese register without the mortgagee’s prior written consent and for a vessel to be struck off the register 1 month’s notice is to be given to the mortgagee and ship-owner by the Registrar of Shipping.
A mortgagee may take over and complete registration formalities himself in order to protect the status of the ship and the validity of its registration and the law also binds the Registrar of Shipping upon the transfer of a vessel to new Maltese owners, to inform the mortgagee of such transfer and the vessel may not be sold to foreign nationals without the mortgagee’s consent.
Further advantages in Malta are that mortgages may be enforced without the need of lengthy Court proceedings and that the mortgage attaches to any insurance proceeds and with regards to subsequent mortgages a mortgagee may prohibit the registration, without his prior written consent, of second or subsequent mortgages by including a relevant clause in the registered Mortgage Deed.

SHIP REGISTRATION IN MALTA
MA&A offers full legal and administrative support for all aspects of ship registration.
All types of vessels from pleasure yachts to oil rigs may be generally registered under the Malta flag, provided they are wholly owned by a Maltese body corporate established for the purpose of registering a vessel under the Malta flag and the law also provides for the registration of vessels still under construction. The registration and the operation of vessels under the Malta Flag are regulated by the Merchant Shipping Act, a law based mainly on the merchant shipping legislation of the United Kingdom. A Maltese registered ship is one owned by a Maltese citizen or by a Maltese body corporate. The latter option is usually opted for.

The first step is to register a company in Malta, with the express object of ship registration. The incorporation and maintenance of a Maltese company for the purpose of registering a vessel under the Maltese flag, is quick and inexpensive and a company may be set up within 48 hours from the submission of all the relevant documentation. There are no nationality requirements as to both the shareholders and directors and usually the real ship or yacht owner will be the shareholder and director of the company. Our usual procedure is to have the registered office of the newly formed company at our own address (unless the client instructs us otherwise) and MA&A is also listed as the company’s authorized representative in Malta seeing to all matters involved with the company’s administration in Malta.

Ships of 15 years and over, but under 20 years, must pass an inspection by an authorised flag state inspector before or within a month of provisional registration; and
Ships of 20 years and over but less than 25 years must pass an inspection by an authorised flag state inspector prior to being provisionally registered.
As a rule trading ships of 25 years and over are not registered.

The procedure for the registration of a vessel is relatively straightforward. Provisional registration, which in terms of the law has the same effect as the so-called permanent registration, can be effected very quickly. Authority to help a ship, however, will only be given once the Administration is satisfied that the vessel conforms to all the standards required by the relative international conventions.
Provisional registration has a validity of six months, although this can be extended by a further six months; by this time all the documentation has to be completed for permanent registration. This includes, in particular, evidence of ownership and of cancellation of former registry. Authority to operate still remains linked to conformity with the relative manning, safety and pollution prevention international standards.

INTERNATIONAL OWNER REQUIREMENTS
By virtue of Legal Notice 348 of 2003 it is possible for foreign corporate bodies to register vessels under the Malta Flag. It is also possible for individuals (not companies) who are citizens of Member States of the E.U. to register a vessel under the Maltese Flag. The following are the requirements for the Malta Maritime Authority to approve of an International Owner:

Foreign Corporate Bodies

  • Original Memorandum and Articles of Association – Articles of Incorporation
  • Recent good standing Certificate by the relevant Competent Authority
  • Original declaration of appointment of resident agent duly notarized and apostilled
  • Powers of Attorney when and if they are required. (An instance of when they are required is when a foreign company appoints a Maltese Company as Resident Agent, and the Maltese Company acts through an intermediary. In this case, the Maltese Company would need to issue a power of attorney to the intermediary empowering him to act on its behalf.)
  • Legal opinion duly notarized and apostilled confirming that the corporate records of the corporate body have been examined and giving the details of the directors and holders of office and of persons authorized to represent the corporate body and to bind it with their signature and appoint a resident agent.
  • Where applicable – Memorandum and Articles of Resident Agent
  • Where applicable – Good Standing Certificate of Resident Agent
  • Declaration of Acceptance of Appointment of Resident Agent

Citizens of a Member State of the European Union

  • Certified true copy of passport
  • Original Declaration of Appointment of Resident Agent duly notarized and apostilled
  • Memorandum and Articles or Copy of ID card of resident agent
  • Good standing certificate of resident agent if applicable
  • Acceptance of appointment by resident agent

It is strongly advised to send copies of all of the above documentation to be vetted and approved by the MMA prior to sending originals.