The Cyprus Tax Authorities have published their guidelines regarding the VAT treatment of the Yacht Leasing Schemes on 13 March 2012. According to the scheme the VAT that can potentially be reduced to using Cyprus Yacht Leasing Scheme makes this probably the most attractive VAT yacht regime in Europe (as low as 3,05% Effective Tax rate on lease payments for boat over 65 metres length).
Depending on the length of the yacht concerned, the VAT that will apply will vary from 1.90% to 11.4% of the leasing value.
Only a percentage of these leases will be subject to Cyprus’s standard VAT rate of 19%.
The calculation of the applicable VAT percentage is based on the length, the type of yacht (sailing/motor) and the yacht’s percentage of use within EU territorial waters.
A breakdown analysis of the criteria and the guidelines of the Cyprus Yacht Leasing Scheme, that accounts for the length and the percentage of the time spent in EU territorial waters of the vessel are provided.
Yachts which are licensed to sail only within the Cyprus Republic waters must be leased using the standard VAT rate i.e. 19%.
Conditions that must be satisfied in order to be able to apply the above treatment for VAT purposes. Must satisfy ALL the following conditions:
- The leasing agreement must be between a Cypriot resident company which is registered with the Cyprus VAT Authorities, and any natural or legal person, regardless of origin and domicile.
- The pleasure craft will have to sail to the Republic of Cyprus within one month of the date of commencement of the leasing agreement. Any time extension in relation to the above mentioned time period can only be given by the VAT Authorities. It is understood that this extension can not in any case exceed the period during which the purchase rights of the vessel are exercised.
- An initial contribution from the lessee to the lessor of at least 40% of the value of the vessel.
- The rents must be paid on a monthly basis.
- The lease agreement may not be less than 3 months (90 days) duration and in no case exceed 48 months.
- The lessor is expected to benefit from the lease agreement no less than 5% of the total value of the vessel. At the beginning of the lease, the total amount of rents according to the purchase price of the vessel, on which the payable VAT is calculated. is increased by half that profit that is by 2.5%.
- The final payment at the end of the lease agreement, which results to the ownership of the vessel essentially being transferred to the lessee can be no less than 2.5% of the value of the vessel, which forms part of the total profit of the agreement. The last payment shall be charged with the normal VAT rate in force at that time. Since 13.01.2014 the standard VAT rate is 19%.
- Prior written approval of the Tax Commissioner is required who will calculate the applicable rates on which VAT will be imposed according to the usage of the vessel within the spatial areas of the European Union. The application must be accompanied by the vessel valuation certificate (valuation of the vessel from a registered appraiser of a competent State and the purchase invoice purchase), as well as the lease agreement.
- The yacht may be purchased outright by the lessee at the end of the lease period. The final payment should not be less than 2.5% of the initial value of the yacht. Such final payment is subject to VAT at the standard rate of 19%.
Our team will be delighted to assist you to join and benefit the full implementation of the Cyprus Yacht Leasing Scheme.
By setting up a Cyprus company and handling the administration tasks we can provide you the right choice to significantly reduce the VAT liability when you purchase your pleasure yacht.