The following information provides a brief note on the relevant laws in relation to the yacht leasing scheme in Cyprus, the relevant taxes and registration process.
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Cyprus Yacht Leasing Scheme – VAT Exemptions
Cyprus has adopted all maritime EU Directives and EU guidelines in relation to VAT taxation on yachts. As a result, provided that the VAT has been paid in relation to a yacht imported to Cyprus or purchased in Cyprus, then, that yacht may sail freely throughout the EU.
Applicable Rate of VAT
As per the previous VAT regulations in Cyprus, yacht purchasing and yacht leasing was subject to the full rate of VAT. A lot of questions were raised as to the usage or not of a yacht within EU territorial waters. In this case certain part of the VAT should not have been payable.
On the 13th of March 2012, the Cypriot VAT Department issued guidelines, establishing the policy and procedures necessary for yacht leasing and purchasing, thereby allowing yacht owners to benefit from the most attractive VAT regime within the EU during the lease agreement, and, at the end of the leasing scheme when they exercise the option to acquire the craft, acquire an EU VAT paid certificate for the pleasure yacht. On the 30th January 2014, an updated version was published, encompassing the new VAT regulations.
The Cypriot yacht leasing scheme is based on the assumption that a yacht sails specific percentages of its total journeys outside of EU waters, depending on the type and the size of the yacht, which in that case, that yachts may sail freely outside territorial waters. Therefore, only partly VAT liability applies.
For the purposes of the scheme, a distinction is made on yachts’ dynamic – crafts divided broadly into sailing and motor-powered crafts, whereby depending on the length of the yacht, a percentage of use within the EU territorial waters is specified. VAT is paid only on the portion of the lease during which the motor craft is in EU waters. As a result, the owner of a motor yacht of more than 24 meters overall length which is deemed to sail 80% outside of EU waters and 20% in EU waters, may pay a VAT rate as low as 3,8 % only, allowing savings on VAT up to 80%.
The Cypriot yacht leasing scheme allows for a significant VAT saving for motor-propelled crafts and Sailing Yachts, as set forth in Table A and Table B below:
Table A – Motor Yachts
Normal VAT
19
Overall Length
of the Yacht
Deemed % of use
in EU Waters
Effective
VAT rate
Above 24 m
20
3,8
14,01 – 24 m
30
5,7
8,01 – 14 m
50
9,5
Up to 8 m
60
11,4
Table B – Sailing Yachts
Normal VAT
19
Overall Length
of the Yacht
Deemed % of use
in EU Waters
Effective
VAT rate
Above 24 m
20
3,8
20,01 – 24m
30
5,7
10,01 – 20m
50
9,5
Up to 10m
60
11,4
Yacht Leasing Agreement
In order for the Cyprus Yacht VAT exemption to be applied, a lessor and a lessee may enter into a financial leasing agreement, whereby the lessee is granted the option to purchase the sea-craft at the end of the lease.
The lessor must be a Cyprus-registered yacht- owning Company. The craft may be brought either directly from the owner or if the craft is new, directly from the yacht-builder.
Cyprus imposes no nationality restrictions on the lessee which may be an individual or a legal entity.
Conditions of Financial Leasing Agreement
The financial leasing agreement is characterized by the following set of rules:
1. The financial leasing must be between a Cyprus Company (Lessor) and a lessee (any person or company irrespective of origin).
2. From 1st January 2013 the place of supply of pleasure yachts (except short term leases) is the country where the yacht is made available to the recipient-lessee. The yacht must come to Cyprus, within a month from the commencement of the leasing agreement. Any postponement in relation to the above can only be granted by the VAT Commissioner. The postponement cannot be longer than the lease period whereby the right of purchase can be exercised.
3. The Lessee must pay the Lessor an initial contribution amounting to at least forty percent (40%) of the value of the craft;
4. The Lease installments shall be payable every month and the lease agreement shall not be less that 3 months (90 days).
5.The duration of the lease agreement shall not exceed forty-eight (48) months.
6.The Lessor shall be expected to make a profit which cannot be less than 8% of the value of the boat. At the beginning of the lease agreement the total lease payments where the VAT is calculated is increased by half of that profit i.e. 4%.
7. The final payment at the end of the lease agreement, whereby the yacht is effectively transferred in the ownership of the lessee, cannot be less than 4% of the yachts value, and represents part of the profit of the agreement. The last payment is subject to full VAT rate applicable on the date of payment which is currently 19% VAT.
8. 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 of the yacht), as well as the acceptability of the value of the yacht as declared. For this purpose a valuation certificate of the yacht shall be submitted with the leasing agreement and application for approval.
9. If the lessee opts to purchase the yacht at the end of the lease, and furnishes evidence thereof (i.e. invoice in relation to the aforesaid 5% and the applicable bill of sale), the Cypriot VAT Department shall issue a VAT paid certificate attesting that all VAT due has been paid on the craft.
Registration Process
The procedure for the approval of the aforesaid VAT scheme is subject to the following procedure:
(i)Prior Approval from Cypriot VAT Commissioner, the applicant should, on submission of relevant details of the craft, submit an application in writing to the Cypriot VAT Department, for a prior confirmation of the applicable rate of VAT.
(ii)Following approval, the applicant must incorporate a Cyprus company, the company must have as its main trading objects, the power to operate, charter and manage yachts.
(iii) Following incorporation of the Cyprus holding company, the Cypriot Company would apply for registration of a VAT number with the Cyprus VAT Department.
(iv) Having obtained its VAT number, the Cypriot Company shall execute the lease agreement with the lessee.
(v) The Cypriot company shall then submit a copy of the lease agreement, together with the details of the yacht to the Cyprus VAT Department, which shall issue a written issuance of the applicable rate of VAT.
(vi)Following the comprehensive and satisfactory submission of the all supporting documentation the Cyprus VAT Department shall issue a letter of approval, confirming the applicable rate of VAT.
Conclusion
The Yacht Registration Scheme in Cyprus represents an important goal in tax planning – providing interested parties the most valuable and attractive low-cost VAT regime within the EU.
