The government expressed “surprise” that it was only now that the European Commission was reportedly querying the system of VAT levied on boat leasing.
“Nothing has changed in the arrangement regarding Malta’s VAT treatment of leasing of large yachts as reported to the European Commission way back in 2009,” a spokesman for the Office of the Prime Minister said.
According to influential French newspaper Le Monde, Brussels is looking at whether the advantageous Maltese VAT schemes could violate taxation rules. It reported that European Taxation Commissioner Pierre Moscovici, a Frenchman, had already sent a letter to the Maltese authorities asking for clarification on the scheme, whereby owners of yachts longer than 23 metres pay a reduced VAT rate of 5.4 per cent.
That rate is charged instead of 18 per cent if the vessels are used for leasing.
The newspaper report comes within the context of the debate on tax havens around the world as a result of the Panama and Paradise Papers leaks, in both of which Malta is also mentioned.
The Prime Minister’s spokesman told Times of Malta that “Malta uses a similar treatment and a predetermined schedule used in many EU member states, including France, Italy, Greece and Cyprus”.
Maltese practitioners in the yachting industry also confirmed that the scheme on the preferential rate of VAT related to yacht leasing has been in place for years.
They insisted there is nothing suspicious about it.
“This is a perfectly legal mechanism, which has been adopted successfully for over 10 years,” a leading practitioner said.
“The Maltese structure is based in the assumption that yachts of a particular length spend only a percentage of their time in EU waters, leading to VAT being paid only in relation to the said amount of time.” In the industry’s view, the Maltese leasing structure has proven to be a reliable and durable one.
Malta rakes in millions of euros in taxes annually from the scheme. However, the industry warned that the “extra focus” on Malta, as a result of the Panama Papers and other tax-related leaks, is “harming the island and is bringing extra attention on us.
“The government needs to get its act together, because all these allegations about what is going on in various aspects of the local financial services industry will finally take a toll on our small economy,” practitioners warned.