The Cyprus Yacht Leasing Scheme
The “Special Yacht Leasing Scheme” of the Cypriot Tax authorities, constitute Cyprus the most attractive jurisdiction in the EU in this area, as it can potentially reduce the effective VAT rate payable to register a yacht to as low as 2.42% of the initial value of the pleasure yacht.
In Brief
The regime applies to yachts registered to a Cyprus company and then leased to physical or legal persons. The VAT rate depends on the type and size of the yacht and most importantly is imposed only on a percentage of the lease value and not on the overall value of the yacht.
Depending on the size of the yacht concerned, the effective rate of VAT will vary from 1.90% to 11.4% of the lease value. The variable VAT percentage is based on length, type of yacht (motor or sailing) and the time of use within EU territorial waters as a percentage.
The Lease
For the purpose of this scheme a lease agreement is an agreement enter into between the owner of a yacht and the lessee. Effectively the owner gives the right to the lessee to use its yacht. The Lease is a transaction subject to VAT, taxable at the basic VAT rate of 19% but only to the extent that the leased yacht is used within the EU territorial waters.
However according to the scheme, there is no need to keep records as to the time the yacht is actually used within the EU territorial waters. The relevant percentage is calculated based on certain fixed presumptions i.e. the yacht’s length and type (see table below).
| Boat Type | Boat Length | % of deemed time spent within EU | VAT Charge |
|---|---|---|---|
| Motor Boats | Above 65 meters | 10% | 1.9% |
| 45.01 – 65 meters | 15% | 2.85% | |
| 24.01 – 45 meters | 20% | 3.8% | |
| 14.01 – 24 meters | 30% | 5.7% | |
| 8.01 – 14 meters | 50% | 9.5% | |
| 8 meters and below | 60% | 11.4% | |
| Sailing Boats | Above 65 meters | 10% | 1.9% |
| 45.01 – 65 meters | 15% | 2.85% | |
| 24.01 – 45 meters | 20% | 3.8% | |
| 20.01 – 24 meters | 30% | 5.7% | |
| 10.01 – 20 meters | 50% | 9.5% | |
| 10 meters and below | 60% | 11.4% |
Notes
- The owner shall be expected to make a profit from the leasing agreement. Such profit shall not be lower than 5% of the total value of the yacht and will be subject to corporate tax at 12.5%. Expenses are not allowed deductibles as the margin of 5% would not be met.
- The final payment at the end of the lease (if the option to purchase is exercised) as a result of which the ownership of the yacht passes to the lessee shall not be less than 2,5% of the value of the yacht.
- The final lease payment is subject to VAT at 19%.
The effect of the above is that the total tax liability is higher than the table suggests.
Conditions
All of the following conditions must be met:
a. A lease agreement must exist between a Cyprus company and an other person, legal or natural.
b. The yacht must sail to Cyprus within one month from the commencement of the Lease. Any extension on the above time limit may be allowed only by the Commissioner.
c. The initial contribution from the lessee to the lessor must be at least 40% of the yacht’s value.
d. The lease instalments shall be payable on a monthly basis and the lease agreement shall not exceed the threshold of 48 months.
e. In the year the lease agreement commences the total amount of lease payments on which VAT is calculated is increased by half of the calculated profit of the owner.
g. In order for the above percentages to apply a prior written approval from the VAT Commissioner is required thus. The Commissioner must approve the value of the yacht and the applicable percentage on which VAT is chargeable according to the use of the yacht in EU territorial waters.
Issuance of Certificate
In case the lessee decides to purchase the yacht at the end of the lease term, a VAT Certificate may be issued by the Tax Authorities to the lessee, confirming that the VAT due on the transaction has been settled.
This article is intended to provide general information on the subject and does not constitute legal advice. For further information on the subject and for specific legal advice please Contact Us below.