As from May 2012 Cyprus has introduced an attractive yacht leasing scheme through the issuance of V.A.T. circular 163.
With this scheme Cyprus has now become a primary jurisdiction for registration of yachts in Europe reducing the effective rate of V.A.T. dramatically.
It offers certainty and is relatively simple to administer. This treatment is available only to lessor companies registered in the Republic of Cyprus.
It has the basic principles of a finance lease.
As from January 2014 V.A.T. circular 163 has been replaced by V.A.T. circular 181.
Leasing agreement of a yacht
Agreement for lease of a yacht is an agreement where the lessor (owner of the yacht) agrees with the lessee (the person who leases the yacht) to use a specific yacht in exchange for lease payments. At its expiration it may also provide to the lessee the option to purchase the yacht at a predetermined last lease payment. This last payment must be at least 4% of the lease value.
V.A.T. treatment of the leasing of a yacht
For V.A.T. purposes, the leasing of a yacht is considered to be a supply of service which gives the right to the lessor to deduct the relevant input V.A.T. on any expenses incurred that are directly related to this activity.
The provision of this service is subject to Cyprus V.A.T. at the standard rate of 19% provided that the yacht is being used within the territorial waters of the EU.
Calculation usage of a yacht within the territorial waters of the EU
The basic principle is that V.A.T. authorities assume that a specific yacht is used in EU as well as non EU waters.
For the purpose of calculating the percentage of usage of a yacht within EU waters V.A.T. authorities have established pre-determined percentages of usage within the EU territorial waters based on the size of the yacht and its type (i.e. motor or sailing yacht) as described below. No log books or any other proof of usage is required.
Table A. Motor Yachts:
|
Length of yacht |
Percentage (%) of usage within EU |
V.A.T. Calculations |
Effective V.A.T. Rate |
| Length greater than 24m |
20% |
20% of lease Value × 19% |
3.8% |
| Length 14,01-24m |
30% |
30% of lease Value × 19% |
5.7% |
| Length 8,01-14m |
50% |
50% of lease Value × 19% |
9.5% |
|
Length up to 8m |
60% |
60% of lease Value × 19% |
11.4% |
| Yacht within protected waters only |
100% |
100% of lease Value × 19% |
19% |
Table B. Sailing Yachts:
|
Length of yacht |
Percentage (%) of usage within EU |
V.A.T. Calculations |
Effective V.A.T. Rate |
| Length greater than 24m |
20% |
20% of lease Value × 19% |
3.8% |
| Length 20,01-24m |
30% |
30% of lease Value × 19% |
5.7% |
| Length 10,01-20m |
50% |
50% of lease Value × 19% |
9.5% |
| Length up to 10m |
60% |
60% of lease Value × 19% |
11.4% |
For the Scheme to apply all of the following conditions must be met:
- The agreement for the leasing of the yacht must be between a Cyprus Registered Company and any physical or legal person, irrespective of his place of establishment or residency.
- The yacht should sail to Cyprus within one month from the date of the lease agreement. Any time extension in relation to the aforementioned period of time must be agreed with the V.A.T. Commissioner. This time extension cannot, in any case, be greater than the period of time during which the right of the purchase of the yacht is exercised.
- At the beginning an initial payment of a minimum of 40% of the value of the yacht is required.
- The minimum lease period is 3 months. Lease payments must be payable on a monthly basis and the lease agreement cannot, in any case, exceed a maximum of 48 months.
- The lessor is expected to have a profit from the lease agreement of at least 8% on the value/purchase price of the yacht. To reach the lease price a minimum of 4% interest must be charged on top of that
- At the expiration of the lease agreement the lessee has the right with one last payment to acquire the ownership of the yacht. This final payment must be at least 4% of the lease price before charging the interest. This payment bears V.A.T. at the standard rate of 19%.Then the ownership being effectively transferred to the lessee.
- In order for the lease agreement to be valid, written confirmation and approval from the V.A.T. Commissioner is required before commencing the lease. Value of boat and percentages of V.A.T. charged are pre-approved. Each application submitted to the V.A.T. Authorities must be accompanied with an invoice and/or survey proving the value of the boat together with the lease agreement concluded between the parties to the lease contract.
Certificate of V.A.T paid
Upon the expiration of the lease and the transfer of the yacht to the lessee, a certificate of V.A.T. PAID will be issued by the V.A.T. Authorities.
Composed by: Kyriacos Koutsoftas, Director, PEK LTD
