- The Application of VAT Exemptions on Commercial Yachts Registered Under the Malta Flag.
- August 1, 2013
- Law Firm: CSB Advocates - Swatar Office
In the judgement S&D Yachts Limited vs MY Nautonnier delivered by the Court of Magistrates in Malta on the 3rd May 2013, it was held among other things that a vessel registered as a commercial yacht was not automatically entitled to an exemption from VAT.
On 2nd November 2010, S&D Yachts Limited instituted in rem legal proceedings against MY Nautonnier which was registered as a commercial yacht under theMalta flag. The law suit related to a claim of an amount due to S&D Yachts Limited for the provision of materials and other objects to the vessel, which amount included the payment of VAT. The vessel disputed the VAT due since it was registered as a commercial yacht and was therefore VAT exempt.
The court noted that the issue was whether the yacht was to be considered as acommercial vessel which would be exempt from VAT in terms of Article 6 of the Fifth Schedule of Part I of the VAT Act. Article 6 provides inter alia that the supply of vessels used for navigation on the high seas and carrying passengers for reward or used for the purpose of commercial, industrial or fishing activities would be VAT exempt.
In its ruling, the court made reference to the Bacino case (Etat du Grand-Duche de Luxembourg, Administration de l’enregistrement et des demains v. Pierre Feltgen, Bacino Charter Company SA) delivered by the European Court of Justice on the 22nd December 2010 and which has become the main point of reference on this matter for all EU Member States, including Malta. In fact following this case the VAT Department started to insist on payment of VAT on any service or provision rendered to the vessel which was utilised for recreational purposes. A representative for the yacht produced a Charter Party Agreement wherein it resulted that the use of the yacht was for leisure purposes. The cruising area was not the “high seas” and no specific use for the yacht was indicated, save for cruising in the Mediterranean.
For the reasons cited above, the court ruled in favour of S&D Yachts Limited and ordered the vessel to pay the VAT amount due to S&D Yachts Limited since MY Nautonnier could not be deemed to be “commercial” yacht from a VAT perspective and consequently an exemption of VAT could not be applied.
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