Wednesday, 11 November 2015

Cyprus Yacht Leasing Scheme, the most competitive in the EU

Here in Cyprus we asked George Christofides ACA from Citius Trust Ltd if he could explain why it makes sense to register a yacht in Cyprus and he kindly provided us with the following.

Cyprus is an attractive destination for yacht registration in the European Union. Since March 2012, when the Cyprus VAT authorities issued specific VAT Guidelines for a Yacht Leasing Scheme, the effective VAT rate for yacht registration in the EU can be reduced to as low as 3.05%.

To achieve such a low VAT rate, one needs to make use of the Yacht Leasing Scheme. Under the Cypriot VAT regime, the leasing of a yacht for personal use is considered to be supply of services with the right of deduction of input VAT by the lessor. The basic VAT rate of 19% is applicable to the services supplied by the lessor, provided that the leased yacht is used within EU waters.

Rather than using log books to record the time a yacht is used in EU waters, the scheme has fixed this on the basis of the length and type of the yacht. The below tables show the percentage of use of the yacht within EU waters and the calculated effective tax rate on lease payments for each type and size of yacht.

In order for the VAT treatment to be applicable, all of the below conditions need to be satisfied:

The lessor must be a Cyprus registered company. The lessee, although it is recommended to be another Cyprus registered company, can be any individual or legal person irrespective of residence or place of incorporation.

Within 1 month of the inception of the lease agreement, the yacht needs to arrive in Cyprus. The VAT Commissioner can grant extensions at their discretion. However, such extensions can not exceed the time at which the option to purchase the yacht is exercised.

At the inception of the lease agreement, the lessee pays to the lessor a lump sum amount of at least 40% of the value of the yacht.The lease payments are paid monthly and the lease period must not exceed 48 months. At the end of the lease period, the lessee has the option to purchase the yacht for a final consideration of not less than 2.5% of the value of the yacht.

The lessor is expected to make a total profit from the leasing agreement of at least 5% on the initial value of the yacht. This total profit is subject to income tax at the rate of 12.5%.

To adopt the Yacht Leasing Scheme, an application to the VAT Commissioner needs to be filed along with the valuation of the yacht and the lease agreement.

If you would like further information on yacht registration, Costas Demetriades from Citius Trust is happy to discuss the opportunities open to all Boatshed clients.

Citius Trust Limited Nicosia, 1061, Cyprus T: +357 22 258602, M:+357 99 867398 E: cd@citiustrust.com W: www.citiustrust.com

This article was first published on: https://www.world.tax/articles/cyprus-yacht-leasing-scheme-the-most-competitive-in-the-eu.php