Cyprus Yacht Leasing Scheme

The key to reducing the amount of VAT that's due on the purchase of a yacht, is how the craft is purchased. Rather than buying the yacht outright and paying the full VAT on the transactions, by establishing a company in Cyprus and leasing out the vessel through that company, you can take full advantage of the island's advantageous yacht leasing scheme.

The Cyprus yacht lease scheme is an improved model of the similar VAT scheme used in Malta. It allows an even lower level of yacht VAT, as low as 3.4% compared to Malta's 5.4% and offers softer lease repayments over a maximum of 4 years compared to Malta's 3.

VAT on Yachts

The amount of VAT is determined by a vessel's type and size; the premise being, that larger vessels are capable of travelling further and are therefore more likely to spend more time outside of EU waters. For vessels which are 24+ metres long for example, only 20% of the length is subject to VAT. Therefore, on a 24-metre sailing boat or motor boat with a value of €1m, the VAT due would total no more than €38,000 VAT, calculated as follows:

Purchase price = €1,000,000

Amount subject to VAT = €200,000 (20% of the purchase price)

VAT@19% on €200,000 = €38,000

Basis of the Yacht Lease arrangement

• The financial leasing must be between a Cyprus company (lessor) and a lessee.
• The lessee makes an initial minimum down payment to the lessor of 40% of the purchase price of the craft.
• The balance of the purchase price (plus a 5% profit) is then repaid over 48 monthly instalments.
• Upon exercising the option to acquire the yacht, the purchase value at the last contribution of the lease shall not be less than 5% of the original value of the yacht.
• The yacht must come to Cyprus within a month from the commencement of the lease agreement. Nevertheless, you may apply to the VAT Authorities for an extension of this period and the Commissioner of VAT, may allow an extension of this period, provided that the extension will not exceed the period of the yacht leasing agreement.

How we can help you reduce the VAT liability

Our VAT team will first file an application on your behalf in writing to the Cyprus VAT department, for a prior confirmation of the applicable VAT rate. Our written application, will be accompanied by relevant details of the yacht, including certification and survey of the yacht, bill of sale and other documentary evidence as may be requested by the relevant Cyprus VAT department.

Once we receive the confirmation as to the applicable VAT rate and you are happy to proceed, we will then set up your own Cyprus company and ensure that the new company's Memorandum and Articles of Association are correctly drafted.

We will then arrange to register the company with VAT Authorities and obtain a VAT number for the company. Next, we will prepare the yacht leasing agreement which is to be signed between the lessee and the lessor. Once the legal formalities are completed, the business is then in a position to purchase the vessel. We will then submit to the VAT Authorities, a copy of the lease agreement, together with the details of the yacht and relevant yacht documentation (surveyor's valuation, bill of sale).

Upon the completion and fulfilment of the yacht leasing agreement, we will ensure that the owner is issued with an official "VAT Paid Certificate".

In summary:

• We will apply in writing to the VAT Authorities and negotiate with them, so as to establish the rate of VAT that will apply and obtain a letter of confirmation
• We will register your Cyprus Company
• We will ensure that the Memorandum and Articles are correctly drafted
• We will register the company with VAT
• We will prepare the leasing agreement
• We will collect and collate the necessary legal documents
• We will file all relevant documentation with VAT Authorities
• We will account for the VAT and submit the VAT returns
• We will ensure that a "VAT Paid" certificate is issued

The sliding scale of VAT under the Cyprus Yacht Leasing Scheme