Cyprus continues to remain one of the most attractive EU VAT yacht regimes, thanks to a scheme launched by the Cyprus VAT Authority on March 13, 2012.
The regulations provide that only a percentage of the lease value should be subject to Cyprus’s standard VAT rate of 19%, with the effective VAT rate varying from 1.90% to 11.4% of the lease value – depending on the size of the vessel and the percentage of time that it spends within EU territorial waters.
In order to use the favourable scheme, the lease agreement must be duly stamped, and certain conditions apply, with the requirement that all of the conditions are met.
- Must be between a VAT registered Cyprus resident company and any person or company, of any nationality/domicile.
- Must be a period of no less than 90 days and no more than 48 months.
- Profit arising from the lease agreement should not be less than 5% of the initial value of the yacht.
- The yacht should sail in Cyprus within one month from the date the lease-sale agreement becomes effective. Any extension deadline (granted solely by the Cyprus VAT Authority) cannot exceed the lease period in which the lessee can exercise his option to buy the yacht.
- Every application for yacht leasing requires separate written approval by the Cyprus VAT Commissioner, and is considered on an individual case basis.
- The leasing agreement, application for approval and a yacht valuation certificate should be submitted to the Cyprus Commissioner to confirm the effective VAT rate in each individual case.
- Initial lease fee should be at least 40% of yacht’s value.
- Payments must be made on a monthly basis.
- The total of lease payments taken into consideration for calculating the total VAT payable should be increased by the 50% of the profit (2.5%) at the time of commencing the lease agreement.
- The lease agreement will grant the lessee the option to purchase the yacht at the end of the lease period at a price that must be not less than 2.5% of the original value of the yacht.
- The final payment made by the lessee to the leaser is subject to VAT 19%.
- The purchase will be confirmed by the Tax Department with a certificate that states the total VAT liability.