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Competition is hotting-up between Cyprus and Malta’s yacht leasing schemes say experts, after the former unveiled its new rental guidelines late last month.
Cyprus’s new scheme means that it has now joined the ranks of the few European Union (EU) members which allow yacht leasing agreements, a contract by which a lessee uses a lessor’s pleasure boat for a fee.
The small group of yacht leasing nations in the Mediterranean already includes Malta, Italy and France.
Yet industry analysts speculate that the new “Cyprus Yacht Leasing Scheme” has taken a leaf or two out of neighbouring Malta’s book – especially in its clauses relating to the right of deduction of value-added tax (VAT) by the yacht’s lessor.
VAT deductions are “where the lines of the competitive race with Malta are bound to be drawn,” says a new report by Moore Stephens, a group of independent accounting and business advisory firms based on the Isle of Man.
The VAT deductions are calculated with various estimates of how the lessee will use the hired yacht. Factors taken into account include the boat’s length, whether it is a motor or sailing vessel, and the amount of time the leased boat will spend in the EU.
According to Moore Stephens’ report, Cyprus has apparently undercut Malta by charging less VAT on the use and enjoyment of yachts over 24 metres in length.
Cyprus will apply its standard 17% VAT rate to 20% of the lease on a 24 metre-plus boat, while experts presume that Malta will apply its 18% standard rate to 30% of the lease. The Cypriot effective rate of VAT for 24 metre-plus yachts would be 3.4%, a better deal than Malta’s 5.4%.
Moore Stephens also calculates that Malta’s leasing conditions on smaller yachts is “on average two percentage points dearer in VAT terms across the scales than in Cyprus.”
The Cypriot scheme also has the upper hand in its allowable conditions.
The initial contribution paid by the lessee in order to hire a boat is 40% in Cyprus compared to Malta’s 50%. Cyprus’s maximum lease period is 48 months, higher than Malta’s 36 months, while its applicable rate of VAT for final instalment payments is just 17% compared to Malta’s 18%.
The Cyprus Yacht Leasing Scheme also entails some disadvantages, reports Moore Stephens. Yacht lessees can reportedly face more demanding direct taxation in Cyprus.
Cyprus’ scheme also demands a higher minimum profit margin to be earned by the lessor on the initial value of the yacht: 10% compared to Malta’s 1%. The minimum rate of interest accrued to the lessor during the lease period is also higher: 5% in Cyprus compared to Malta’s 0%.
“Otherwise there is little to choose between the two,” observes Moore Stephens.
However, controversy surrounds both Cyprus and Malta’s leasing models.
Leasing schemes in France and Italy are used mainly by financial institutions. Yet the Cypriot and Maltese models and their VAT advantages are favoured by smaller lease providers, raising questions about private connections between lessees and third-party lessors.
Despite this controversy, Moore Stephens predicts that Cyprus and Malta’s yacht leasing schemes will vie for attention among superyacht owners looking to reduce their liability for paying EU VAT at the full rate.
For information about Moore Stephens visit http://im.moorestephens.com/yachting.aspx
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