VAT on Commercial Yachts

On the 3rd May 2013, in the case S&D Yachts Limited vs MY Nautonnier, the Court of Magistrates in Malta held inter alia that a vessel registered as a commercial yacht was not automatically entitled to an exemption from VAT.

In this case, S&D Yachts Limited filed in rem judicial proceedings against MY Nautonnier which was registered as a commercial yacht under the Malta flag in relation to an amount due to S&D Yachts Limited for the provision of materials and other objects to the vessel. The said amount included the payment of VAT which the vessel disputed on the grounds that it was a commercial yacht and was therefore VAT exempt.

The court noted that the issue was whether the yacht was to be considered as a commercial 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 amongst other things 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 this case the court also 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), following which case the VAT Department started to apply VAT on vessels which were utilised for leisure purposes since such vessels were not considered as “commercial” yachts from a VAT perspective. From the Charter Party Agreement produced in court it resulted that the use of the yacht was recreational in nature. The cruising area was not the “high seas” and no specific use for the yacht was indicated, save for cruising in the Mediterranean.

In view of the above the court awarded a judgement in favour of S&D Yachts Limited by ordering the vessel to pay the VAT amount due to S&D Yachts Limited since an exemption of VAT would not be applicable in this case.