The Cyprus Yacht Leasing Scheme for VAT

Introduction to the Cyprus Yacht Leasing Scheme

The Republic of Cyprus, with its strategic location in the Mediterranean Sea, its robust legal framework, and a favourable tax system, has long been an attractive destination for yacht owners. In recent years, the island nation has been gaining popularity among the maritime community due to its innovative approach towards VAT (Value Added Tax) on yacht leasing – known as the Cyprus Yacht Leasing Scheme. This scheme, implemented by the Cyprus government, offers a practical way to significantly reduce VAT on yacht leasing, providing an attractive incentive for yacht owners and potential buyers.

Understanding the Cyprus Yacht Leasing Scheme

Introduced in 2012, the Cyprus Yacht Leasing Scheme is based on the principle that the larger the yacht, the less time it is likely to spend in EU waters, owing to its ability to undertake longer voyages. Therefore, instead of charging the standard VAT rate on the full value of the yacht lease, the scheme applies a ‘deemed’ percentage of lease time spent within EU waters. This ‘deemed’ percentage varies according to the length and means of propulsion of the yacht, leading to a potential significant reduction in VAT.

The Scheme’s VAT Rates

The VAT rates under this scheme depend on the type and size of the yacht.

1. For yachts over 24 meters long, regardless of whether they are sail or motor yachts, the rate is set at a deemed use within EU waters of 20%, resulting in an effective VAT rate of 3.4%.
2. For motor yachts between 14.01 and 24 meters, the rate is set at 30%, resulting in an effective VAT rate of 5.1%.
3. For sailing yachts between 20.01 and 24 meters, and motor yachts between 8.01 and 14 meters, the rate is set at 40%, resulting in an effective VAT rate of 6.8%.
4. The highest rates apply to sailing yachts between 10.01 and 20 meters, and motor yachts up to 8 meters, which are set at a deemed usage of 60% and 50% respectively, resulting in effective VAT rates of 10.2% and 8.5%.

The Lease Agreement

To benefit from this scheme, a lease agreement must be entered into between a Cyprus company and any individual or company, regardless of their place of establishment or residence. This agreement must be approved by the Cyprus VAT Commissioner, and the lessor is required to make an initial payment of at least 40% of the yacht’s value.

Once the lease agreement is in place and the initial payment is made, the lessor is required to pay VAT on the lease instalments at the effective VAT rates mentioned above, on a quarterly basis.

The Option to Purchase

At the end of the lease period, the lessee may opt to purchase the yacht at a final instalment. This final payment is also subject to VAT, but only at the standard Cyprus VAT rate of 19%. However, this payment is calculated on the residual value of the yacht, which can be as low as 2.5% of the initial value of the yacht, further enhancing the attractiveness of the scheme.

Conclusion

The Cyprus Yacht Leasing Scheme is a smart and practical VAT solution for yacht owners, offering significant savings and making yacht leasing in Cyprus a very attractive proposition. However, it is crucial for potential lessees to seek professional advice in order to ensure all the conditions are met and the scheme is properly implemented. With the right guidance, yacht owners can enjoy the beautiful waters of the Mediterranean while benefiting from a favourable tax environment.

The Cyprus Yacht Leasing Scheme is anexcellent example of the innovative tax solutions available within the European Union, aimed at promoting maritime activities and boosting the maritime economy. By capitalising on these opportunities, yacht owners can enjoy their passion for the sea while minimising their tax obligations.