Can owning a yacht be financially beneficial?

The lease agreement is regulated by the Civil Code and is a so-called named contract. When drafting it, it is important to ensure that it takes into account all individualised factors and contains a detailed scope of rights and obligations. This will significantly reduce the risks associated with renting.

The revenue generated by the rental agreement – as with any agreement – gives rise to tax advice. Tax settlement, on the other hand, mainly due to the complexity of regulations and doubts of interpretation, causes the first problems for the taxpayer on this (relatively easy) road to making money.

According to the current legislation, there are three possible ways to settle the tax on the income obtained from rent. The most favourable way relates to private rental, i.e. not related to business activity. In such a case, the legislator has introduced the possibility of settling the tax in a simplified manner, where the tax is lump-sum and its rate is 8.5%. On the other hand, tax income from a lease concluded within the framework of business activity will be taxed either in accordance with the general rules or with a flat tax (19% rate). However, it is important to know when a lease is still private and when it may be deemed to be a business activity. Indeed, it follows from individual tax interpretations that the tax authorities accept the choice of a flat tax of 8.5 opóty as long as the lease does not meet the prerequisites for determining that it is a business activity conducted by the owner.

However, no provision makes an expressis verbis distinction between private rental and that which constitutes an economic activity. The case law of the administrative courts also does not make it possible to clearly distinguish between the two situations. Particular doubts of interpretation arise with respect to the notion of conducting activity in an organised and continuous manner (administrative courts have issued a number of judgments on this subject, both favourable and unfavourable). However, it is possible to point out basic differences that the yacht owner should bear in mind.

Firstly, the movable property cannot be introduced into business property. Secondly, the lease agreement cannot be entered into in the context of such a business. It is also important that, if the owner is a businessman, the object of his business is not specifically a lease. By keeping these basic principles in mind, the risk of the tax authorities challenging the choice for simplified taxation is reduced. Of course, it cannot be guaranteed that as long as we follow the above indications, the tax authorities will not question the credibility of our actions. Indeed, there are still many doubts about the interpretation of the tax rules, both among the authorities and the administrative courts.

For example, for some, the lease of several properties is already a business activity, while for others it is not, because in their opinion, additional prerequisites should also be met in order to carry out a business activity.

A yacht is best chartered in European islands such as Malta, Madeira or Cyprus.

Malta has a long and varied maritime tradition due to its strategic position in the Mediterranean. The island has become a leading centre for maritime services. The Maltese authorities have developed a highly competitive legislative and regulatory base, which has led to the Maltese Maritime Register having a worldwide reputation and being one of the largest in the world.

Any citizen of an EU Member State has the right to register a yacht in Malta. In addition, any company registered in an EU Member State can also register a yacht with the Malta Maritime Registry. The only stipulation is that the owner of the yacht must be clearly identifiable. For this reason, company registration is more popular.

The applicable legal system in Malta provides for separate modes of yacht registration depending on whether the yacht will be used privately or commercially.

Private registration applies to vessels up to six metres in length, vessels that do not carry passengers and do not carry out any commercial activities. Private boats are registered exclusively for the owner’s use.

Companies operating commercial yachts are exempt from income tax on any income generated by the use of these yachts. The exemption will apply subject to payment of an annual tax calculated on the gross tonnage of the yacht and payment of an annual registration fee. In addition, commercial yachts operating on the high seas and carrying passengers for a fee (the lessee uses the yacht for business purposes) are exempt from VAT on all supplies, including maintenance costs of the yacht, and no VAT is charged on income from charter operations. If the yacht does not qualify for income tax exemption, the charter company can benefit from a low income tax rate of 5%. Any foreign income tax incurred in relation to the yacht’s commercial operations may be treated as an advance against Maltese income tax. In this way, the Maltese tax can be reduced to as low as 0%.

Before a vessel can be registered in Malta, it has to undergo a temporary registration procedure which lasts for 6 months. During this period, the documents for full registration will be prepared.

In addition to very favourable conditions for yacht registration, Malta also has the most attractive tax residency programme in Europe. It is worth considering combining the two to maximise the tax benefits.

Madeira is part of Portugal and therefore shares in all the benefits of EU membership. It is characterised by a specific tax system – autonomous from Portugal’s and preferential on a European scale.

Madeira ‘s existing Madeira International Business Centre (MIBC), created with the full approval of the EU institutions, offers foreign investors preferential tax treatment compared to other EU Member States. An integral element of the MIBC is Madeira’s ship register.

The advantage of registering a yacht in Madeira is that, unlike in other European destinations, the yacht does not have to arrive in the island’s waters or be moored in Madeira. In addition, there are a number of tax incentives consisting of a preferential tax regime for shipowners in Madeira. These include:

• cIT taxation at a rate of 5 by the end of 2020,
• no withholding tax on dividends and interest for foreign companies,
• the exemption of wages paid to crew from personal income tax and social security contributions,
• preferential VAT regime.

Another good place to make money by renting a yacht is Cyprus, whose authorities have prepared a special registration and tax scheme for yachts, which is the icing on the cake in the country’s boat registration programme.

For those wishing to rent their vessels there, Cyprus has to offer, among other things:

• no tax on profits from the operation or management of a yacht registered in Cyprus or dividends received from the company owning the vessel,
• no capital gains tax on the sale or transfer of the vessel and the shares of the company owning it,
• no income tax on the remuneration of officers and crew,
• low registration costs,
• favourable tonnage tax based on gross tonnage,
• no inheritance tax – in case of inheritance of shares in the unit or the owning company,
• no restrictions on the nationality of crew members,
• documents in English are accepted by the Maritime Registry.

Furthermore, VAT is calculated according to the time spent by the vessel in Cypriot or EU waters, as well as the size of the yacht and its type.

In addition, Cyprus – like Malta – offers extremely favourable conditions for obtaining the country’s tax residency.

Craft spending less than six months a year in territorial waters in the European Union can be advantageously registered in the South Pacific Republic of Vanuatu, part of the British Commonwealth. This island nation offers competitive rates associated with vessel registration and zero taxation on charter revenue. Vessels sailing around Antarctica are often registered in this jurisdiction. Thus, despite its relatively low profile and considerable geographical distance, it is not only an attractive but also a safe destination for vessel registration.

The same is true for Liberia. The country is popular especially for larger vessels. It is the oldest democracy in Africa and one of the first offshore jurisdictions to offer zero taxes. The country has the second largest maritime registry in the world and 12% of the vessels registered worldwide are actually flying the Liberian flag.

Before starting a lease – if it will be a private lease or a dividend will be taken from the company chartering the yacht – it is worth applying to the Director of National Tax Information for an individual interpretation of the tax law. It will constitute a kind of protection in the event of possible questioning of the settlements by the tax authorities. A correctly described factual situation and justification of one’s position should help to “catch the wind in the sails”.