July 10 2017
Since 2008 any person seeking yacht finance must approach this finance market with a different frame of mind so that he is familiar with when dealing with finance requirements for his business. He must realize that financing the acquisition of a yacht is a risky business for any bank and credit policies are very tight. Furthermore, the banks view yachts as private assets of their clients, not as a business, so any person seeking to finance an acquisition, or a refit, must be aware that the bank will not be impressed by any business (charter) plan, even if intended only to support, and not to replace, a repayment program provided by the owner.
Nowadays there are a number of options in the superyacht sector for yachts worth over €10 million.
For other small yachts, lending becomes more regional as international Banks, consider that it is not worthwhile spending effort, time and money, for smaller deals. In this segment, knowledge of specialized Banks or Branches close to the jurisdiction where the client resides is the paramount consideration. Leasing would be easier to obtain for such yachts.
With regards to the acceptance of a “dossier”, if before 2008 the primary assessment during the application procedure was security, now the emphasis has switched to two main areas: the ability to meet payments and legal matters. Financial institutions want much more detailed information than before which results in an application taking considerably longer.
Marine products available in Europe
Marine mortgage loan
This is the most frequent way to finance commercial and offshore registered yachts.
The loan terms available will obviously be dependent upon various factors such as the creditworthiness of the owner, the age and value of the yacht and any other collateral security that is available.
However, typically terms offered are likely to be as follows:
The owner may also be required to covenant that their net worth will never be less than a specified multiple of the amount of the loan.
The particular terms of any loan are then likely to be set out in a detailed loan agreement including the various conditions required to be satisfied prior to any drawdown and the ongoing covenants with which the owners would be required to comply until the loan is repaid (e.g. concerning the use, condition and operation of the yacht).
Using a leasing scheme is a very attractive way to finance the purchase of pleasure yachts as it allows minimizing the VAT impact.
In simple terms, a lease involves a bank or finance house, buying the asset and then effectively renting it back to the client for an agreed period at an agreed price. For VAT purposes a yacht lease is a supply of services and is deemed to take place where the person who makes the supply is established: i.e. French bank in France, Italian bank in Italy etc. At the end of the lease, the client has the option to buy the asset which then becomes a transfer of goods. In this event a VAT paid certificate will be issued to the lessee provided that all the VAT due has been paid.
They are simple to set up and administer and can be in individual, joint, or company names.
France, Italy and Malta schemes are the most popular.
French and Italian leasing Main features :
The bank will arrange to buy the yacht, finance the balance, settle the VAT and then lease the yacht to the client or to the company for the agreed period at an agreed rate per month (or quarter).
Such scheme may be set up by incorporating a Maltese company, duly registered with the Maltese VAT authorities to act as Lessor. The said company will then be in a position to contract with any client acting as Lessee on a Maltese Yacht Lease, preferably another Maltese company to create more links with Malta.
Upon the conclusion of a Leasing Agreement a letter is written by the Lessor to the Maltese VAT Department informing them of the Leasing Agreement. The VAT Department will thereafter confirm by means of a reply letter that a Leasing Agreement is in place and that VAT will be accounted for in Malta.
At the end of the Maltese Leasing the Lessee may exercise a purchase option on the yacht - the price of which must not be less than 1% of the value of the yacht. The purchase will be subject to VAT at the normal rate in Malta 18%. Upon exercising the purchase option and fulfilling the other prescribed conditions including the payment of all VAT due, the Lessee will be given a VAT Paid Certificate.
Noteworthy is that in terms of the Guidelines it is possible to benefit from the above reductions without involving a bank or finance institution to the contrary of the Italian or French leasing schemes.