VAT Exemption for Scheduled Sea Transport of Passengers in Malta

Effective Date: 1st August 2024

Purpose and Background

The Commissioner for Tax and Customs (CfTC) has established guidelines to clarify the application of the VAT exemption (zero VAT rate) for scheduled sea transport of passengers, in conformity with Article 75(2) of the VAT Act (Chapter 406, Laws of Malta). This document aims to determine the manner of application of the zero rate VAT as per paragraph (b) of item 11 of Part One of the Fifth Schedule to the VAT Act, which specifies the conditions under which scheduled sea transport of passengers can benefit from a VAT exemption.

Paragraph (b) of item 11 states:

“Scheduled inter-island sea transport of passengers by authorized carriers and other scheduled sea transport of passengers recognized as such by the Commissioner. For avoidance of doubt, ‘scheduled inter-island sea transport of passengers’ shall mean scheduled transport of passengers between the islands of Malta and Gozo.”

These guidelines are specifically aimed at defining what constitutes “other scheduled sea transport of passengers” that would qualify for the zero VAT rate.

Determination

For the purpose of applying the zero VAT rate on other scheduled sea transport of passengers, the Commissioner will recognize services provided by a taxable person (referred to as the “Operator”) that meet the following conditions, effective from 1st August 2024:

1. Pre-determined Schedule and Approval:
   • The sea passenger transport service must operate on a pre-determined schedule, approved by the Authority for Transport in Malta according to Subsidiary Legislation 499.23 (Commercial Vessels Regulations).
2. Fixed Route and Approval:
   • The transport service must operate on a fixed route, also approved by the Authority for Transport in Malta under Subsidiary Legislation 499.23 (Commercial Vessels Regulations).
3. Specific Embarkation and Disembarkation Points:
   • The fixed route must specify distinct embarkation and disembarkation points within the route, which must include at least two different embarkation points. The route should not have any stopovers or deviations outside the established route.
4. Registration and Licensing:
   • The vessels used for the service must be duly registered and licensed under the Ports and Shipping Act (Chapter 352, Laws of Malta).
5. Public Schedule:
   • The schedule must list exact times and dates for any routes and be made publicly available online by the service provider at least three months in advance of the transport service date.
6. Schedule Maintenance:
   • The service provider must ensure the public schedule is kept updated.

Operators seeking recognition from the Commissioner must apply via electronic mail (servizz@gov.mt), providing approvals from the Authority for Transport in Malta and any other relevant information. The zero VAT rate exemption will apply from the date established by the Commissioner upon confirmation.

Conditions Excluding VAT Exemption

The following services will not be recognized as scheduled passenger transport services for the purpose of the zero VAT rate:

• Excursions:
  • Services primarily providing tours, cruises, or sightseeing trips.
• Extended Use:
  • Services where the vessel is made available for customer use at a disembarkation point for more than thirty minutes, including for the storage of personal objects on board.
• Single-use Services:
  • Services where only the customer departing from one embarkation point can use the transport service at other points.
• On-demand Services:
  • On-demand sea passenger transport services.
• Hiring of Vessels:
  • Hiring of vessels with or without crew.

Furthermore, any scheduled passenger transport services provided outside the approved schedules and routes will not qualify for the zero VAT rate.

Supplies on Board During Transport

Any supplies of goods and/or services (e.g., food and beverages) provided on board vessels during the scheduled passenger transport service will not be treated as a single composite supply with the transport service. These will be treated as separate supplies for VAT purposes, regardless of whether they form part of the transport service consideration or are included in a service package.

Coming into Effect

The recognition by the Commissioner for other scheduled passenger transport services will only apply if the tax on such services becomes chargeable on or after 1st August 2024, according to the Fourth Schedule to the VAT Act.