Effective from 1st August 2024, the Commissioner for Tax and Customs has introduced an important update to Malta's VAT regulations concerning scheduled sea transport of passengers. This move extends the zero VAT rate to additional scheduled routes, bringing both environmental and economic benefits. 

Here’s an in-depth look at what this means for operators and the broader community.

Understanding the New VAT Guidelines

The recent VAT exemption extension applies to the scheduled sea transport of passengers, which now benefits from a zero VAT rate. This update is detailed under the new guidelines issued by the Commissioner for Tax and Customs and aims to promote the use of scheduled sea routes as a sustainable and efficient mode of transport.

Conditions for Zero VAT Rate

To qualify for this zero VAT rate, operators must adhere to the following criteria:

  1. Approved Schedule: The route must be listed under Subsidiary Legislation 499.23, the Commercial Vessels Regulations, which ensures that the service operates on a pre-approved timetable.
  2. Fixed Route: The transport service must follow a fixed, regular route rather than a variable or on-demand service.
  3. Licensed Vessels: Operators must use vessels that are licensed under the Ports and Shipping Act, Chapter 352, Laws of Malta, ensuring compliance with safety and operational standards.
  4. Publicly Available Schedule: The schedule must be publicly accessible, providing transparency and ease of planning for passengers.

Exclusions from the Exemption

It is important to note that certain services do not qualify for this VAT exemption:

  • Excursions: Sea transport primarily designed for tours, cruises, or sightseeing trips is excluded from the zero VAT rate.
  • Extended Stays: Services where the vessel remains at a disembarkation point for over thirty minutes, including for customer storage purposes, are not eligible.
  • Exclusive Use: Transport services that restrict subsequent embarkation points to the original customer only are excluded.
  • On-Demand Services: Any form of on-demand sea passenger transport services does not qualify.
  • Vessel Hiring: The hiring of vessels, whether with or without crew, is not covered under the exemption.

The Environmental and Economic Impacts

This update is more than just a regulatory change; it represents a strategic push towards sustainability. By incentivising scheduled sea transport, Malta is advocating for a greener alternative to traditional road transport. Sea transport, particularly when scheduled, is typically more fuel-efficient per passenger compared to individual car journeys. This shift has the potential to significantly reduce the carbon footprint associated with inter-island travel and alleviate road traffic congestion.

Beyond environmental benefits, the new guidelines offer a golden opportunity for local operators. With clear, fair regulations in place, legitimate operators can now benefit from the VAT exemption, fostering a more competitive and high-quality transport sector. The criteria set forth ensure that only compliant operators reap the benefits, which in turn drives higher standards across the industry.

Looking Forward and Reflections 

As we celebrate this advancement, it's worth contemplating whether this is merely the beginning of a broader rethinking of our transportation system. The move towards VAT exemption for scheduled sea routes may well be a precursor to a more comprehensive strategy that prioritises both sustainability and efficiency across various sectors.

Reflecting on this, one might question what other areas could benefit from similar VAT adjustments. Could there be potential for reforms that incentivise sustainable practices in different industries? What other transportation or service sectors might see a positive shift if VAT regulations were revisited?

The extension of VAT exemption to further scheduled sea routes is a progressive step towards a more sustainable and efficient transport system in Malta. By adhering to the new guidelines, operators can enjoy financial benefits while contributing to environmental preservation. This policy change not only supports local businesses but also enhances the overall travel experience for residents and tourists alike.

For more information on how RSM Malta can support your business, visit RSM Malta.

Written by Kenneth Cremona, Senior Manager - Indirect Tax Advisory and Compliance