VAT on Aircraft Leasing 

 

GUIDELINES REGARDING VAT TREATMENT OF AIRCRAFT LEASING

 

What is a lease of an aircraft?

 

A lease of an aircraft is a service whereby the lessor (the owner of the aircraft) contracts the use of the aircraft to a lessee (the person who leases the aircraft) for a consideration.

 

How is the lease treated for VAT purposes?

 

For VAT purposes, except for aircraft used by airline operators in international traffic, the lease of an aircraft is a supply of a service which is subject to VAT with the right of deduction of input VAT by the lessor (where such right applies). This service is taxable according to the use of the aircraft attributed within the airspace of the European Union.

 

How is the use of the aircraft within EU airspace calculated?

 

For VAT purposes, the determination of the period that the aircraft sends within EU airspace and the time it spends outside of EU airspace is a calculation which falls under the responsibility of the lessor and where such assessment would normally have to be corroborated by proof. However, it is recognised that rental companies may have difficulty in carrying out this assessment due to circumstances beyond their control. In such circumstances, upon justification, the Commissioner for Revenue may consider accepting that the time that the aircraft spends in EU airspace would be an estimated percentage based according to the following table:

 

Aircraft type by Range (KM)                          % of lease taking place in the EU

 

0         -  2,999                                                                               60%

3,000  -  4,999                                                                               50%

5,000  -  6,999                                                                               40%

7,000  -  upwards                                                                          30%

 

Amended Guidelines regarding VAT treatment of Yacht and Aircraft leasing

 

The Commissioner for Revenue has published amended versions of the guidelines regarding the VAT treatment of yacht and aircraft leasing. It is noted that the determination of the period that the boat/aircraft spends within the territorial waters/airspace of the EU is not carried out by automatic reference to the published table but shall be subject to approval by the Commissioner after that the rental company shows to his satisfaction that it cannot reasonably carry out a physical assessment of such time outside the EU due to reasons beyond its control. Each application submitted is examined on a case by case basis and has to be approved in writing by the Commissioner.

 

In order to apply this treatment the following conditions shall apply:

 

The lease agreement shall be between a lessor who is established in Malta and a lessee who is also established in Malta and who would not be eligible to claim input tax in respect of the lease;

 

The Commissioner for Revenue may require the lessor to submit details regarding the use of the aircraft; Prior approval must be sought in writing from the Commissioner for Revenue and each application will be considered on its own merits. Furthermore, the Commissioner for Revenue may impose other conditions which he may deem appropriate.

 

The Commissioner for Revenue reserves the right to substitute, alter or withdraw these guidelines as necessary at any time.