FFF-Legal

1 June 2010

The Maltese Inland Revenue Department has published guidelines on the tax treatment of finance leasing of aircraft.  The guidelines apply in respect of aircraft finance leasing arrangements not exceeding 4 years - arrangements of 4 years or more are governed by different rules. 

The purpose of the new guidelines is to clarify the level of chargeable income taxable in the hands of the lessor and the type of deductions that the lessee is entitled to claim.

• The lessor is subject to tax on the finance charge, being the difference between the total lease payments received from the lessee and capital expenditure effected by the lessor in the acquisition of the aircraft
• the lessee is allowed a deduction from chargeable income in respect of the (a) the finance lease payments made to the lessor, (b) aircraft maintenance and servicing, (c) repairs and (d) insurance
• the lessee is also allowed capital allowances in respect of the aircraft. Shifting of the wear and tear burden onto the lessor is not allowed
• where the lessee exercises an option to purchase the aircraft at the end of the lease, the purchase price received by the lessor will be treated as a sum of a capital nature and not subject to tax in the hands of the lessor. This applies to the extent that lessor's business does not consist in the buying and selling of aircraft.

It is important to note that the above clarifications are mostly relevant to lessors and/or lessees that are operate from Malta using a Maltese registered limited liability company. A Maltese company is subject to tax in Malta on its world wide income. On the other hand, the international aviation income derived by a lessor/lessee that is resident but not registered in Malta is deemed to arise outside Malta and is taxable in Malta only on a remittance basis. 

For details about the tax treatment of international aviation business, remittance basis of taxation and aircraft depreciation please click here.  

For further information please contact This e-mail address is being protected from spambots. You need JavaScript enabled to view it .