The Maltese Value Added Tax Department issued guidelines on the VAT treatment of the private leasing of aircraft. The guidelines prescribe?a VAT treatment that is broadly similar to that applicable in respect of yacht leasing. The main difference between the VAT treatment of aircraft and yacht leasing transactions refers to the manner in which the extent of use and enjoyment within the EU is determined. In the case of yacht leasing transactions, the use and enjoyment extent is determined by reference to the length of the vessel and method of propulsion whereas in the case of aircraft leasing, use and enjoyment within the EU depends on the aircraft’s Range and Maximum Take-Off Mass (MTOM).
VAT treatment of aircraft leasing The letting and leasing (and related transactions) of aircraft by airline operators for reward chiefly for international transport of passengers and/or goods is exempt (with credit) from VAT.
the letting and leasing of aircraft that is not engaged in international transport is subject to VAT. As from 1 January 2013, the letting of aircraft for more than 90 days will (unless exempt on the basis of international transport exemption mentioned above) be subject to VAT in the country where the lessee is established. However, Member States may apply the ‘effective use and enjoyment’ criterion to determine which portion of the use of the aircraft is treated as being used and enjoyed in the EU and consequently, which portion of the consideration payable for such use is subject to VAT. An aircraft that is leased by a lessor to a lessee is treated as being used partly in the EU and partly outside the EU and the deemed EU use is determined by reference to the specific MTOM and other technical criteria.
How is the use of the aircraft within the EU calculated?
The use within the EU may be calculated by reference to the actual time spent and flights effected in and out of the EU but in practice, a precise calculation may be difficult to make. Therefore, the Maltese VAT Department has adopted a simplified method of calculating the portion of the lease of the aircraft that corresponds to a deemed use and enjoyment portion within the EU. Essentially, the main criteria are the Range and MTOM but other criteria are taken into account. The effective use and enjoyment portion of any aircraft is generated online through the VAT Department’s tool accessible on http://www.vat.gov.mt/docs/GUIDELINES_Aircraft_Leasing_221012.pdf. Maltese VAT at the standard rate of 18% is chargeable on the resulting portion then applied on the established percentage of the lease that is deemed to be related to the use of the aircraft within EU airspace.
In order for an aircraft leasing transaction to qualify for the simplified use and enjoyment calculation, a number of conditions must be satisfied –
a leasing transaction must be entered into 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 lease must not exceed 60 months and the lease instalments must be payable every month
prior approval by the VAT Department is required
The Maltese VAT Department may require the lessor to submit specific details regarding the use of the aircraft and its authorisation may be subject to additional conditions.
VAT payment certification
Upon the termination of the lease and the exercise of the purchase option by the lessee, the Maltese VAT Department will issue a ‘VAT paid’ certificate confirming that VAT on the aircraft has been paid. Such certification is issued provided all applicable VAT has been paid.
Should you require further information please contact Damien Fiott on [email protected].