Malta Aircraft VAT Leasing Guide

The Malta VAT Department has recently reviewed the details of the Malta VAT Aircraft Leasing scheme and has made some welcome changes to the existing arrangements which will be of great interest to those looking to invest in a private jet.

The updated guidelines were issued during April 2016 and contain the following key points.

What is a leasing agreement of an aircraft?
A leasing agreement of an aircraft is an agreement 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.   In addition, after the end of the lease period, the lessee may opt to purchase the aircraft at a percentage of the original cost.  The final purchase is strictly an option which may be exercised by the lessee for a separate consideration.

How is the leasing agreement treated for VAT purposes?
For VAT purposes, other than aircraft used by airline operators in international traffic, the lease of an aircraft is considered to be a supply of a service which is subject to VAT. Due to the nature of the taxable supply the lessor has the right to recover input VAT incurred on business purchases and expenses (subject to usual rules).  The leasing arrangement is taxable according to the use of the aircraft within the airspace of the European Union.

How is the use of the aircraft within EU airspace calculated?
It is very difficult to identify beforehand the movement of an aircraft in order to determine the period that the aircraft is used within the airspace of the EU and the time that it is used outside the EU.

In this regard, the Authorities have carried out an extensive study to review how the percentage portion of the lease based on the time that the aircraft is used in the airspace of the EU is calculated.

The standard rate of VAT of 18% is applied on the established percentage of the lease, deemed to be related to the use of the aircraft in EU airspace. The table below indicates the established percentage portions according to the type of aircraft:

  % of lease  
  taking  
Aircraft type by Range (KM) place in Computation of VAT
  the EU  
     
0 – 2,999 60% 60% of consideration X 18%
3,000 – 4,999 50% 50% of consideration X 18%
5,000 – 6,999 40% 40% of consideration X 18%
7,000 – upwards 30% 30% of consideration X 18%

 

In order to apply this treatment there are a number of criteria which must be applied:

The leasing agreement must 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 lease agreement shall not exceed a period of 60 months and the lease instalments shall be payable every month;

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 VAT Department and each application will be considered on its own merits. Furthermore, the Commissioner for Revenue may impose other conditions which he may deem appropriate.

If, after the end of the lease, the lessee exercises the option to purchase the aircraft, a VAT paid certificate will be issued provided that all the VAT due has been fully paid.

 

Written by Samantha Snow – Client Services Manager