Cyprus: Cyprus Aircraft Leasing VAT Scheme


Following the successful implementation of the Yacht Leasing Scheme, the Cyprus VAT Department has recently introduced an Aircraft Leasing VAT Scheme.

Similar to the Yacht Leasing scheme, this new incentive refers to individuals who would like to buy a pleasure aircraft for flying within EU airspace and its aim is the reduction in the VAT rate which can be as low as 4.37% instead of 19%. This reduced effective vat rate is calculated as a percentage of the time that the aircraft is deemed to fly within EU airspace.


According to the guidelines, aircraft leasing 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.

Such a lease agreement may also give the lessee the option to purchase the aircraft at the end of the lease period for a separate and additional consideration. When such option is exercised, a VAT paid certificate will be issued provided that all the VAT due has been fully paid.


Since it is practically impossible to establish the period that an aircraft is used within the EU's airspace, the VAT Department has determined that the percentage of the lease taking place in the EU's airspace will depend:

  • upon the type of aircraft involved e.g. Piston, Turbo, Jet and
  • upon the maximum take-off weight

The following table determine the percentage of lease which is subject to VAT as well as the effective VAT rates for each type of aircraft:-

It must be noted that, the above VAT treatment does not apply to aircrafts used by airline operators in international traffic and in cases the lessee has the right to deduct input VAT.


In order for the lease to benefit from this reduced VAT level, the following conditions are applicable:

  • Leasing agreement shall be between a lessor and a lessee who are both established in Cyprus (i.e. Cyprus Companies); It should be noted that the following leases also qualify:

    • Leases assigned from another EU Lessor company to a Cyprus one which will be acting as the lessor for an aircraft being leased to a Cyprus lessee and
    • leases where the Cyprus company acts as a sublessor of an aircraft being leased to a lessee established in Cyprus
  • The lessor must be registered for VAT purposes with the Cyprus VAT Department;
  • The lessee would not be eligible to claim input VAT (i.e. the lessee should not use the aircraft for business purposes but for pleasure);
  • The aircraft should fly in Cyprus within 2 months from the date the lease-sale agreement of the aircraft becomes effective. An extension to this deadline can only be given by the Cyprus VAT Department.
  • The lessee should initially pay the lessor at least the 40% of the value of the aircraft;
  • The lease agreement period should not be less than 3 months (91 days) and not more than 60 months;
  • The lease agreement should result in profit for the lessor amounting at least to 5% of the aircraft's original value (50% of that profit to be included in the monthly instalments and the remaining 50% with the final instalment).

  • Lease instalments shall be paid every month;
  • VAT shall be paid on a quarterly basis; and
  • Prior approval must be sought in writing from the VAT Department and each case is considered on its own merits.


The VAT scheme on aircraft leasing is expected to have a positive response as it reduces the VAT liability significantly in accordance with the deemed usage of the aircraft within the European Union airspace. Coupled with the reduced corporate tax of Cyprus, the Cyprus aircraft leasing scheme aims to render Cyprus as one of the top jurisdictions for aircraft leasing.


Kinanis LLC will be in a position to offer a one-stop-shop solution and can provide you with the following services:

  • Incorporating and administrating of the Cyprus lessor and lessee companies which will acquire and lease the aircraft respectively;
  • Drafting the relevant lease agreement;
  • Calculating of the percentage of the deemed usage of the aircraft within the EU airspace that will determine the applicable VAT saved a priori;
  • Preliminary Tax advice;
  • Completing and submitting of the relevant application with the VAT Authorities along with the necessary documentation;
  • Completing and submitting the subsequent VAT Reporting;
  • Arranging for the relevant VAT payments;
  • Communicating with the VAT Department for any further requirements it may have;
  • Annual Accounts and Audit.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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