Cyprus: Cyprus VAT Aircraft Leasing Scheme Set To Be The Most Competitive In Europe

Last Updated: 22 June 2015
Article by Charles Savva

With recent investment initiatives being of top priority to encourage foreign investments into Cyprus, the new Cyprus VAT Aircraft Private Leasing Scheme (CPAS) is of particular appeal, with VAT rates dropping to as low as 4.37% for private jets used for pleasure purposes, the main aim of the Cyprus Tax Department, is to have the lowest VAT rates and most appealing Aircraft Leasing Scheme in Europe.

Following the successful launch of the Cyprus VAT Yacht Leasing scheme three years ago, this new incentive Scheme has sparked worldwide interest in Cyprus and is tailored at those who would like to lease or purchase a private aircraft with view to flying within EU airspace, and enjoy the lowest VAT rates in Europe.

A Private Aircraft Leasing Agreement is considered a supply of services for VAT purposes and is taxable at the standard rate of VAT of 19%, with reference to the use of the aircraft within the European Union airspace. It enables the lessor (owner of the aircraft) to contract the use of the aircraft to a third party, the lessee (the person who leases the aircraft) in return for a consideration. Upon the completion of the lease period, the lessee may exercise the option to purchase the aircraft at an additional consideration.

Since it is practically impossible to establish the amount of time that an aircraft spends within the EU's airspace, the Tax Department has determined that the the effective rate of VAT applicable, is calculated based on the percentage of the time the aircraft is deemed to fly within the EU airspace and based on the type of aircraft involved e.g. Piston, Turbo, Jet and the maximum take-off weight.

Important conditions apply while considering the effective use of the Scheme for such reduced rates of VAT including the following:

  • The aircraft must fly in Cyprus within two months of the date of inception of the lease agreement. Any postponement to the above can be granted only by the Commissioner of Taxation. The delay in any case cannot exceed the lease period whereby the right of purchase can be exercised.
  • The lease agreement shall be between a Cyprus resident company, registered for VAT in Cyprus, and any physical or legal person established or residing in Cyprus, or having his place of residency in Cyprus - not being involved in any economic activity. It should be noted that full anonymity and confidentiality can be preserved through corporate structures.
  • The initial lease fee should be at least 40% of the value of the aircraft.
  • Lease payments should be payable on a monthly basis, along with the applicable VAT based on the rates described above.
  • The lease period should not be for less than 3 months (91 days), and cannot exceed 60 months.
  • The aircraft may be purchased outright by the lessee at the end of the lease period. The final payment should not be less than 2.5% of the initial value of the aircraft. Such final payment is subject to VAT at the standard rate of 19%.
  • The purchase will be confirmed by the Tax Department in the form of a certificate, stating the total VAT liability.
  • The profit from the lease agreement derived by the lessor should not be less than 5% of the initial value of the aircraft.
  • At the time of commencement of the lease agreement, the total of lease payments that are taken into consideration for calculation of the total VAT payable should be increased by 50% of the profit i.e. 2.5%.
  • The private aircraft may be registered under any register in the world and not necessarily under the Cyprus aircraft register.
  • On entering into the Scheme, the Tax Department will issue a Provisional VAT paid Certificate. In the case where the lessee exercises the option to buy the aircraft at the end of the lease period, the Tax Department will issue a certificate to the lessee confirming full payment of the total VAT liability, provided that the VAT liability has been paid in full.
  • When the VAT on the balloon amount is paid (40% of the value), the lessor may custom clear the aircraft in Cyprus and the Customs Director will issue a T2L Certificate. In the case where the lessor-owner does not pay any VAT on the monthly lease payments, import VAT will be demanded by the Customs Director.
  • Finally, it should be noted the following leases also qualify under the CPAS:
  1. Leases assigned from another EU lessor company to a Cyprus company which will be acting as the lessor for an aircraft being leased to a Cyprus lessee.
  2. Leases where the Cyprus company acts as a sub lessor of an aircraft being leased to a lessee provided that the lease agreement establishes the lessee's option to buy the private aircraft at a price being a percentage on the initial value of the aircraft.

The CPAS is expected to generate much interest among flight enthusiasts, offering the most competitive Private Aircraft Scheme with the lowest VAT rates in Europe, coupled with the attractive corporation tax that Cyprus has to offer and the strategic location of the island, Cyprus is quickly becoming one of the top jurisdictions for aircraft leasing and registration.

Savva & Associates and our team of VAT experts can assist you with the full implementation of the CPAS, substantially decreasing your VAT exposure upon purchase of a private aircraft within the EU. Our services extend to setting up and the ongoing administration of the appropriate aircraft-owning company in Cyprus, aircraft registration, and undertaking all necessary tax and legal arrangements and procedures on your behalf.

For further information on the benefits of using the Cyprus VAT Private Aircraft Leasing Scheme please contact Charles Savva at c.savva@savvacyprus.com.

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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