Guernsey: Guernsey’s 2-REG Aircraft Registry – The Tax Angle

Last Updated: 5 December 2014
Article by Jo Huxtable

Most Read Contributor in Guernsey, November 2017

Guernsey's introduction of its Aircraft Registry, the 2-REG, in December 2013 provided another excellent opportunity to shine the spotlight on Guernsey and to showcase what it has to offer international clients looking for bespoke solutions and excellent standards of service.

As has been pointed out in many articles since the launch, Guernsey continues to be attractive because it offers innovative and fully serviced wealth management and financial services solutions to individuals and corporates from all over the world from the full range of financial, legal, accountancy and fiduciary providers.

However, so far, not much has been said about tax. Is there a tax angle?

Of course! Clients who wish to establish a vehicle to hold their aircraft, regardless of where that aircraft is registered, may choose a Guernsey incorporated company and therefore take advantage of the benign tax regime which applies. Guernsey's corporate tax regime, known as Zero 10, has a general rate of company tax of 0% with a narrow intermediate rate of 10% applying to certain banking activities as well as the income of regulated fiduciary activities and certain types of insurance business. Income from local property and regulated utilities is taxed at 20%.

A company established to own an aircraft would be subject to 0% tax on any income. If the company was owned by non-residents and did not have any employees, its tax filing position would be very simple with no tax computations or accounts required but rather an annual "tick box" return filed online. In addition, the company's shareholders could waive the requirement for an audit which would further reduce costs.

Other attractions of Guernsey's tax regime include the fact that there is no capital gains tax, capital transfer tax, inheritance tax, VAT or GST. Furthermore, dividends, interest and royalties can all be paid from the company to a non-resident with no requirement to deduct Guernsey tax.

Those who wish to relocate to Guernsey will find the personal tax regime equally appealing with a 20% rate of income tax capped at a maximum of £220k per annum (or £110k for non-Guernsey source income only) – highly attractive for its simplicity.

But is it all as simple as that?

From a corporate tax perspective a key consideration is to ensure that the company preserves its Guernsey residence status for tax purposes and does not inadvertently find itself subject to corporate taxes in other countries. To the extent that the company generates any income, it is important to ensure that the central management and control, as well as the general running of the company, takes place in Guernsey, ideally with the appointment of directors who are resident in Guernsey and therefore able to make any decisions regarding the company in Guernsey.

A key point to bear in mind with the 2-REG (in common with other similar registries) is that 2-REG registered aircraft are prohibited from being operated for commercial air transport purposes, which means that the aircraft cannot be used for the carriage of passengers or cargo in return for payment. Hence aircraft registered in Guernsey will typically be used by individual owners and their families or by companies in order to transport their employees. As such, the way the aircraft is used is unlikely to have an impact from a corporation tax perspective unless there is a question around a tax deduction for the lease/depreciation cost of the aircraft and of course the ultimate sale of the aircraft could be significant for corporation tax purposes. In contrast, the VAT regime works quite differently and presents some additional considerations!

Where an aircraft is registered and whether or not VAT has to be paid are two separate questions. Non-Guernsey based, Guernsey-registered aircraft will not be subject to any greater or lesser amount of VAT as a result of registering in Guernsey. Guernsey does not have VAT or GST and therefore registering an aircraft in Guernsey or importing an aircraft into Guernsey will not in itself result in VAT being payable in Guernsey. If a Guernsey-registered aircraft is purchased outside of Guernsey or is imported into a country other than Guernsey then VAT may be payable, depending upon the rules of the country in which it is purchased or into which it is imported.

VAT usually applies depending on very specific "place of supply rules" which need to be analysed to understand where the sale or lease is treated as taking place for VAT purposes. For supplies of goods, such as the sale of an aircraft, this is typically linked to the physical location of the aircraft when it is sold but if this is outside the EU and the aircraft then flies into the EU, VAT may be due on importation. Leases of aircraft may be supplies of goods or services depending on the terms and duration of the lease – so again, other VAT rules may need to be considered.

The VAT analysis of aircraft transactions can be complex but the next few sections set out the basic rules.

VAT is a European tax which is based on a single piece of law, called the Principal Directive, which, broadly speaking, governs the way VAT is implemented within national law. As such, when, for example, analysing the VAT implications of a transaction which takes place in the UK, it is important to refer to the UK's VAT Act. However, when considering more widely how transactions are treated across the EU, it is helpful to refer to the Directive, as well as considering the national legislation and practices of the member state(s) involved. VAT is not a tax on profit but applies to the gross transaction value (sales proceeds, lease charge). If VAT is incurred, for example on the purchase of the aircraft or importation into the EU, the VAT may be recoverable by the recipient if they are registered for VAT in the EU and if they can demonstrate the VAT has been incurred for a business purpose. In addition, there is a relief from VAT for certain aircraft (essentially a 0% VAT rate) but this only applies to those aircraft "used by airlines operating for reward chiefly on international routes". As already noted, the Registry will not permit an aircraft to be registered if it is carrying out commercial air transport operations and so it is highly unlikely that any 2-REG aircraft will benefit from the VAT zero rating.

If an aircraft owned by a non-EU resident is flown into the EU, the aircraft can remain there for up to six months with no VAT liability arising due to the Temporary Importation regime. If a more substantial presence is required, and if the aircraft is being used and flown in and out of the EU, then VAT may be due on importation. If the company is using the aircraft within a business (for example, flying employees as part of their job) it should be possible to ensure that such VAT charged is recoverable. This means that VAT-registered owners permanently importing a Guernsey-registered aircraft into the EU to use for business purposes should be able to recover any VAT incurred. If the owner of the aircraft to be imported is not VAT-registered, or if the aircraft is not being imported into the EU for business purposes, then VAT will be payable. Certain EU member states allow for an aircraft that is to be used for both business and pleasure to be imported into the EU via that member state if VAT is paid in relation to the proportion of the use that will be for pleasure.

As indicated above, the VAT place of supply rules are a minefield and the analysis can be complex to determine where a sale or lease takes place for VAT purposes; it is therefore prudent to take specialist advice in relation to each particular aircraft.

Although not relevant to the 2-REG, other rules to watch with aircraft surround the VAT treatment of chartering. The rules can change depending on whether the charter is for more or less than 30 days, the nature and size of the aircraft, who is the operator and who is the customer! Furthermore, the rules are sometimes different even within the EU!

Any transactions with third parties should involve careful consideration of the possible impact of VAT, as at rates averaging 20% that apply to the value of the asset (not the gain) it could be a significant cost to mismanage.

What about duty?

Guernsey has a special "hybrid" status being within the EU customs union, allowing goods to move around free of duty, but outside the EU for VAT purposes. This can provide advantages although only to the extent that the physical movement of the goods is to or from Guernsey. The rate of customs duty for most aircraft is typically 0% according to the customs tariff applied across the European Union. However, care needs to be taken where goods are transported on board the aircraft as these could be subject to customs or excise duty on importation. Furthermore, duty rates outside the EU could be higher and so specific advice should be sought depending on where the aircraft will be used.


Guernsey has raised its profile as a highly transparent and co-operative regime at an international level with a tax regime that is attractive to clients wishing to establish asset-holding structures. The registration of an aircraft on the 2-REG allows an owner to enjoy the highest standards of safety oversight, customer service and convenience without any tax disadvantage. However, international tax and VAT rules are complex and the rates can be high and therefore it is essential that comprehensive and bespoke tax and VAT advice is sought in order to avoid any inadvertent costs arising.

An original version of this article was published by Offshore Investment.

For more information about Guernsey's finance industry please visit

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions