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
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
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.
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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A new legislation, according to which the Tax Department will have the authority to tap into bank accounts of taxpayers without a court order in order to obtain any unsettled taxes, is expected to be enacted soon.
Companies which are incorporated in Malta are deemed to be resident and domiciled in Malta and chargeable to tax on a world-wide basis, irrespective of where the income generating activitiy is carried out.
Third country nationals may take up residence in Malta in terms of the Global Residence Programme Rules (GRP) Rules.
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