1 General and Contractual

1.1 What are the typical structures available for financing the purchase of an aircraft?

The most common corporate structure used for financing the purchase of an aircraft involves the incorporation of a special-purpose vehicle ("SPV") to hold title to the aircraft being financed. Popular jurisdictions for incorporations of these SPVs include the Cayman Islands and Ireland, with the British Virgin Islands ("BVI") attracting more industry players recently given the flexibility of BVI business companies and the jurisdiction's long-standing popularity (and use) in Asia. Further, recent amendments to the BVI Business Companies Act (the "BVI Act") have expanded the use of segregated portfolio companies ("SPCs") beyond licensed insurers and professional, private or public funds. SPCs can now engage in management of aircraft, providing additional structuring options for the aviation industry.

In addition to private jet financings, there has been an increase in the use of BVI vehicles in financing structures for commercial aircraft deals, notwithstanding that in those deals, the aircraft are generally not registered in the BVI, nor do such aircraft operate out of the BVI.

1.2 What are the key advantages/disadvantages and main issues arising in relation to these financing structures?

In the private jet space, an increasing number of transactions involving individuals and businesses in Asia has resulted in an increase in the frequency with which BVI vehicles, usually BVI business companies limited by shares, appear in the financing arrangements. Roughly 50% of all BVI companies on the corporate register are owned and operated from Asia, and the region is the largest single market for the jurisdiction's financial services offering. The use of BVI vehicles for these deals enables lenders to take comfort in the jurisdiction's stable political environment, reliable (and tested) court system and its long history of crossborder transactions. In addition, the BVI's corporate legislation provides a public security registration system for lenders and a creditor-friendly stance under its insolvency law.

The capital structure and corporate governance aspects of the BVI Act provide parties to these deals with the opportunity to shape the constitution of the BVI SPV to suit the requirements of the deal. If, as part of the arrangements, security is to be provided over the shares of the SPV, the constitution can be tailored to ensure that the secured party's interests are protected and that upon an enforcement of the security, mechanics are in place to enable the secured party to take ownership of the vehicle.

1.3 What types of leasing are possible under the laws of your jurisdiction? What are their essential characteristics?

Typically, lease arrangements involving BVI companies will be governed by foreign law – English law and New York law being the most common choices.

1.4 Are there any proposals for reform in the area of aviation finance?

There are no current proposals for reform in the area of aviation finance in the BVI.

1.5 Is it possible according to the laws in your jurisdiction to enter into non-binding or partially binding pre-contractual agreements (e.g. 'letters of intent') which will NOT take effect as fully enforceable agreements?

Yes, it is possible.

1.6 Is there a doctrine of 'good faith' in your jurisdiction that applies to all pre-contractual agreement, financing and leasing transaction documents, and the conduct of parties connected to them?

There is no general doctrine of good faith under BVI law.

2 Taxation and Related Matters

2.1 Which government authority in your jurisdiction has primary responsibility for the accounting for and regulation of revenue control and taxes?

The Inland Revenue Department of the BVI government, sitting under the Ministry of Finance, is responsible for administering the local taxation system for the territory. However, as detailed above, there are no local taxes applicable to the aviation-related transactions being described in this chapter, i.e. those that are taking place outside of the territory of the BVI and which do not involve a local presence or establishment within the BVI or employees within the BVI.

In relation to cross-border and international tax matters, the International Tax Authority ("ITA") was established by the International Tax Authority Act, 2018. The primary responsibilities of the ITA are:

  • to carry out the functions of the Competent Authority under the Mutual Legal Assistance (Tax Matters) Act, 2003, which were previously carried out by the BVI's Financial Secretary;
  • to take a proactive stance in relation to all cross-border tax matters that currently affect or have the potential to affect the BVI; and
  • to ensure that the BVI is fully compliant with the international standards of transparency and exchange of information for tax purposes.

2.2 What are typically the taxes in your jurisdiction that may arise in relation to a sale, a lease or a financing of an aircraft or an engine?

Under local BVI law, VAT, GST and stamp duty are not applicable for aircraft trading, finance and leasing.

In addition, companies incorporated or registered under the BVI Act are exempt from local BVI income and corporate tax. Finally, the BVI does not levy capital gains tax on BVI companies.

2.3 Is the provision of a current tax-residency certificate by a payee sufficient for a lessee or a borrower potentially subject to withholding taxes in your jurisdiction on rental or interest payments to avail itself of treaty access and the mitigation of tax liability?

There are no withholding taxes applicable.

2.4 Has the advent of BEPS (the Base Erosion and Profit Shifting initiative of the OECD) had any effect as regards structures in aviation finance and leasing or their interpretation?

As a member of the Inclusive framework on BEPS, the BVI has committed to implement the minimum standards of the 15 Measures created to tackle tax avoidance, improve the coherence of international tax rules, and ensure a more transparent tax environment.

All jurisdictions that are members of the Inclusive framework participate in a peer review process, which allows members to review other members' tax systems, and identify and remove elements that present a BEPS risk. Peer reviews ensure the BEPS minimum standards that are essential to effective implementation of the BEPS package are met.

2.5 What are the typical thresholds in your jurisdiction for which a permanent establishment may be triggered under the terms of any relevant double-tax treaty or similar?

The BVI is not a party to any double taxation treaties. Historically, parties have used the BVI in their financing arrangements partly because there has been no requirement to have a permanent establishment within the territory – the only nexus to the BVI required for BVI companies has been that all BVI companies are required to engage a registered agent for the company. The registered agent will be a corporate services business regulated by the Financial Services Commission ("FSC"), the BVI's financial regulator, having physical operations located in the BVI. Recent OECD and European Union initiatives have resulted in some changes to this construct, the most relevant being the introduction of economic substance legislation to the BVI. The Economic Substance (Companies and Limited Partnerships) Act, 2018 (the "ES Act") was introduced in the BVI, effective 1 January 2019. Under the ES Act, BVI entities subject to the legislation and conducting what are termed in the ES Act as "relevant activities" may be required to have, or to introduce, additional "substance" – primarily people, assets and premises – located in the BVI in order to conduct their business activities. The first reporting period under the ES Act has recently closed and we have yet to see what longer-term impact this legislation will have on the BVI and its use in financing structures.

2.6 Is the authority at question 2.1 likely to establish a 'look-through' right or similar as regards a lender or a lessor which is a special-purpose vehicle involved for the purpose of tax treaty access?

This is not applicable.

2.7 Will the import of an aircraft into your jurisdiction and/or the sale or leasing of the aircraft give rise to any VAT, sales or use taxes or any customs import or excise duties?

Please see question 2.2, noting that there will be customs import tax upon importation of the aircraft into the BVI.

2.8 Are there any documentary taxes (for example, stamp duty payable on the execution of documents)?

No. Please see question 2.2.

3 Registration and Deregistration

3.1 Which government authority in your jurisdiction has primary responsibility for the regulation of aviation and the registration of aircraft? Is it an owner registry or an operator registry? If the aircraft register is an operator register, is it possible to record the details of an owner or lessor and any financier with an aircraft mortgage?

The Air Navigation (Overseas Territories) Order 2013, as amended ("ANOTO") is the highest level of civil aviation regulation applicable in the United Kingdom ("UK") overseas territories, including the BVI. It is administered by the Air Safety Support International ("ASSI"), a not-for-profit, wholly owned subsidiary company of the UK Civil Aviation Authority. As such, the ASSI is the government authority that has primary responsibility for the regulation of aviation.

It is possible to register aircraft in the BVI. The Virgin Islands Aircraft Register (the "BVI Aircraft Register") is established through the ANOTO. Aircraft may be registered in the BVI bearing aircraft registration prefix "VP-L". Under the ANOTO, the BVI Aircraft Register is managed and maintained by the Governor of the BVI. However, the Governor has, in turn, delegated these responsibilities to the Director of the Department of Civil Aviation, which is subject to oversight from the ASSI. Part 2 of the ANOTO describes the relevant registration and marking requirements, with guidance from Part 47 of the Overseas Territories Aviation Requirements ("OTARs"). This is an owner registry.

The BVI has U.S. Federal Aviation Administration ("FAA") "Category One" aircraft register status. This means that the FAA regards the BVI's aviation authority as complying with International Civil Aviation Organization ("ICAO") standards for aviation safety oversight.

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