Tax Update April 2016 – VAT Guidelines for Aircraft Leasing

The Malta VAT Department has recently issued Guidelines regarding the VAT treatment of Aircraft leasing by Maltese companies. These guidelines are based on the same features as those which had been originally introduced in 2012, and take into account the rules in the European Union’s VAT Directive for the determination of the place of supply of services where the effective use and enjoyments of services takes place outside the EU. The main features of a Maltese aircraft lease utilising the Guidelines include the following:

  • A Maltese company is incorporated for the purpose of acquiring legal title to the Aircraft
  • The Owner is registered for VAT purposes with the Malta VAT department
  • The Owner leases the Aircraft to another Maltese company which is not eligible to claim input VAT
  • The term of the lease agreement is for a period not in excess of 60 months
  • The lease installments are due on a monthly basis, but VAT is only paid every quarter
  • At the commencement of the lease, the Commissioner of VAT must first approve the value of the Aircraft and the applicable percentage of the lease payments on which VAT is chargeable
  • If the Lessee decides to purchase the Aircraft at the end of the lease, a VAT paid certificate will be issued by the Malta VAT Department

It is assumed that any leased Aircraft would be partly used within the airspace of the EU, and partly outside such airspace. The Guidelines provide guidance as to the deemed percentage use of an Aircraft within the EU. Accordingly, Malta VAT at the rate of 18% is only payable on that portion of the lease payments which is deemed to be for use of the Aircraft within the EU.

This deemed percentage use has been calculated on the basis of an expert technical study, and has now been revised so as to make reference to the Range of the Aircraft.

Aircraft Type by Range (KM) % of Lease Taking Place in the EU Computation of VAT
2,999 60% 60% of consideration x 18%
3,000  4,999 50% 50% of consideration x 18%
5,000 – 6,999 40% 40% of consideration x 18%
7,000  upwards 30% 30% of consideration x 18%

An aircraft with a range in excess of 7,000 KM will derive the highest benefits in terms of the Guidelines.