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VAT treatment of aircraft leasing

Deloitte Malta Tax Alert

In April 2016 the Malta VAT Office published guidelines regarding the VAT treatment of aircraft leasing. These guidelines supersede the ones that were issued in October 2012, and are intended to simplify the computation of the effective VAT rate that applies to the long-term leasing of private aircraft to non-business customers.

In terms of the EU VAT Directive, Member States may introduce measures intended to prevent double taxation, non-taxation or distortion of competition, by deeming the place of supply of certain services to be in the Community or outside the Community according to where such services are used and enjoyed.  Malta has adopted such measures with regard, inter alia, to the leasing of means of transport including yachts and aircraft. 

With regard to the leasing of aircraft, the guidelines published by the Malta VAT Office in 2012 set out various criteria (e.g. maximum take-off weight, fuel capacity, optimum altitude and so on) to determine the percentage of the time that a private aircraft which is leased on a long term basis is deemed to be used in the Community and outside the Community.  Such percentage is relevant because VAT is only chargeable on the lease charge corresponding to the percentage of the time that the aircraft is deemed to be used in the Community.

The guidelines published in April 2016 have done away with these criteria and, following an expert technical study carried out by the authorities, identify only one relevant criterion in determining this percentage, this being the aircraft range in kilometres, in accordance with the following table:

Aircraft range (km)

Community use %

Effective VAT rate*

From

To

 

 

0

2,999

60%

10.8%

3,000

4,999

50%

9.0%

5,000

6,999

40%

7.2%

7,000

and over

30%

5.4%

*The effective VAT rate is based on the current Malta standard VAT rate of 18%

In terms of the official guidelines, the above VAT treatment is subject to the following conditions:

  • The leasing agreement shall be 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 agreement shall not exceed a period of sixty months and the lease instalments shall be payable every month;
  • Prior approval must be sought in writing from the Commissioner for Revenue who may impose certain other conditions before approving the lease.

If the lessee opts to purchase the private aircraft from the lessor at the end of the lease, a VAT-paid certificate would be issued by the authorities, provided that all VAT on the lease charges would have been paid.

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