The Maltese VAT Department has on Friday 26 October 2012 published a set of guidelines on the VAT treatment of aircraft leasing. On the same lines of the guidelines on the leasing of yachts, the Commissioner of VAT determines, in terms of a percentage, the deemed effective use and enjoyment of an aircraft within the Community in terms of item 12 (1) (a) of Part Two of the Third Schedule to the VAT Act.
These guidelines may therefore be of interest to owners of private aircraft or business jets that are not operated for reward by an international airline operator and therefore do not qualify for the aircraft exemption. The lease of an aircraft is a supply of a service which is subject to VAT which would not likely be recoverable by the lessee. Based on these guidelines, only a part of the lease (corresponding to the percentage of deemed use in the EU) would be subject to 18% Maltese VAT. The lessor, on the other hand, remains entitled to full deduction of input VAT on the acquisition of the asset and related input VAT.
Unlike the guidelines on yacht leasing which determine the percentage of use and enjoyment in the EU based on the length of the vessel, these new guidelines determine the percentage of use and enjoyment within the airspace of the European Union on the basis of a complex mathematical formula established on the basis of an expert technical study. The formula is based on the following criteria:
1. The type of Aircraft
2. Take Off Weight
3. Fuel Capacity
4. Fuel Consumption
6. Cruising Speed
Application of this tax treatment is subject to approval in writing by the VAT Commissioner and is subject to certain conditions one of which is that the leasing agreement must be entered into between a lessor and a lessee both of whom are established in Malta. This point is crucial as otherwise it is likely that the supply would fall outside Maltese VAT jurisdiction altogether. This would particularly be the case after changes to the place of supply rules taking effect on 1 January 2013.
The lease agreement must not execeed a period of sixty months and the lease instalments must be payable every month. It is also understood that the first instalment must correspond to 40% of the value of the aircraft. Where, at the end of the lease the lessee exercises the option to purchase the aircraft at a residual value, a VAT paid certificate will be issued provided that any VAT due has been fully paid.
For further information please contact Dr Jonathan Corrieri or Dr Silvio Cilia.