The Maltese VAT department has published the long awaited guidelines in respect of aircraft leasing, meaning that a lower effective rate of VAT may be availed of for the use of an aircraft within EU airspace.
In terms of the guidelines a lease agreement may be entered into by virtue of which the lessor (the owner of the aircraft) contracts the use of the aircraft to a lessee for a consideration. At the end of the lease period, the lessee may exercise his option to purchase the aircraft at a percentage of the original cost.
The lease of an aircraft is considered as the supply of a service which is subject to VAT with the right of deduction of input VAT by the lessor. This service is taxable for the use of the aircraft attributed its use in the airspace of the European Union.
The movements of an aircraft in a particular airspace are very difficult to track. Consequently it is challenging to quantify the amount of time spent in European Union airspace or outside of it. As a result, the estimated percentage portion of the lease based on the time that the aircraft is used in European Union airspace is subject to an independent study by a technical expert.
The standard rate of 18% is applied on the established percentage of the lease of an aircraft considered to be related to its use in European Union airspace. All calculations applicable to the lease can be accessed here
The following conditions are applicable in order to apply the above-mentioned VAT treatment to the lease of an aircraft:
- The leasing agreement must be between a lessor who is established in Malta and a lessee also established in Malta and who would not be eligible to claim input tax in respect of the lease;
- The lease agreement cannot exceed a period of 60 months and the lease instalments must be payable on a monthly basis;
- The Director General of the VAT Department may, at his own discretion, require the lessor to submit details regarding the use of the aircraft;
- It is necessary to seek prior approval in writing from the VAT Department and each application is considered on its own merits. Furthermore, the Director General may opt to impose other conditions which he may deem appropriate.
In cases where, after the end of the lease, the lessee decides to exercise the option to purchase the aircraft that was leased to him, a VAT paid certificate will be issued provided that all the VAT due has been fully paid.