The Malta VAT department has recently (April 2016) issued guidelines on the VAT treatment of aircraft leasing which guidelines supersede the guidelines issued back in October 2012. The new guidelines aim to simplify the computation of the effective VAT rate that applies to the long-term leasing of private aircrafts to non-business customers. The guidelines establish that an aircraft lease occurs when the lessor (aircraft owner) contracts the use of the aircraft to the lessee (person who leases the aircraft) for a consideration. EU VAT Directives are taken into account for determining the place of supply of goods and services that are effectively used outside the EU.
Given the difficulty in determining the actual use of the aircraft within EU airspace, the VAT department has introduced a formula which considers the essential features of the aircraft in order to establish the deemed percentage of use of the aircraft and time within EU airspace. This formula considers the following criteria:
- Type of Aircraft
- Take-off Weight
- Fuel Capacity
- Fuel Consumption
- Altitude
- Cruising Speed
The system will entitle the lessor to deduct any input VAT incurred on the purchase of his/ her aircraft when being used for an economic activity. The standard 18% VAT rate on supply of goods and services under Maltese law, would only apply on the portion of use of the aircraft within EU airspace – as calculated on the basis of the formula. Moreover, the lessee may opt to purchase the aircraft at a percentage of the original price, at the end of the lease period. The final purchase is strictly an option which may be exercised by the lessee for a separate consideration.
This tax treatment is subject to approval in writing by the VAT Commissioner upon satisfaction of criteria established in the guidelines.
For assistance with aviation services, please contact David Zahra.
