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Recent changes to the Aircraft Leasing Guidelines in Malta

20.07.2016

On 5th April, 2016 the VAT Department published a revised version of the guidelines. Whilst the existing conditions for applying VAT on the lease remained the same, the table which establishes the percentage of deemed use of the aircraft within EU airspace has been amended to be based on the flight range of the aircraft as shown below, rather than as originally provided depending on the aircraft model, maximum take-off mass and fuel capacity, fuel burn, optimal altitude in feet and optimum cruising speed in knots.

Percentage of deemed use of the aircraft with EU airspace

Aircraft type by range (km) % of lease taking place in the EU Computation of VAT
0 - 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%

Such amendment now enables a wider range of aircraft to fall within the scope of this Guideline. The VAT treatment provides that, on the basis of the use and enjoyment principle, only the portion of deemed use of the aircraft within European airspace is taxable. The remaining portion is deemed to be effectively used and enjoyed outside the EU and consequently falls outside scope of VAT. The guidelines provide for a minimum percentage of time that an aircraft could be deemed to spend within the EU of 30% resulting in a minimum effective VAT charge of 5.4%.

In order to apply the VAT aircraft leasing treatment procedure as explained above, the following requirements have to be met:

  1. there shall be a lease agreement 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 VAT in respect of the lease. However, the lessor will have the right of recovery of input VAT on supplies used for the furtherance of the aircraft leasing activities;
  2. the lease agreement shall not exceed a period of 60 months and the lease instalments shall be payable on a monthly basis; and
  3. the lease agreement shall provide an option (not an obligation) to the lessee to purchase the aircraft at the end of the lease term for a percentage of the original cost.

Prior approval must be sought in writing from the VAT Department and, if the lessee exercises the option to purchase the aircraft at the end of the lease, a VAT paid certificate will be issued to the lessee provided that all due VAT has been paid.

Contacts

For more information, please contact: 
Karl Cini 
Partner
Karl.cini@nexiabt.com 

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