Malta provides for a leasing set-up by means of which a lower effective rate of VAT can be availed of for the use of aircraft in the EU airspace. This is achieved through a VAT aircraft leasing procedure newly launched and that allows the payment of VAT exclusively on the portion of use of the aircraft within the EU.
This newly launched VAT aircraft leasing procedure as well as the revamped Aircraft Registration Act, make Malta an attractive jurisdiction for aircraft registration for both private and commercial aircraft while ensuring full adherence to EU laws and regulations on the registration and ownership of aircraft within the EU.
VAT on Aircraft Leasing
VAT implications vary according to the manner in which the aircraft is used, that is, whether the aircraft is employed by an airline operator for reward chiefly for international transport of goods or passengers, or whether it is purely for private use. VAT implications similar to those applicable in other EU Member States would be applicable in respect of importations, intra-community acquisitions, or supply of aircraft.
In accordance with the VAT legislation, the lease of an aircraft, which is not used by airline operators in international traffic, is a supply of a service which is subject to VAT with the right of deduction of input VAT by the lessor (where such right applies). By means of the VAT simplification procedure, the lease will be taxable according to the use of the aircraft attributed within the airspace of the EU.
That said, it is difficult to identify the movement of an aircraft in advance and to determine the exact period that the aircraft is used within and outside the EU airspace. In order to mitigate this, Malta shall apply an expert technical test to estimate the percentage portion of the lease subject to VAT based on the time that the aircraft is used in the airspace of the EU. The calculation of the chargeable proportion of the lease is dependent on:
- aircraft type
- MTOM
- maximum fuel capacity
- fuel burn
- optimum altitude
- optimum cruising speed
The standard Malta VAT rate of 18% will be applicable on the established percentage of the lease which will be deemed to be related to the use of the aircraft in EU airspace.
The Malta VAT Aircraft Leasing - the Requirements
The VAT aircraft leasing procedure can be applied if the following conditions are satisfied:
- there is a leasing agreement between a lessor who is established in Malta and a lessee who is also established in Malta and who is not eligible to claim input tax in respect of the lease;
- the lease agreement does not exceed a period of 60 months; and
- the lease installments are paid every month.
For the application of the VAT simplification procedure, prior approval of the VAT department must be sought. The VAT department may require the lessor to submit details regarding the use of the aircraft and may impose conditions it may deem appropriate. Where, after the end of the lease the lessee exercises the option to purchase the aircraft, a VAT paid certificate will be issued provided that all the VAT due has been fully paid.
