On the 5th of April 2016, Maltese VAT Department issued its new guidelines in respect to the VAT treatment for aircraft leasing by which a Maltese structure benefits from a significantly lower effective rate of VAT.

For VAT purposes, except for aircraft used by airline operators in international traffic, the lease of an aircraft is a supply of a service which is subject to VAT with the right of deduction of input VAT by the lessor. This service is taxable according to the use of the aircraft attributed within the airspace of the European Union. Since it is rather difficult to identify the time spent in European Union Airspace in advance, VAT department in Malta has issued the following guidelines for the established percentage proportions according to the maximum range of the aircraft:

 

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%

 

These changes will result in the lower effective rate of VAT for a large number of business aircraft.

In order to apply these treatment the following conditions shall apply:

·         The leasing structure requires both the lessor and lessee to be established in Malta.

·         The lease shall not exceed a period longer than 60 months.

·         The lease payments must be made monthly, and VAT paid every quarter.

·          At the end of the lease, the lessee may opt to purchase the aircraft at a percentage of the original cost.

·         If the Lessee exercises the option to purchase the aircraft, a VAT paid certificate will be issued as long as all the VAT due under the lease has been paid.

·         The Commissioner for Revenue in Malta has the right to request the lessor to submit details of the use of the aircraft.

·         Prior approval of the value of the aircraft and the applicable percentage of the lease subject to VAT shall be obtained in writing from the Commissioner for VAT.