VAT Treatment of Aircraft Leasing

The Maltese VAT Department has recently launched a new aircraft leasing procedure, making Malta an attractive jurisdiction for aircraft registration for both private and commercial aircraft while ensuring full adherence to EU laws and regulations.

The new regulations provide that the payment of VAT is exclusively due on the amount of time spent by the aircraft within EU airspace.

Malta 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.

The new VAT treatment applies to all aircraft other than those used by airline operators in international traffic since a VAT exemption applies in the latter case. In accordance with Malta’s 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. In terms of the VAT simplification procedure, the portion of the lease that will be subject to VAT will depend on the amount of time that the aircraft is used in EU airspace.

Since it is difficult to identify the movement of an aircraft in advance and the period in which the aircraft is used in EU airspace, Malta will apply an expert technical test to estimate the portion of the lease that will be subject to VAT. The calculation of the chargeable proportion of the lease is dependent on the following factors:

  • aircraft type
  • MTOM (maximum takeoff mass – in kgs.)
  • maximum fuel capacity
  • fuel burn (kg per hour)
  • optimum altitude
  • optimum cruising speed (in knots)

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.

Conditions for Eligibility

The above VAT treatment can be availed of if the following conditions are met:

  • A leasing agreement is entered into between the lessor and the lessee who must both be established in Malta. The lessee must not be eligible to claim input tax in respect of the lease. The leasing agreement is an agreement whereby the owner of the aircraft (the ‘lessor’) contracts the use of the aircraft to another person (the ‘lessee’) for a consideration where at the end of the lease period the latter may opt to purchase the said aircraft at a percentage of the original cost;
  • The lease agreement shall not exceed a period of 60 months; and
  • The lease installments shall be paid monthly.

A VAT paid certificate will be issued if after the end of the lease, the lessee exercises the option to buy the aircraft, and for which prior approval must be sought in writing from the VAT Department. The VAT Department may require the lessor to submit details regarding the use of the aircraft and may impose further conditions as it may deem appropriate in the circumstances.


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