Private Leasing Structures and VAT Treatment
The new guidelines require a lease agreement in terms of which the lessor (the owner of the aircraft) leases the aircraft to a lessee for a specific time frame and consideration. The guidelines further provide for a purchase option whereby the lessee may purchase the aircraft at the end of the lease period. Where the lessee exercises this option, a VAT paid certificate will be issued provided that all the VAT due has been fully paid.
VAT Treatment
For VAT purposes, the lease of a private aircraft is considered a supply of service which is subject to VAT with the right of deduction of input VAT by the lessor (when applicable). This service is taxable according to the use of the aircraft within the airspace of the European Union. The 2016 guidelines have simplified the process and criteria for determining the use of an aircraft within EU airspace as per the table below.
Aircraft Range (KM) |
CommunityUse |
EffectiveVAT Rate* |
|
From |
To |
||
| 0 | 2,999 | 60% | 10.80% |
| 3,000 | 4,999 | 50% | 9% |
| 5,000 | 6,999 | 40% | 7.20% |
| 7,000 | and over | 30% | 5.4 |
*The effective VAT rate is based on the current Malta standard VAT rate of 18%
The application of the new guidelines is subject to the following conditions:
- The leasing agreement shall be 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 tax in respect of the lease;
- The lease agreement shall not exceed a period of 60 months and the lease instalments shall be payable monthly;
- The Commissioner for Revenue may require the lessor to submit details regarding the use of the aircraft;
- Prior approval must be sought in writing from the VAT Department and each application will be considered on its own merits.
The Commissioner for Revenue may impose other conditions as he deems appropriate.
