Guidelines regarding the VAT treatment of aircraft leasing have been published by the VAT Department. The VAT treatment of aircraft leasing for private use is similar to the current VAT treatment of yacht leasing for private use.
The Guidelines are based on the premise that it is very difficult to determine the period that an aircraft is used within the airspace of the EU and the time that it is used outside EU airspace.
A leasing arrangement will enable the parties to make use of a simplification measure to calculate the percentage portion of the lease attributable to the use and enjoyment of the aircraft within EU airspace. In the context of aviation, the basis for determining the extent of use and enjoyment within the EU depends on technical factors, including the Range and Maximum Take Off Mass of the aircraft.
Once this calculation has been made, VAT at the standard rate of 18% is applied on the established percentage of the lease which is deemed to be related to the use of the aircraft in EU airspace.
Conditions of Lease
A lease agreement must be concluded by and 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 period of the lease is not to exceed 60 months and installments are to be paid on a monthly basis.
In terms of the lease agreement, the lessee is to be granted the option to acquire the aircraft at the end of the lease. It is upon exercising such an option that the lessee would be issued with a VAT paid certificate, subject to all applicable VAT having been paid.
The Guidelines require written approval of the lease agreement to be sought from the VAT Department. Furthermore, it is to be noted that the Director General of the VAT Department may impose conditions as he deems appropriate.
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