The lease of an aircraft is a supply of a service that is subject to VAT with the right of deduction of input VAT by the lessor (where such right applies). The service is taxable according to the use of the aircraft attributed within the airspace of the European Union” at the standard rate of 18%.
In April 2016 the Malta VAT Department issued ‘Guidelines regarding VAT treatment of Aircraft Leasing’ that supersede those issued in October 2012.
International air transport is not subject to VAT and therefore the Guidelines do not apply to airline operators engaged in the carriage of international traffic. They do however apply to owners of aircraft who lease out the equipment in the manner described below. “The lease of an aircraft is a supply of a service that is subject to VAT with the right of deduction of input VAT by the lessor (where such right applies). The service is taxable according to the use of the aircraft attributed within the airspace of the European Union” at the standard rate of 18%.
The 2016 Guidelines have simplified this process by basing the calculation on the range of the aircraft as follows:
Aircraft type by range (KM) | % of Lease taking place in the EU | Computation of VAT | |||||
0 to 2,999 | 60% | 60% of consideration x 18% | |||||
3,000 to 4,999 | 50% | 50% of consideration x 18% | |||||
5,000 to 6,999 | 40% | 40% of consideration x 18% | |||||
7,000 upwards | 30% | 30% of consideration x 18% | |||||
Therefore, the greater the range of the aircraft, the greater the benefit provided by the Guidelines.
Mechanics of the arrangement