New VAT Guidelines on Aircraft Leasing

New VAT Guidelines on Aircraft Leasing

On the 5th April 2016, the Malta VAT Department published new guidelines regarding the VAT treatment of aircraft leasing which effectively supersede the previous guidelines that were issued in October 2012.

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 (where such right applies). This service is taxable according to the use of the aircraft attributed within the airspace of the European Union.

The 2016 guidelines have done away with these criteria and identify only one relevant criterion in determining this percentage, aircraft range in kilometres

The guidelines published by the Malta VAT Office in 2012 set out various criteria (e.g. maximum take-off weight, fuel capacity, optimum altitude) to determine the percentage of the time that a private aircraft which is leased on a long term basis is deemed to be used in the Community and outside the Community.  Such percentage is relevant because VAT is only chargeable on the lease charge corresponding to the percentage of the time that the aircraft is deemed to be used in the Community.

The guidelines published in April 2016 have done away with these criteria and, following an expert technical study carried out by the relevant authorities, identify only one relevant criterion in determining this percentage, i.e., the aircraft range in kilometres. The standard rate of VAT of 18% is applied on the established percentage of the lease, deemed to be related to the use of the aircraft in EU airspace. The table below indicates the established percentage portions according to the type of aircraft:

Aircraft range (km) Community use % Effective VAT rate
From To
0 2,999 60% 10.8%
3,000 4,999 50% 9.0%
5,000 6,999 40% 7.2%
7,000 and over 30% 5.4%

In terms of the official guidelines, the above VAT treatment 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 sixty months and the lease installments shall be payable every month;
  • Prior approval must be sought in writing from the Commissioner for Revenue who may impose certain other conditions before approving the lease.

If the lessee opts to purchase the private aircraft from the lessor at the end of the lease, a VAT-paid certificate would be issued by the authorities, provided that all VAT on the lease charges would have been paid.

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