Back in 2012, Malta was riding a wave of success in the yachting industry, which had been brought about by its renowned yacht leasing structures. The jurisdiction was keen to replicate these benefits within the aviation industry and therefore in October of that year introduced new VAT treatment for aircraft leasing. Unfortunately, it did not quite ‘take off’ as everyone had hoped. That, however, is now set to change.

Although in theory the 2012 treatments should have provided similar benefits to those realised in the yachting industry, in practice the cost of formalising the aircraft lease highly outweighed the VAT savings obtained from putting such a mechanism in place. This understandably made the approach unpopular amongst owners. In light of this ‘wash out’ of the previous VAT treatment, the Maltese authorities have since been eager to revise and revamp the rules, as well as simplify the computations of the VAT rates applying to the long term leasing of private aircrafts to non-corporate individuals.

Following extensive technical study by the Maltese authorities the VAT office has this month introduced the long awaited transformation of the guidelines on the VAT treatment of aircraft leasing. Through their study, the authorities have concluded that unlike its predecessor, the newly issued VAT treatment of Aircraft Leasing only required the consideration of one key criterion in determining the percentage of time that the private aircraft leased on a long term basis is deemed to be used in the community.  The key criterion was simply identified as the aircraft’s range in kilometres!

Based on this criterion, the following newly effective VAT rates on Maltese aircraft leasing structures have been established and are now in effect:

*based on the current Malta standard VAT rate of 18%

The above treatment is still subject to the following conditions, however:

  • The lease shall be between a lessor who is established in Malta and a lessee who is also established in Malta and who is not eligible to claim input tax in respect of the lease;
  • The lease agreement shall be for a maximum of 6 months, with the lease instalments being paid every month;
  • Prior approval of the lease must be obtained by the commissioner of revenue, who may impose certain other conditions before approving the lease.

Should the lessee opt to purchase the private aircraft from the lessor at the end of the lease, a VAT paid certificate would be obtained.

Thanks to this newly launched VAT aircraft leasing procedure, Malta is now able to provide for an effective leasing set-up by means of which a lower effective rate of VAT can be availed of, while ensuring full adherence to EU laws and regulations on the registration and ownership of aircraft within the EU.

If you are interested in further detail on this topic, please do get in touch. At Boston Family Office we can see you through the technicalities of establishing a structure that will provide you with the full benefit of the new VAT treatment, as well as assist you with any registration and customs formalities.

Ann will be at EBACE in Geneva next month. If you would like to arrange a meeting, please get in touch on +356 2134 1857.