New Rules in VAT Treatment of Private Aircraft on Lease

November 13, 2012 | posted in: News | by

The Maltese Government has just unveiled details of the changes it has made to the VAT concerning private aircraft;-
( )

Tax reform features heavily in Malta’s plan to promote the aviation cluster on the island and assist in establishing the Maltese jurisdiction as one of excellence. These changes have dramatically improved Malta’s competitive position as a jurisdiction for aircraft registration.

What are the changes?

The changes implemented by the Maltese VAT department establish that when a Maltese company buys an aircraft for private rather than commercial purposes and then leases it to a third party the VAT applicable on the lease is at the normal rate of VAT in Malta (18%), subject to the supply of services being deemed to be supplied in Malta (see conditions below).The VAT is only payable on the portion of lease during which the aircraft is deemed to be in EU airspace. This results in a VAT paid certificate being issued at the termination of the project thus allowing the aircraft free movement within the EU.

Impact of changes

The changes implemented by the Maltese Government have further improved Malta as a jurisdiction for aircraft registration. It is now an attractive and commercially viable jurisdiction for both commercial and privately operated aircraft.

What are the conditions attached to this measure?

1. They are applicable to aircraft with a Maximum Take Mass (MTOM) of not less than 5,700kg that are operated non-commercially for private use.

2. The maximum percentage of time that an aircraft will be deemed to spend outside the EU can extend to 70%. The minimum period of time is 0%.

3. A lease agreement must be in place. 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.

4. The lease may not exceed a period of 60 months and it must be paid in monthly instalments.

5. Prior approval of the Commissioner for VAT must be sought in writing and each case will be considered on its own merits. At this juncture the Comissioner can apply certain other conditions.

6. The Commissioner for VAT may also require the lessor to submit details regarding the use of the aircraft.

7. The market value of the aircraft will need to be assessed by means of an independent valuation furthermore there will be a cap imposed on the maximum and minimum value of the aircraft.

Legal Basis

These changes are based on Article 59a of the EU VAT Directive which allows Members States to apply a ‘use and enjoyment’ test to VAT application. Thus allowing a Member State to consider where the supply of services is actually taking place. If the effective use and enjoyment of the supply of services is considered to take place outside the EU then the supply is considered to have taken place outside the EU. This measure aims to solve the issues of double taxation, non-taxation and distortion of competition in certain circumstances.

How to determine the time spent outside the EU.

This calculation is based on the aircraft’s range and it’s Maximum Take Off Mass (MTOM), with greater emphasis being based on it’s range capabilities. The formula is 17% to MTOM and 83% to Range.
This formula is based on a technical study which takes into account the statistical data of different types of aircraft. A calculator has been provided by the Ministry for Finance ( ) which will allow applicants to determine how much time an aircraft is deemed to spend inside and outside the EU. The information required for this calculation to be made are is the following;-

1. Maximum Fuel Capacity (kg)
2. Fuel Burn (kg/hr)
3. True Airspeed (knots)
4. Optimum Altitude (ft at ISA conditions)
5. MTOM (kg)

In addition to the above details, other information will be required by the VAT department to assess the market value of the aircraft such as an independent surveyor’s report, preferably from a well known or accredited organisation, clearly stating the condition of the aircraft, its airworthiness status and its age. Other documents may be requested as the department deems necessary.

Changes in Action

The following is an example of the impact these changes will have on the VAT payable for a specific make and model of aircraft;-

A Learjet 60 should qualify for a 21.4% deduction factor therefore reducing the VAT amount payable to 78.6% of the market value of the aircraft. The 78.6% will however be applied to the total lease amount including any profit made by the lessor which will be therefore added to the market value of the aircraft. The above figures should be an accurate indication but may vary slightly. The online calculator above is also available on the VAT Departments website.


The changes in the VAT applicable to privately registered aircraft will greatly enhance Malta’s significance as an aviation jurisdiction. It is worth noting that it takes 3-5 days to register a private aircraft and a company can be registered within 24 hours. Thus making the registration of privately operated aircraft in Malta a speedy and efficient process as well as a financially attractive option.

For further information please contact Fiona Healy, Legal Counsel for Aircraft Corporate Services (Malta) Ltd on either or (+356) 25762222.