One of the most commonly utilised aircraft ownership structures is a ‘Dry Lease’ arrangement whereby aircraft ownership is separated from from the day to day operation of the aircraft. Typically the aircraft owner (the Lessor) will lease the aircraft to a third party known (the Lessee) who will assume full operational and financial responsibilities. In addition to providing benefits in terms of asset separation and limitation of liability, leasing systems can provide potential for the amount of VAT payable on the value of the aircraft to be reduced where the aircraft will operate within the European Union.
Oceanskies is a marine and aviation consultancy based in the Channel Island of Guernsey. Using its independence and experience of ownership, registration and documentation of aircraft, worldwide, and specifically the EU, Oceanskies has put together an aircraft leasing package established in Malta.
It is the purpose of this guide to detail the operation of the Malta aircraft leasing system in general and to describe the specific steps of the Oceanskies Maltese aircraft leasing package in an easy to understand guide.
The Republic of Malta is an island country located in the heart of the Mediterranean Sea. It lies 80 km south of Sicily, 284 km east of Tunisia and 333 km north of Libya.The country covers just over 316 square kilometres.
The capital of Malta is Valletta which is also the smallest capital in the EU. Malta has two officiallanguages: Maltese and English. Malta’s location as a naval base has given it great strategic importance throughout history, and a succession of powers including the Phoenicians, Romans, Moorish, Normans, Aragonese, Habsburg Spain, Knights of St. John, French and the British ruled the islands. Malta gained independence from the United Kingdom in 1964 and became a republic in 1974. Malta was admitted to the United Nations in 1964 and to the European Union in 2004. In 2008, it became part of the euro zone.
The island’s geographical location makes it an ideal European aircraft importation point for aircraft entering Europe from the Americas, Middle East and Asia. Malta International Airport (IATA: MLA, ICAO: LMML) occupies the location of the former RAF Luqa airbase. It is still referred to by locals as Luqa Airport, and sometimes as Valletta Airport internationally, as it is located 5 km southeast of the Maltese capital. With a runway length of 3544 m (11627 ft) it is one of the longest runways in Europe and capable of handling private and corporate aircraft of all types.
Malta is also an established international finance centre, with a secure base built on political stability, low taxation and a firmly established EU fiscal and regulatory environment.
Malta is developing aviation as a major economic sector of the Maltese economy. As a result the island is keen to encourage the ownership of private and/or corporately operated business jet or turbine aircraft through local companies. One of the principal initiatives designed to encourage the ownership of aircraft through Maltese companies has been the introduction of specific fiscal conditions to enable the leasing of aircraft from Malta. These conditions are governed by a set of guidelines titled ‘Guidelines Regarding VAT Treatment Of Aircraft Leasing’ issued by the Maltese Department of VAT.
The guidelines enable a Maltese company to purchase a private and/or corporately operated business jet and to lease that aircraft to an aircraft operator (lessor) for a commercial consideration and in turn benefit from the deferment of VAT on the acquisition cost of the aircraft and enjoy the payment of VAT on the aircraft lease itself at the prevailing Maltese VAT rate only on a percentage of the lease value calculated by a pre-determined amount of time flown in the airspace of the EU. The guidelines appreciate that it is very difficult to predetermine the actual flight activity of an aircraft in order to determine the period that the aircraft is used within the airspace of the EU and the time that it is used outside the EU.
The flight activity split between time flown in and out of EU airspace is therefore predetermined on the range of the aircraft concerned as follows:
|Aircraft range (km)||Community use %||Effective VAT rate*|
*The effective VAT rate is based on the current Malta standard VAT rate of 18%
At the end of the lease period the guidelines allow for the operator that is leasing the aircraft to opt for the purchase the aircraft at a percentage of the original cost. The final purchase is strictly an option which may be exercised by the lessee for a separate consideration. If at the end of the lease the lessee exercises the option to purchase the aircraft, a VAT paid certificate will be issued for the aircraft by the VAT Department of Malta will be issued provided that all the VAT due has been fully paid.
Operation of Oceanskies Malta Aircraft Leasing Structure
The key stages of the Oceanskies Malta Leasing structure are as follows:
- Incorporation of aircraft owning company (the Lessor) and aircraft leasing company (the Lessee) in Malta by our Maltese based independent company formation and administration partner that is fully licensed by the Malta Financial Services Authority (MFSA).
- EU VAT registration of the Lessor in Malta. All Maltese aircraft leasing arrangements must be approved on a case-by-case basis by the VAT Department of Malta.
- Lessor contracts for the build or purchase of the aircraft which will be registered in the name of the company by Oceanskies in the Isle of Man with an M- prefix followed by four letters chosen by the client, i.e. M-OSKY.
- The aircraft is delivered to the Lessor in Malta where Oceanskies will welcome the aircraft and arrange ground handling through our partner FBO at Luqa airport (ICAO: LMML) and we will attend to all arrival formalities including customs clearance and, if necessary, EU importation and VAT deferment.
- Following arrival and, if necessary, the EU importation of the aircraft in Malta the lease of the aircraft will be initiated by the Lessor to the Lessee.
- The lease agreement is provided by Oceanskies and will be a dry lease whereby the Lessor effectively places the day to day operational responsibility of the aircraft with the Lessee who would then, for example, be expected to be responsible for its operation and the payment of running expenses and the provision of flight crew.
- Following the commencement of the lease the aircraft will leave Malta under the control of the Lessee.
- The aircraft will then enjoy free circulation within the EU. After the end of the Lessor’s first VAT accounting period Oceanskies will obtain a letter from the Malta VAT Department confirming that the Lessor is properly accounting for VAT on the lease of the aircraft.
- The lease would usually run for a minimum period of one year to a maximum of five years.
- Although there may be an option for the Lessee to purchase the aircraft at the end of the lease period at a percentage of the original price any final purchase that may occur is strictly an option which may or may not be exercised by the Lessee.
- If the purchase option is exercised the aircraft will be required to return to Malta whereupon Oceanskies will again be on hand to welcome its arrival and arrange for its subsequent sale by the Lessor to the Lessee whilst parked in Malta.
- Oceanskies, as part of its complete Malta leasing package, will handle the issue of the Bill of Sale and transfer of ownership on the Isle of Man aircraft register and arrange for the production of a Certificate of VAT Paid Status by the VAT Department of Malta once all VAT due has been paid.
- The Certificate of VAT Paid Status then becomes evidence of the VAT paid status of the aircraft.
We encourage both existing and potential aircraft owners who might be interested in incepting a Maltese leasing arrangement to contact us in order to request a free no obligation proposal.