Malta Aircraft Leasing 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.

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.

Background

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*
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%

*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.

 

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