Under current Maltese VAT legislation, when a person established in Malta leases an aircraft purely for private purposes, it constitutes a taxable supply of a service taking place in Malta if the aircraft:
- is leased for a continuous period of not more than 30 days
- is put at the disposal of the customer in Malta
- is leased for a continuous period exceeding 30 days to a taxable person established in Malta, or to a non-taxable person wherever established.
In the latter scenario, from 1 January 2013 the place of supply is Malta only if the customer is established in Malta. Through the new guidelines, the Director General can determine that services which take place in Malta could be considered as taking place outside the EU if they are used and enjoyed outside the EU.
The Maltese VAT authorities acknowledge the difficulties that arise when trying to determine the period when an aircraft is used within the EU’s airspace. The new guidelines seek to establish a maximum percentage for the portion of the lease subject to VAT in Malta. The calculation depends on an expert technical study and certain aircraft specifications, namely the maximum take-off mass, the maximum fuel capacity, the fuel burn, the optimum altitude and the optimum cruising speed.
Once the percentage is determined, the standard VAT rate of 18 percent will be applied to the lease portion. The minimum percentage of time that an aircraft could be deemed to spend within the EU is 30 percent, resulting in a minimum effective VAT charge of 5.4 percent.
Applying the VAT aircraft leasing procedure is subject to satisfying certain conditions as set out in the guidelines:
- there is a lease agreement between the two persons established in Malta providing for up to 60 monthly lease payments
- the agreement may grant the option to the lessee to purchase the aircraft at the end of the lease term
- the lessee shall not be eligible to claim input VAT in respect of the lease.
The VAT authorities require that they are informed in writing when a person decides to opt for this VAT simplification procedure and it will only be permitted following written approval. The Director General retains the right to require the lessor to submit details on the use of the aircraft and may impose other conditions they deem appropriate.
At the termination of the lease, a VAT paid certificate will be issued if the lessee exercises the option to purchase the aircraft, therefore allowing the aircraft free movement within the EU.