EU Private Aircraft Registration – Cyprus the preferred location

The new guidelines issued by the Cypriot VAT authorities make Cyprus the most attractive jurisdiction for private aircraft registration in the EU. On the basis of the new guidelines issued by the Cypriot VAT authorities the effective Tax rate for private aircraft registration in the EU can be reduced to as low as 5% through the use of the Private Aircraft Leasing Scheme.

 

What is a Private Aircraft Leasing Agreement?

A Private Aircraft Leasing Agreement is an agreement whereby the lessor (the owner of the aircraft) contracts the use of the aircraft to the lessee (the person who leases the aircraft) in return for a consideration.

At the end of the lease period, the lessee may opt to purchase the private aircraft. Such final purchase is strictly an option which may be exercised by the lessee, at the end of the lease period, for a separate consideration.

 

What is the VAT treatment of the Private Aircraft Agreement?

For VAT purposes, the leasing of the private aircraft is considered as a supply of services with the right of deduction of input VAT by the lessor. This supply of services by the lessor, is taxable at the basic VAT rate of 19% but only to the extent that the leased aircraft is used within the air space of the European Union (EU). A specific condition which applies is that the lessor must be a company registered in Cyprus. The lessee may be an individual or legal person whose primary place of residence/ establishment is Cyprus.

 

How is the use of the aircraft within EU air space calculated?

Taking into consideration the inherent difficulty of trailing the movements of each aircraft in order to determine the time that the aircraft is used within the air space of the EU and the time it is used outside the EU, the Private Aircraft Leasing Guidelines provide that Cyprus VAT will only be applied on a percentage of the lease consideration. The applicable percentages have been determined by the VAT Services and depend on the length and type of the aircraft (piston engine, turboprop or jet aircraft) and indicate the presumed length of use of the aircraft in EU air space. There is therefore, no need to maintain for VAT purposes, any detailed record or log books of the movements of the aircraft.

 

Applicable VAT rates

The tables below indicate the applicable presumed percentage of use of the aircraft in EU air space and the effective tax payable arising from this transaction.

 

Table A: Piston Engine Aircraft

Maximum Take-Off Weight Percentage of use within EU Air space Effective Tax rate
Large: over 15.001kg 40% 8,89%
Medium: between 5.701kg and 15.000kg 60% 12,79%
Small: between 3.001kg and 5.700kg 80% 16,68%
Light: between 1kg and 3.000kg 100% 20,58%

 

Table B: Turboprop Aircraft

Maximum Take-Off Weight Percentage of use within EU Air space Effective Tax rate
Large: over 15.001kg 25% 5,97%
Medium: between 5.701kg and 15.000kg 35% 7,92%
Small: between 3.001kg and 5.700kg 45% 9,86%
Light: between 1kg and 3.000kg 55% 11,81%

 

Table C: Jet Aircraft

Maximum Take-Off Weight Percentage of use within EU Air space Effective Tax rate
Large: over 15.001kg 20% 5,00%
Medium: between 5.701kg and 15.000kg 30% 6,94%
Small: between 3.001kg and 5.700kg 40% 8,89%
Light: between 1kg and 3.000kg 50% 10,84%

 

Certificate confirming VAT payment

On entering into the scheme, the VAT Authorities will issue a Provisional VAT paid Certificate. In the case where the lessee exercises the option to buy the aircraft at the end of the lease period, the VAT authorities will issue a certificate to the lessee confirming full payment of the total VAT liability, provided that all the VAT liability has been paid.

 

Conditions

The VAT treatment prescribed in the Private Aircraft Leasing Guidelines will only  apply ,if all the following conditions are met:

  • A lease agreement is concluded between a Cyprus VAT registered company and any physical or legal person established or permanently resident or ordinary resident within the Republic of Cyprus which is not engaged in any business activity.
  • The private aircraft must fly to Cyprus within 2 months from the date of inception of the lease agreement. Any extension of the above mentioned time limit may only be given by the VAT Commissioner. Such extension shall not exceed under any circumstances the time at which the option to purchase the aircraft is exercised.
  • An initial payment amounting to at least 40% of the value of the aircraft must be paid by the lessee to the lessor at the inception of the lease agreement.
  • The lease payments are payable on a monthly basis, and the lease period must under no circumstances be less than 3 months (91 days) or exceed the period of 60 months.
  • The lessee may purchase the aircraft at the end of the lease period, for a final consideration of not less than 2.5% of the value of the aircraft.
  • The lessor is expected to make a total profit from the leasing agreement of at least 2.5% on the initial value of the aircraft. In case an option to purchase the aircraft is granted to the lessee, the lessee should have the right to purchase the aircraft for a value of at least 2.5% of the original cost of the aircraft.
  • The prior approval of the VAT Commissioner needs to be obtained for the application of the Aircraft Leasing Guidelines in each case. Such approval will cover the acceptability of the initial value of the aircraft and the applicable percentage of use within EU air space on the basis of which VAT will be applied. The application to the VAT Commissioner must be accompanied by documentation supporting the purchase price/ value of the aircraft and a copy of the lease agreement concluded between the two parties.
  • With the filing of an application , the following information/ documentation in relation to the aircraft must also be provided:
  • Noise Certificate
  • Type Certificate (Manufacturer)
  • Certificate of Airworthiness
  • Airworthiness Review Certificate
  • The private aircraft can be registered under any Aircraft register in the world and not necessarily under the Cyprus Aircraft Register.
  • Irrespective of the above usage tables, if any private aircraft is used solely and exclusively within the air space of the Republic of Cyprus, then its leasing is considered to be a taxable transaction and is taxable at the standard rate applicable in Cyprus and is calculated on the total value of the lease.

T2L Certificate

When the owner of the aircraft pays the VAT on the initial payment (40% on the value of the aircraft), the owner can import the aircraft into Cyprus and the Cyprus Customs and Excise Office will issue a T2L Certificate. In case the owner does not pay any VAT on the value of the monthly lease payments, the Cyprus Tax Authorities will assess Cypriot VAT on the total value of the lease payments.

 

Income Tax Treatment

The total profit from the leasing agreement which amounts to 5% on the initial value of the aircraft, will be subject to Income Tax at the rate of 12,5%.

Our team of professionals possess the expertise and in-depth knowledge of the relevant legislation and procedures to help you address all issues and undertake to guide you and provide a complete support throughout the process.