Where Should You Have Your Aircraft Delivered?

There could be valid reasons why the nearest airport is the wrong delivery location for your newly acquired aircraft. Gerrard Cowan speaks with legal and tax specialists to uncover the key issues that should factor into your delivery planning...

Gerrard Cowan  |  04th January 2023
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Gerrard Cowan
Gerrard Cowan

Gerrard Cowan is a freelance journalist who focuses on aerospace and finance. In addition to his regular...

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Where should you have your jet delivered?


Business jet owners make numerous decisions when completing aircraft purchase and sale transactions, not least on the aircraft delivery location when the deal is completed. This can have a range of tax and legal implications, and demands careful planning, experts say.

The delivery location should be considered well in advance of closing, according to Katie Bancroft, Associate at Jaffa & Co, a specialist superyacht and aviation law firm based in the UK and Monaco. Ideally, the location will be set out in the letter of intent, where the purchaser outlines the terms of their offer to buy the aircraft from the seller.

“Even if the exact location has not been decided, the parties can at least agree on the general location, for example ‘on the ground in the contiguous United States’,” Bancroft says. “This is because it forms part of the overall planned acquisition by the purchaser.”

The delivery location should certainly be set out in the Aircraft Purchase Agreement (APA), the contract that governs all aspects of the purchase.

Bancroft says it is common for lawyers to add the caveat ‘or any other location mutually agreed between the parties in writing’ after specifying the delivery location. This means the parties have the flexibility to deviate from the specified location if needed, although this would need the consent of both purchaser and seller.

“Lawyers are fantastic at running these kinds of hypothetical scenarios in their minds,” she adds. So why is it so important to set out the delivery location in the APA?

To begin with, there are pure practicalities to consider. The seller must be able to get the aircraft to the delivery location; if the parties cannot agree on this point, the aircraft cannot physically be delivered to the purchaser.

“There will be costs associated with taking the aircraft to the location as well, and the most straightforward way to deal with these is to decide upfront who will pay for what,” Bancroft notes. “It is common that a buyer will pay for positioning the aircraft at the delivery location because it is usually more for the buyer’s benefit than the seller’s.”

Consider the Repercussions of a Delivery Location

“Next, advisors will need to be consulted as to the repercussions of delivery in the proposed location,” Bancroft explains. “Local advisors will be able to tell the seller or buyer what laws govern the transfer of an aircraft in that jurisdiction.

“Sales taxes, VAT, or matriculation taxes may apply. Often the assistance of specialist tax advisors is required here, due to the complex and intricate nature of the topic.”

A tax advisor will help the buyer deal with this crucial matter, including what needs to happen to ensure the aircraft is properly imported into the jurisdictions where they plan to operate the aircraft, either beginning with the delivery location or commencing directly after delivery.

“These importation plans are bespoke for each purchaser, based on their specific use of the aircraft,” Bancroft highlights. “This portion of aircraft ownership definitely needs the input of a specialist.”

Airplane Usage Impacts Delivery Location

Grant Atchison is Co-Founder of Trilogy, a specialist aviation and yacht tax advisory firm based on the Isle of Man.

He notes that business jets are taxable items in virtually every country, so “depending on where you close and depending on the status of the buyer, the seller and the plane, you would assess all those elements and then decide on the best location.”

Much will depend on the use of the aircraft, he notes. In Europe, for instance, if the buyer and seller are both charter companies with the correct status, then the transaction might be able to close in the aircraft’s current location, because it will already be exempt from VAT, whereas private aircraft present a different scenario, with circumstances in which VAT may be applied or not.

Atchison highlights that while many buyers may think it is necessary to move the aircraft to a tax-favourable jurisdiction upon purchase, this is not necessarily true. “What has to happen is that the aircraft has to leave the jurisdiction where the transaction is taking place.”

The Impact of Sales Tax and Export/Import Duties

Taxes are the most important issue tied to the delivery location, according to Chris Younger, Senior Counsel with the Aviation and Tax Groups in Crowell & Moring, an international law firm headquartered in Washington, D.C.

In the US, for instance, the parties must ensure that no (or at least low) state sales tax applies at the delivery location. This issue must be analysed state-by-state: for instance, Alaska, Delaware, Montana, New Hampshire and Oregon have no sales tax, while it is very low on aircraft sales in North Carolina and South Carolina.

Moreover, many states exempt purchases of aircraft by non-residents from their sales taxes, but the requirements for the application of these exemptions differ from state to state.

Tax is often one of the last areas to be considered, Atchison warns. It is important to ensure “you’ve got enough time to get things in place or to speak to an advisor to ensure that the right process is followed”. Early contact with an advisor is very important, he stresses.

Pointing to other potential focus areas, Younger notes that “if the aircraft is being imported or exported, a customs broker must be engaged for both the export and the import, and to clarify whether any export or import duties apply in any of the jurisdictions involved.”

Younger has seen instances where an aircraft must be flown to the country where it is registered prior to closing for it to be properly deregistered and exported from that country, which could make one delivery location better than another.

Younger also highlights maintenance considerations in determining a delivery location. Buyers will typically want an acceptance flight to ensure that all discrepancies have been corrected. However, sellers would usually prefer to avoid this unless there is another reason to move the aircraft – for example, if the inspection facility is not located in a tax-friendly jurisdiction.

And Younger notes the importance of timing. “The aircraft must arrive at the delivery location with enough time to close the transaction before governmental agencies close [for the day], otherwise the parties must be prepared to overnight at the delivery location until the closing is completed,” he adds.

Don’t Forget to Consult your Lender

The buyer may also need to consult their financier should there be financing on the aircraft, Bancroft notes, with the validity of an English law mortgage of an aircraft being determined by the place where the aircraft is situated at closing.

Financiers are likely to be wary of infrequently used jurisdictions being used for delivery, and are more likely to “encourage the use of one of their preferred delivery locations because they will have a great deal of experience with that jurisdiction and know that their security will be enforceable,” she says.

Allow Enough Time to Coordinate

As is often the case with aircraft purchases, many different aspects must come together when deciding on a delivery location, Bancroft summarizes. 

A purchaser’s lawyer, tax specialist, manager, pilot, financier, and potentially the registry in question may need to be consulted.

“In each of these instances, though, the relevant professional will have the purchaser’s best interests in mind,” Bancroft assures. “As long as enough of a ‘run up’ to closing is given, these professionals can work together to ensure that the purchase goes ahead smoothly.”

Read more expert advice on Aircraft Ownership

More information from:

Crowell & Moring: www.crowell.com

Jaffa & Co: https://jaffa-co.com

Trilogy: www.trilogy.im



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