For many aircraft owners and operators, one of the biggest benefits of private aviation is the ability to travel freely worldwide, without delay or impediment. Yet aircraft operators can sometimes be overwhelmed by complex foreign laws (in particular, foreign tax regimes).
Options exist – such as Malta’s option for permanent importation into the European Union (EU) – that can help streamline compliance with tax and other regulations applicable to international aircraft operations.
What are the Benefits of Maltese Importation?
There are several major benefits to Maltese importation, some of which are available in other EU countries (including free circulation in the EU and VAT savings), and some that are somewhat unique to Malta (such as not restricting personal use of the aircraft).
VAT Savings: Specifically, goods and services in Malta are generally subject to 18% VAT. However, Malta allows certain goods to be imported at a reduced rate. One such item is civil aircraft, which can be permanently imported into Malta at an effective VAT rate as low as 5.4% even if the aircraft is not registered in Malta. This is on the condition that the aircraft and its owner and operator meet certain criteria.
Of course, the effective VAT rate for a Maltese civil aircraft importation, while significantly lower than the full VAT rate, is still not zero. For aircraft that qualify for a reduced Malta VAT rate, the applicable VAT rate is determined by a method of calculation that is based on the aircraft’s range.
The reduced rates vary from approximately 5.4% to 10.8% and decrease with increasing aircraft range. For instance, an aircraft with a range of less than 3,000km would have a reduced VAT rate of approximately 10.8%, while the lowest VAT rate (5.4%) would be available to an aircraft with a range of 7,000km or more.
Unlike some other countries, though, there is generally no import duty due upon importation of civil aircraft into Malta.
While other options exist that may allow an aircraft to be imported into the EU at a 0% VAT rate (including placing the aircraft on an Air Operator Certificate (AOC)), these each have their own requirements and practical considerations with which an aircraft owner or operator may be unable to comply.
Free Circulation: Moreover, Malta became a member of the EU in 2004; thus, aircraft permanently imported into Malta are also, effectively, permanently imported into the EU for free circulation even if it’s not registered in Malta or any other EU country.
Aircraft with the free circulation rights that come with permanent importation are able to travel to, from, and within European Union countries without the restrictions that are placed upon other “temporarily imported” non-EU aircraft.
Unrestricted Personal Use: Finally, Malta’s importation option offers a fairly unique benefit in that it does not have a business use requirement (or rather, the leasing structure discussed below satisfies the business use requirement). So, Malta’s importation option can work well for private aircraft that are used significantly for personal purposes.
How do Aircraft Qualify for Maltese Importation?
In order for an aircraft to qualify for importation into Malta at a reduced VAT rate, the aircraft’s ownership and operating structure must meet certain requirements. It is generally advisable to consider these requirements during the initial aircraft acquisition and structuring process.
Although it is usually possible to import an aircraft into Malta after the initial acquisition, it may require changes to the aircraft’s existing ownership and operating structure.
One structure that allows aircraft registered in the US or other non-EU countries to effectively fulfill Malta’s importation requirements is ownership (beneficial, rather than registered, ownership is enough) in a Maltese company: a lease from the Maltese company to the ultimate non-EU operator; and a bank guarantee equal to 20% of the full import VAT.
First Step: Ownership in a Maltese Company
The first step in pursuing a Maltese importation is to arrange for the aircraft to be “owned” by a Maltese company. Beneficial ownership by a Maltese company through an owner trust arrangement satisfies this requirement.
An aircraft can be registered to a US owner trust on the FAA Registry and may still be permanently imported into Malta if the beneficial owner of the owner trust is a Maltese company. There are various Maltese providers who can set up a Maltese company to serve as such an owner.
Individuals from the Maltese provider may need to be directors, or in other positions of authority within the newly formed Maltese company, but the governing documents can be drafted so that the ultimate owner retains actual control over the aircraft.
The Maltese provider can also assist with ongoing obligations in Malta, such as submitting tax returns.
Second Step: Lease to the Ultimate Non-EU Operator
Second, the Maltese company must lease the aircraft to the ultimate non-EU operator. The lease serves two main purposes:
Malta requires a physical payment of rent (even if the entities are related), and the lease rate should be a fair market value rate.
Note: Such a lease could have implications in the aircraft owner’s or operator’s home country. For instance, for US aircraft the lease payments could be subject to use tax in the aircraft owner’s or operator’s home state. So it’s important to review applicable local laws to ensure compliance before implementing a Maltese importation structure.
Third Step: Bank Guarantee
Finally, the ultimate owner must obtain and evidence to Maltese authorities a bank guarantee equal to 20% of the full 18% VAT. The full 18% VAT on a $30m aircraft would be $5.4m; 20% of such full VAT would be $1.08m. So, the bank guarantee for such aircraft would need to be for at least $1.08m.
The bank guarantee must also be valid for at least four months following the importation; beginning four months after the importation, the Maltese provider can assist with applying for release of the bank guarantee.
Malta May Not Be a Permissible Acquisition Closing Location
In addition to the above basic structure requirements, there are additional processes and procedures that the parties must follow in order to import an aircraft into Malta. The Maltese provider can likely assist with many of these items.
However, once the structure is implemented, the aircraft must physically enter Malta in order to complete the importation, and this is the importation step that can sometimes require the most planning. Moreover, because the aircraft must enter Malta after the structure has been implemented, if the parties are pursuing a Maltese importation at the same time as the initial acquisition, it may not be possible to actually close the acquisition itself in Malta.
Further, the aircraft could be subject to sales (or similar) taxes in the acquisition closing location despite the Maltese importation and VAT structuring, so one should also review applicable laws in any prospective acquisition closing location.
More information from www.coolinglaw.com