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Malta VAT Guidelines on Aircraft Leasing

Maltese VAT Department Issues VAT Guidelines on Aircraft Leasing

The Maltese VAT department has recently issued guidelines regarding the VAT treatment of aircraft leasing arrangements.  The aforesaid aircraft leasing arrangements are similar in nature to the guidelines issued for the widely known yacht leasing scheme, whereby the applicable rate of VAT were determined on the basis of use and enjoyment of the vessel.  In essence, the larger the vessel, the less time the yacht would be deemed to be inside Maltese territorial waters, thereby benefitting, by means of sliding scale, to a progressively reduced VAT rate, of up to 5.4% for yachts in excess of 24 metres in length.

The same principle has been extended to aircrafts.  Given the mobility of the crafts, and the inability to determine the actual use of the aircraft within the EU airspace, the Maltese VAT department has issued a series of parameters, whereby when completed shall yield the applicable rate of VAT.  The requested parameters for the calculation of such formula, include the following:

  • Type of aircraft;
  • Take off weight;
  • Fuel Capacity;
  • Altitude; and
  • Cruising Speed

In a similar pattern to the yacht leasing scheme, the lessor would be a Maltese registered company, operating the aircraft as part of its economic activity.  Input VAT incurred on the purchase of the yacht may be deducted.  Based on this formula, the Maltese Commisioner of VAT would issue a letter of comfort confirming the applicable rate of VAT, during the tenure of the lease

The applicable rate of VAT charged by the lessor to the lessee (which can be a person – physical or corporate established in Malta)  would be the one calculated on the basis of the aforesaid formula – which shall be significantly less than the standard applicable rate of 18%.  The minimum applicable VAT rate, shall depending on the specifications be of 5.4%.

At the termination of the lease period, the lessee shall be entitled to exercise an option to acquire the aircraft.  As the actual possession of the craft would be acquired in Malta – on the last installment, the full VAT rate of 18% would apply.  The Maltese VAT Commissioner would issue a VAT Paid certificate, upon evidence being shown that the lease installments have been paid on a monthly basis, during the currency of the VAT period (the maximum length of which may of sixty months).


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