Malta is a jurisdiction which is attractive for services regarding aviation and one of them is aircraft leasing. An aircraft leasing agreement is an agreement involving the lessor (the owner of the aircraft) who contracts the use of the aircraft to the lessee (the person who leases the aircraft) for a consideration. Moreover, after the end of the period of lease, the lessee may choose to purchase the aircraft at a percentage of the original cost. The final purchase is an option which may be exercised by the lessee for a separate consideration.
In accordance with Maltese VAT legislation, the lease by a person established in Malta of an aircraft used purely for private use constitutes a taxable supply of a service taking place in Malta when the aircraft is leased for a continuous period of not more than 30 days and is put at the disposal of the customer in Malta and when the aircraft is leased for a continuous period exceeding 30 days to a person, established in Malta.
Apart from certain exceptions, the lease of an aircraft is subject to VAT with the right of deduction of input VAT by the lessor. This service is taxable depending on the use of the aircraft that is attributed within the European Union’s airspace. Such use is determined through technical expertise.
The standard VAT rate of 18% is applied on the established percentage of the lease that is deemed to be related to the use of the aircraft in the airspace of the EU. The minimum percentage of time that an aircraft could be deemed to be in EU airspace is 30%, thus resulting in a minimum effective rate of VAT of 5.4%.