Lawyers Find Ways to Avoid VAT Headaches

With aircraft owners facing continuing headaches over importing aircraft into the European Union, offshore registrations are increasingly being considered as a more flexible option. At the same time, lawyers have been scrambling to develop elegant solutions to avoid at least immediate liability for punitive rates of value-added tax through deferral schemes.

“The good news on tax is that some solutions are starting to work but it is a big battle,” said aviation lawyer Aoife O’Sullivan of London-based Gates & Partners. “Some aircraft buyers have pulled out of the whole process due to VAT concerns.”

When the UK got rid of its zero-rating for VAT back in January 2011–on the insistence of the European Commission–imports quickly dried up. “The UK brought in the change without consulting and they didn’t take account of how different business aircraft [operators] are from the airlines,” said O’Sullivan. “‘Tell your clients to pay their taxes, they can afford it,’ is what the tax people said to me.”

Here at the EBACE show specialists such as Isle of Man-based Equiom Trust Company (Stand 2134) and Appleby (Stand 2261) are on hand to explain how solutions including offshore registration and VAT deferment can help aircraft owners.

According to Steve Cain, VAT Manager for Equiom Trust Company, operators have to have the correct tax structure in place and there are different structures available according to how the aircraft is going to be used. “For all of these we have effective tools for temporary import of aircraft and we can import aircraft into the Isle of Man without any physical payment of VAT,” he said. “It doesn’t matter to us where the owning entity is based or what registry they choose; we can deal with anyone and it is better to consult with us as early in the process as possible.” This is achieved by producing an import document that shows that the full amount of VAT due is accounted for through a deferment account so that the VAT does not have to be paid at the time of import.

The number of aircraft on the Isle of Man registry is fast approaching 500. It accepts only aircraft operated under strictly private rules.