This leasing scheme offers a great potential to help reduce the cost of an aircraft used for private purposes and which is subject to VAT.
Just like the pleasure boat leasing scheme the private aircraft leasing scheme it reduces the percentage of the cost of an aircraft according to the proportion of its usage outside the EU and as such it offers substantial VAT savings, and gives the lowest effective rate of tax in the EU in most cases.
The scheme involves the following:
- Leasing of the aircraft with a possible option to purchase it at an agreed price.
- Similar to the pleasure boat leasing scheme there is no requirement for detailed records to be submitted regarding the use of the asset.
- The percentage of the cost is subject to VAT on two simple factors, the type of aircraft and its maximum take-off weight.
- The private aircraft must be owned by a company registered for VAT in Cyprus that is leased to any physical or legal person established, permanently resident or ordinarily resident within the Republic of Cyprus and not engaged in any business activity. Full anonymity and confidentiality can be preserved through corporate structures.
The percentage of the cost subject to VAT is based on the type and the maximum take-off weight of the aircraft, using three aircraft types and four weight bands, as set out in the tables below.
|Maximum take-off weight (kilograms)||Deemed percentage use within EU||VAT charge %|
|Large: over 15,001||20||3.8|
|Medium: between 5,701 and 15,000||30||5.7|
|Small: between 3,001 and 5,700||40||7.6|
|Light: below 3,000||50||9.5|
|Large: over 15,001||25||4.75|
|Medium: between 5,701 and 15,000||35||6.65|
|Small: between 3,001 and 5,700||45||8.55|
|Light: below 3,000||55||10.45|
|Large: over 15,001||40||7.6|
|Medium: between 5,701 and 15,000||60||11.4|
|Small: between 3,001 and 5,700||80||15.2|
|Light: below 3,000||100||19|
However if any private aircraft is used entirely and exclusively within Cypriot airspace, the leasing is subject to VAT under the standard rate of 19%.
Other Important Qualification requirements are:
- An application to obtain the prior approval of the VAT Commissioner must be made. The application for approval must be accompanied by:
- a copy of the lease agreement
- documentation supporting the purchase price or value of the aircraft
- the requisite noise certificate
- manufacturer’s type certificate
- Certificate of Airworthiness and Airworthiness Review Certificate.
- As soon as the Scheme initiates, the Tax Department will issue a Provisional VAT paid Certificate.
- Within two months of the date of the inception of the lease agreement the aircraft must fly in Cyprus . Any postponement to the above can be granted only by the Commissioner of Taxation. The delay in any case cannot exceed the lease period whereby the right of purchase can be exercised.
- Initial lease fee should be at least 40% of the value of the aircraft.
- Lease payments are payable on a monthly basis at the applicable VAT rate based on the table provided above.
- The lease period should be more than 3 months (91 days), and less than 60 months.
- At the end of the leasing period the aircraft may be purchased outright by the lessee. Final payment should not be less than 2.5% of the initial value of the aircraft. The final payment is subject to VAT at the applicable standard rate at the time (currently 19%).
- Profit from the lease agreement derived by the lessor should not be less than 5% of the initial value of the aircraft and is subject to corporate income tax at 12.5%
- At the time of commencement of the lease agreement, the total of lease payments that are taken into consideration for calculation of the total VAT payable should be increased by 50% of the profit i.e. 2.5%.
- The private aircraft may be registered under any register in the world and not necessarily under the Cyprus aircraft register.
- In the case where the lessee exercises the option to buy the aircraft at the end of the lease period, the Tax Department will issue a certificate to the lessee confirming full payment of the total VAT liability, provided that the VAT liability has been paid in full.
- When the VAT on the initial lease fee is paid (40% of the value), the lessor may custom clear the aircraft in Cyprus. and the Customs Director will issue a T2L Certificate. In the case where the lessor-owner does not pay any VAT on the monthly lease payments, import VAT will be demanded by the Customs Director.
- Finally, it should be noted the following leases also qualify under the CPAS:
- Leases assigned from another EU lessor company to a Cyprus company which will be acting as the lessor for an aircraft being leased to a Cyprus lessee.
- Leases where the Cyprus company acts as a sub lessor of an aircraft being leased to a lessee established in Cyprus.
- The purchase will be confirmed by the Tax Department in the form of a certificate, stating the total VAT liability.