Oct 12, 2015
The Cyprus government has introduced a private aircraft leasing scheme for VAT purposes that offers substantial VAT savings, and gives the lowest effective rate of tax in the EU in most cases.
The scheme, which involves a lease of the aircraft with a possible option to purchase at an agreed price, is similar to the existing scheme for pleasure boats. Like the pleasure boat leasing scheme it reduces the percentage of the cost of an aircraft used for private purposes that is subject to VAT to reflect the proportion of its usage that takes place outside the EU. Like the pleasure boat leasing scheme it does not require detailed records to be submitted regarding the use of the asset. Instead it bases the percentage of the cost subject to VAT on two simple factors, namely the type of aircraft and its maximum take-off weight. Similar schemes in other EU countries are more complex and generally result in a higher overall tax cost.
The scheme is available for any private aircraft 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.
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 % |
|
Jet aircraft |
|
|
|
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 |
|
|
|
|
|
Turboprop aircraft |
|
|
|
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 |
|
|
|
|
|
Piston-engined aircraft |
|
|
|
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 |
|
Qualification requirements
In order to obtain the benefits of the scheme the prior approval of the VAT Commissioner must be obtained. The application for approval must be accompanied a copy of the lease agreement, together with 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. The lease agreement must satisfy the following requirements:
The profit of the leasing company is subject to corporate income tax at 12.5%.
The aircraft must fly to Cyprus within 2 months from the date of commencement of the lease agreement. The VAT Commissioner may allow an extension of this time limit, but any extension may not under any circumstances be beyond the time at which the option to purchase the aircraft is exercised.
The aircraft does not have to be registered under the Cyprus Aircraft Register but can be registered anywhere in the world.
Irrespective of the above usage tables, if any private aircraft is used solely and exclusively within Cyprus airspace, then its leasing is considered to be a taxable transaction and is taxable at the standard rate applicable in Cyprus and is calculated on the total value of the lease.