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Do tax authorities assess taxes, duties, or other impositions in connection with any of the following events and, if so, at what rates and under what circumstances?
Sales of Aircraft and lease rentals
VAT is applicable (rate 20%) unless the aircraft is supplied for use in international air transport. If the aircraft is supplied for use in international air transport no VAT is chargeable.
The supply (sale) of an aircraft in the UK for export will not incur VAT but proof of export is required. The supply by a UK seller of an aircraft which is located outside the UK (including the Isle of man but not including the Channel Islands) will generally be outside the scope of UK VAT but may be subject to sales taxes or VAT in the jurisdiction in which the aircraft is situated at the point of sale.
Generally – No. However
- Air passenger transport duty – APD is a duty of Excise which is levied on the carriage, from a UK airport, of chargeable passengers on chargeable aircraft. It becomes due when the aircraft first takes off on the passenger’s flight and is payable by the operator of the aircraft. The amount due is dependent on the final destination and class of travel of the chargeable passenger.
- Carbon Emissions Scheme – The Aviation Emissions Directive came into force on 2 February 2009. It provides that, from 1 January 2012, the EU Emissions Trading Scheme will apply to all aircrafts flying to and from the EU. Under the scheme aircraft operators are allocated a limited right to emit carbon and are required to purchase additional rights if their emissions exceed the rights granted.
Finance (mortgage tax, promissory note tax, conditional sale tax, tax on loan payments, tax on interest)
Mortgage tax – No
Promissory note – No
Conditional Sales tax – No
Taxes of loan payments and taxes on interest –
For companies resident in the UK or with a permanent establishment in the UK corporation tax will be levied on UK profits including interest on loans and profit on lease rentals. The corporation tax rate for the current year is 24% reducing to 23% in 2013.
For companies resident outside the UK that make loans to UK companies (other than through a branch or agency – permanent establishment) withholding taxes may apply. Rates of withholding vary depending on jurisdiction and may be disapplied subject to the provisions of an applicable double taxation treaty.
Lease (Tax on payments other than income)
Generally corporate lessors resident in the UK or trading in the UK through a branch or agency (permanent establishment) will be subject to UK corporation tax on profits. Non-resident lessors leasing to a UK operator (or sub-lessor) will not normally be liable to UK corporation tax (or income tax) on lease rentals.
The sale of an aircraft (whether or not subject to a lease) may give rise to a charge to tax or clawback of depreciation allowances. Liability will usually depend on the corporate residence of the seller and a full discussion is beyond the scope of this note.
UK withholding taxes are not levied on lease rentals or charges under hire purchase contracts. UK withholding taxes may be levied on interest paid by UK residents to non-UK residents (subject to treaty relief) e.g. default interest. Lease rentals (and hire purchase hire charges) calculated by reference to interest rates e.g. a margin over LIBOR will not generally be re-characterised as payments of interest and capital for the purpose of levying withholding taxes.
Not for Civil Aircraft.
No, although see above if an aircraft is sold for export and is not otherwise exempted from VAT the seller must obtain proof of export or it will be liable to pay VAT at the rate of 20%.
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DISCLAIMER: The above information should not be relied upon by the reader for legal advice as it is intended merely to serve as preliminary guide to the laws and regulations governing the taxation of aviation and aircraft in the United Kingdom. The information intends to provide summary-level information about certain tax issues affecting general aviation and aircraft finance. Since these materials are general in nature, readers are encouraged to obtain legal and tax advice from their own professional legal and tax counsel based on specific facts and circumstances regarding their acquisition and/or use of aviation and aircraft.