Tax

1. Will the relevant law require any sales, value added or other taxes to be payable on a domestic sale/purchase or transfer of title/interest of an aircraft?

Austria

Austria has no sales tax, but only VAT. A sale or lease of an aircraft or transfer of title/interest delivered to Austria is subject to Austrian VAT unless an exemption applies.

Brazil

Domestic transfer of title (i.e., between Brazilian buyers and sellers) to aircraft in Brazil is subject to “ICMS” tax (similar to VAT) and income tax on capital gains.  

Colombia

In Colombia it is not usual to find cases of sale/purchase of aircraft because what is used most is the figure of the lease. However, the sale and transfer of aircraft is mainly taxed by consumption tax and sales tax. 

Consumption tax is caused by the sale of some movable bodily property such as aerodyne, as provided in article 512-1 of the Tax Statute. This tax is caused at the time of the sale of the good. Article 512-4 of that Statute determines that the tariff at which aircraft is taxed shall be 16% on the taxable basis made up of the difference between the total value of the transaction and the purchase price. Under Article 512-5, teaching aircrafts do not cause excise duty. 

Sales tax is also caused in accordance with Article 420 of the Tax Statute as the sale of a movable property is one of the facts that generates this tax. Within the Colombian tax law there is no specification on the tax rate for the sale of an aircraft; which is why, it must be understood that the one that applies is the general rate of 19%. 

However, it is worth mentioning that, as always in tax matters, each issue must be analyzed individually. 

Czech Republic

Generally, only value added tax (hereinafter “VAT”) is levied on domestic taxable supplies.  The sale, transfer of title/interest or lease of an aircraft with its place of taxable supply in the Czech Republic is therefore subject to Czech VAT unless an exemption applies. 

Germany

In general each delivery/supply of an aircraft is subject to German value added tax (hereinafter VAT) of 19 per cent, if the aircraft is located in Germany when the power of disposal is obtained (Section 1 (1) No.1, together with Section 3 (7) of the German VAT Act (in German: “Umsatzsteuergesetz” or abbreviated “UStG”). 

Delivery/supply (in German: “Lieferung”) is defined in Section 3 (1) VAT Act as services by an entrepreneur by means of which the entrepreneur or a third party on its behalf enables the customer or a third party on its behalf to dispose of an object in its own name (procurement of power of disposal  – in German: “Übertragung der Verfügungsmacht”). The power of disposal is transferred not only in case of a transfer of ownership but as well in case of a purchase made by installment payments over a longer period of time or a leasing, provided the contract includes a clause that upon payment of the last rate, the purchaser/lessee shall become the owner of the aircraft. 

The tax burden rests with the seller (Section 13a (1) No.1 of the VAT Act).  

However, such a transaction will be exempt from German VAT if it can be proved that at the time of supply, the aircraft was determined for (final) delivery to an airline operating on a commercial basis mainly on international routes  (Sections 4 No.2 together with Section 8 (2) No.1 VAT Act). The German Ministry of Finance publishes each year a list of German airlines that operate on that basis and are, therefore, exempt from VAT. Thus, the delivery/supply of an aircraft to such an airline is exempt from VAT and the invoice should mention the purchase price and 0% VAT (pursuant to §§ 4 No. 2, 8 (2) No. 1 VAT Act). 

Moreover, pursuant to Section 4 No. 2 and Section 8 (2) VAT Act not only the supply of an aircraft is exempt from VAT but all of the following as well:  

1. the supply, conversion, repair, maintenance, chartering and hiring of aircraft intended for use by a company who, for reward, carries out mainly international carriage or carriage on routes exclusively situated abroad; 
2. the supply, repair, maintenance and hire of items intended for equipping the aircraft referred to in paragraph 1;
3. the supply of goods intended for the supply of the aircraft referred to in paragraph 1;
4. supplies other than those referred to in paragraphs 1 and 2 which are intended for the direct requirements of the aircraft referred to in paragraph 1, including their equipment and their loads.

Further, not only the direct supply of an aircraft to such an airline would be VAT exempt but as well any prior supply, provided that, at the time of such prior supply, it is clear (and can be proved) that the acquirer purchases the aircraft for the sole purpose of further delivering it to a VAT exempt airline (see judgements of the European Court of 19 July 2012 (C-33/11) and of 4 May 2017 (C-33/16)). In the first mentioned judgement the European Court held:  

“1. The wording ‘operating for reward on international routes’ within the meaning of (…) must be interpreted as encompassing also international charter flights to meet demand from undertakings and private persons. 

2. (…) must be interpreted as meaning that the exemption for which it provides also applies to the supply of an aircraft to an operator who is not itself an ‘airline operating for reward chiefly on international routes’ within the meaning of that provision but which acquires that aircraft for the purposes of exclusive use thereof by such an undertaking. 

3. The circumstances referred to by the national court, namely the fact that the purchaser of the aircraft passes on the charge corresponding to its use to an individual who is its shareholder and who uses that aircraft essentially for his own business and/or private purposes, with the airline also having the opportunity to use it for other flights, are not such as to affect the answer to the second question.”

In the latter judgment (cited above), the European Court expressly stated that not only the supply of services which takes place at the end of the commercial chain may be VAT exempt but also supplies of services made at an earlier stage as irrespective of the stage of the commercial chain in which the supply at issue is made, such supplies of services will be exempt if they are part of that commercial chain and it is clear (at such earlier stage) that the end user of such supply is a VAT exempt company. 

The two above cited court decisions have been incorporated in Part 8.1 (1-3) and Part 8.2 of the guidelines of the German Ministry of Finance that relate to the VAT Act (in German: “Umsatzsteueranwendungserlass”).   

If the VAT exemption will be invoked by a purchaser who is not itself an airline operating for reward predominantly on international routes,  it is beneficial to have a statement already in the sale and purchase agreement that the purchaser acquires the aircraft for the purpose of exclusive use thereof by such an airline. 

In addition, the exemptions mentioned in No. 2 and No. 3 below have to be considered. 

Greece

The Greek Value Added Tax Code (Law 2859/2000) imposes VAT added tax on domestic sales of goods,  including sale/purchase or transfer of title/interest over aircraft; the same would apply to an intra EU  acquisition. However, article 27 of the VAT Code provides for exemptions as regards -among others- aircraft.  According to par. 1 (b) of the said article exempts from VAT «... the supply and the importation of aircraft, which are to be used by airlines operating for reward chiefly on international routes». To qualify as operating chiefly on international routes, an airline is required to derive more than 50% of its gross annual revenues from international flights; this is often referred to as the revenues’ criterion. 

Israel

Only value-added tax (VAT) (and no sales tax) is payable in Israel. Accordingly, any sale/purchase of, or transfer of title/interest in and to, an aircraft is subject to Israeli VAT, unless exempted pursuant to applicable law.

 

Likewise, the sale of an aircraft by an Israeli resident manufacturer/dealer may also be subject to income/corporate tax or capital gains tax, as applicable (the current rate of corporate tax is 23%).

Italy

The sale/purchase of an aircraft in Italy is generally subject to VAT (at a rate of 22%). 

VAT does not apply if the aircraft is supplied to an airline operating for reward chiefly on international routes, as per the implementation of the general VAT exemption provided for the aviation sector under the EU Directive 2006/112 (on the common system of value added tax).  

VAT does not apply also if the aircraft is sold in Italy and thereafter exported by the foreign purchaser within  ninety (90) days from the purchase. 

Kenya

The following taxes are relevant in respect of a domestic sale or purchase or transfer of title or interest in an aircraft in Kenya:

• Value Added Tax

Value Added Tax (VAT) is charged in Kenya pursuant to provisions of the Value Added Tax Act (No. 35 of 2013) (the VAT Act) on taxable supplies made by a registered person in Kenya. A person is required to register for VAT where the person makes or expects to make an annual turnover of KES 5 million (approximately USD 50,000) or more from the supply of taxable supplies. A taxable supply refers to a supply of goods and services except supplies exempt from VAT under the VAT Act.

Under Part 1 of the First Schedule to the VAT Act, the supply by way of sale or importation of aeroplanes and other aircraft of unladen weight exceeding 2,000 kilograms (excluding helicopters) is exempt from VAT. The supply of services relating to hiring, leasing and chartering of aircrafts (excluding helicopters) is also exempt from VAT.

• Stamp Duty

Stamp duty is charged at various rates pursuant to the provisions of the Stamp Duty Act (Cap 480, Laws of Kenya) (the Stamp Duty Act) on instruments set out in the Schedule to the Stamp Duty Act (the Schedule). Every instrument specified in the Schedule, executed in Kenya or outside Kenya, which relates to property situated, or to any matter or thing done or to be done in Kenya, is chargeable with stamp duty as specified in the Schedule. Specific exemptions exist depending on the nature of the transaction.

Stamp duty on an agreement for transfer of aircraft is not specifically provided for under the Stamp Duty Act. However, agreements for transfer of any kind of property not specified in the Schedule are subject to nominal stamp duty of KES 200 (approximately USD 2). A Bill of Sale is also chargeable to nominal stamp duty. In this regard, it is advisable that the Bill of Sale or the agreement for sale or transfer of an aircraft is taken to the Collector of Stamp Duty for assessment and be stamped with nominal stamp duty. Stamp duty is payable by the purchaser or the transferee.

Every instrument chargeable to stamp duty is required to be stamped within 30 days after it is first executed or if executed outside Kenya, within 30 days after it is received in Kenya. No instrument or document chargeable to stamp duty can be admitted in evidence in any proceedings (other than criminal proceedings) unless it is duly stamped.

• Trading income or loss upon disposal of aircraft

Wear and tear deductions are allowable on aircraft at the rate of 50% in the first year of use and the residual value at the rate of 25% per year on a straight line basis.  Where the amount realised from the sale of an aircraft exceeds the written down value or residual value of the aircraft, the excess amount shall be treated as a trading receipt / profit which is added to the taxable business income of the seller and subject to corporate tax or, conversely, a trading loss for the year of income which would reduce the taxable income of the seller.

Mexico

Purchaser is required to pay Value Added Tax (“VAT”) at the rate of 16% if the sale occurs or if the aircraft is delivered within the Mexican territory. VAT is also triggered if the aircraft being sold is or is expected to be registered in Mexico (even if the aircraft is not located in Mexican territory) to the extent seller is a Mexican tax resident or a foreign resident with a permanent establishment in Mexico. 

Nigeria

Capital gains tax (“CGT”) is chargeable on gains arising from the sale of an aircraft pursuant to the Capital Gains Tax Act. The gain is computed by deducting from the sum received, the cost of acquisition to the seller, plus expenditure incurred on the improvement or expenses incidental to the acquisition of the aircraft.

The sale of aircraft is zero rated for the purposes of Value Added Tax (“VAT”) by virtue of the Federal Inland Revenue Service Information Circular No. 9701 which exempts the payment of VAT on aircraft and spare parts of aircraft.

a.     CGT is imposed on gains at the rate of 10% and is payable by the seller. The sale of aircraft is zero rated for the purpose of VAT in Nigeria.

Norway

Sale/purchase of an aircraft constitutes a divestment of an asset. Any gain upon the divestment of an asset is considered taxable income. Any loss upon divestment shall be deductible to the same extent that a gain is taxable. The current statutory corporate income tax rate for 2019 is 22%.  

 As a starting point, value added tax (VAT) is levied on all supplies of goods and services made within the Norwegian VAT area, which includes the Norwegian mainland and all areas within the territorial border. The exceptions are Svalbard, Jan Mayen and the Norwegian dependencies (Bouvetøya, Queen Maud Land and Peter 1 Island). As such Norwegian VAT could apply on the sale (currently 25%). There are several exemptions and zero-rates available.  Most notably, according to the VAT Act Section 6-10 supply (e.g. sale or leasing) of aircrafts for commercial aviation activities and of military aircrafts shall be exempt from VAT. 

Panama

Income Tax: 

The corporate income tax rate is 25%. The general rule in respect of income tax is that if the income is received within Panamanian territory it is subject to income tax. If the aircraft is not used in Panama, given that any income received is not in respect of an aircraft used in Panama, and that there is no benefit for persons located in Panama, there is no taxable income and therefore there is no obligation to pay income tax. Income tax is payable by the seller. 

Transfer of Movables and Service Tax (ITBMS): 

When title of the aircraft is transferred while the aircraft is in Panama, the sale is subject to transfer of movables and service tax (ITBMS) at a rate of 7%, regardless of the place where the contract was executed, the domicile or nationality of the parties. ITBMS is payable by the buyer but is charged and retained by the seller who has the responsibility of submitting to Tax Authorities. An exemption applies when the transfer takes place while the aircraft is located within a tax-free zone.  

Capital Gains Tax: 

The capital gains tax rate is 10% on net profit, i.e. difference between cost and sales price. Where capital gain tax is payable, the seller is liable to pay the tax. In addition, capital gains tax could arise if the aircraft is physically located in Panamanian territory on the delivery date and is used economically in Panama.  

Peru

The sale or the transfer of ownership of an aircraft is subject to the general sales tax (VAT) which is equivalent to 18% of the sale value. The seller withholds and pays the tax within one month of the sale. There are no exemptions applicable to these operations. 

Portugal

The domestic transfer of an aircraft should originate the payment of Portuguese VAT. 

Puerto Rico

Yes.  A sales tax is imposed on the sale, use, consumption or storage of a taxable item in Puerto Rico.  The term “sale” includes any transfer of title or ownership of taxable items (like aircrafts), be it conditional, on installments, or otherwise, in any manner or by any means, in exchange for consideration or remuneration, including exchange, transfer, or licensing for use, among others.  13 L.P.R.A. § 32021.  

Romania

Romania has no sales tax. With regard to VAT, under Romanian tax law the supply of an aircraft is, generally, a taxable operation subject to VAT at a rate of 19%, which is due by the purchaser.  However, in case the aircraft is to be used mainly in international air transport of persons and/or goods against payment the following transactions are VAT exempt: delivery, modification, repairing, maintenance, leasing, rental of aircraft, as well as delivery, leasing, rental, repairing and maintenance of equipment incorporated or used on the aircraft.  

South Africa

• South Africa (“SA“) imposes an interest withholding tax on cross border finance provided by non-resident lenders to South African borrowers.  The obligation to withhold is subject to limited exceptions and applicable treaty relief.  Where there is an obligation to withhold the rate will be 15% subject to any applicable treaty relief. 

• Where a gain is realized on the disposal of an asset of a capital nature, capital gains tax at an effective rate of 22.4% will be payable by an SA resident company. 
• Value-added tax (“VAT“) may be levied by the seller on the sale of an aircraft.  This is dependent on: 

• • Whether the aircraft is being sold as a going concern; 
  • Whether the aircraft is to be exported from South Africa after the sale; and 
  • The VAT status of the seller and the buyer. 

Spain

The sale of an aircraft in Spain constitutes a supply of goods subject to Value Added Tax at the general rate of 21%.  

However, under Spanish Law, the delivery, transformation, maintenance of aircraft, time-charter and lease of aircraft is exempt of VAT if the aircraft is supplied for the use in international air transportation, meaning that more than 50% of the total navigation distance is incurred in international destinations. 

Switzerland

Switzerland levies no sales tax but Value Added Tax (hereinafter “Swiss VAT”) on taxable supplies. A sale or lease of an aircraft delivered in Switzerland or positioned from Swiss customs territory to the place of delivery is subject to Swiss VAT unless an exemption applies.  

United States (Miami)

Yes, generally, depending upon the law of the State within the United States which may be applicable. Many states impose sales tax generally between 2% and 10% of the value of the aircraft. However, there are states with no sales tax. Sales tax is generally imposed in the state where physical delivery of the aircraft occurs. Accordingly, sales tax may be eliminated by transacting a transfer in a state such as New Hampshire or Delaware which have no sales tax.   

Florida, for example, has a 6% sales tax, plus the local discretionary tax (a maximum of 1.5% of the first $5,000 of the sales price), if applicable, unless the transaction is specifically exempted by law. Florida aircraft dealers and brokers are required to collect sales tax from the purchaser at the time of sale or delivery and remit same to the Florida Department of Revenue. Form DR-15AIR, Sales and Use Tax Return for Aircraft, is the tax return used to report sales tax on purchases of aircraft when Florida sales tax was not paid by the purchaser to the seller. There are exemptions available. For example, an aircraft sold by or through a registered dealer or broker to a purchaser who is a nonresident of Florida at the time of taking delivery of the aircraft is Florida exempt so long as the non-resident meets certain requirements.   

More information regarding the sales tax rates imposed by each state can be found by visiting the National Business Aviation Association website: https://nbaa.org/flight-department-administration/tax-issues/state-taxes/.