Tax
12. Will the relevant law require any taxes to be payable on aircraft loan repayments (income tax and interest)?
Austria
Aircraft loan repayments are in principle not subject to income/corporate/withholding tax.
Brazil
Yes.
Colombia
Interests generated on bank loans are deductible from income tax, as provided by Article 117 of the Tax Statute. When a natural person purchases a bank loan from a bank, the interest expense can be taken as deductible. It is necessary that the loan was acquired to obtain an asset that will generate income to the person.
Decree 3027 of 2013 established a maximum for the deduction of such interest from income tax: it is that the value of the debt cannot exceed three times the taxpayer’s liquid assets determined by December 31 of the immediately preceding taxable year.
Czech Republic
Interest paid by a debtor who is a Czech tax resident to a creditor who is not a Czech tax resident is subject to withholding tax of 35%. However, if the creditor is a tax resident of a state which has concluded a double tax treaty with the Czech Republic or a treaty on exchange of information in tax matters the withholding tax is reduced to 15%. Of course, if the recipient of the interest is able to prove that it is a beneficial owner of the interest and that it is a tax resident of a state which has concluded a double tax treaty with the Czech Republic, the withholding tax rate is usually even lower than 15% based on the relevant treaty. Interest paid to a Czech resident creditor is not subject to any withholding tax.
Please note that if the creditor is a Czech tax resident, the interest income is subject to Czech income tax at the rate of 19% (corporate income tax) or 15% (personal income tax).
Germany
German VAT does not apply to loan repayments as they do not constitute a supply/delivery in a fiscal sense (see definition above). In relation to income taxes on loan repayments (in connection with leasing) see our answer under No. 9 above.
However, if part of the loan is a sale and lease back transaction between the financing bank and the borrower it must be examined whether the power of disposal over the object is actually transferred both in the context of the transfer of ownership and in the context of the subsequent transfer of use or whether the transfer of civil-law ownership of the object prior to use has a mere security and financing function, so that as a whole, a loan is granted and neither the sale nor the lease back is considered a supply in the fiscal sense which is subject to VAT (see BFH judgment of 9 February 2006, V R 22/03, BStBl II p. 727). Moreover, Section 4 No.8 a) VAT Act expressly states that the granting of a loan is exempt from VAT.
However, if the person providing the loan and acquiring in that context the object under a sale and lease back transaction, just participates in a certain balance sheet preparation for the other person, it is considered a “supply of other services” under VAT law, as the recipient of such services receives an economic advantage as a result. Thus, such a transaction would not be exempt from VAT (BFH judgement 06 April 2016 – V R 12/15).
In order to determine that, the overall circumstances of the individual case, i.e. the content of the contractual agreements and their respective actual implementation have to be examined, taking into account the interests of the parties involved. A mere (VAT free) loan is to be assumed, if the agreements on the transfer of ownership and on the leasing relationship or on the lease-back are in a direct factual connection or a hire-purchase agreement is concluded on the basis of which the civil-law ownership reverts to the user at the end of the contract term or obliges the transferor to transfer ownership back.
Greece
Lender’s income from interest received is on principle subject to income tax; moreover, interest payments are subject to tax withholding at 15%. Where the lender is not a resident in Greece for tax purposes and there is a bilateral treaty in place, between Greece and the country of tax residence of the recipient of the income, the applicable provisions of the treaty will prevail over local law.
Israel
In addition to VAT that would be imposed on all loans in the ordinary course, aircraft loan repayments would generally attract income and withholding taxes.
Italy
Interest payments under a loan are generally subject to a withholding tax of 30%. The tax can be reduced (or exempted) pursuant to double taxation agreements (DTA) entered into between Italy and the foreign lender’s country.
Kenya
- Withholding tax on interest payments
Generally, interest payments paid to a resident or non-resident lender (unless exempt) are subject to withholding tax in Kenya at the rate of 15%. A lower withholding tax rate may apply where the interest payments are paid to a person (whether corporate or individual) who is resident in a country which has an effective double tax agreement with Kenya. The payer is responsible for calculating, deducting and remitting the withholding tax to the Kenya Revenue Authority. There is no exemption available in respect of withholding tax on interest payments relating to aircraft loan repayments.
- Transfer pricing and deemed interest requirements
Where the non-resident lender is related to the resident borrower, the rate of interest applicable on the aircraft loan should be at arm’s length in compliance with the Income Tax (Transfer Pricing) Rules 2006 to reflect such profit as would have accrued if the business had been conducted between independent parties dealing at arm’s length. Further, where the loan advanced by the related non-resident lender is interest free, the resident borrower will be required to compute a deemed-interest charge based on the prevailing Treasury Bill rates and subject the deemed interest to withholding tax at the rate of 15% and remit to the Kenya Revenue Authority.
Mexico
For tax purposes, finance leases are treated as a sale. The difference between the total agreed upon payments and the price paid is considered interest and is taxed accordingly. The payer is required to withhold income tax at the rate of 15% on the relevant interest part. Tax treaty benefits may allow for a reduced withholding rate on interest payments.
Interest derived from loans paid to a foreign tax resident in a country with which Mexico has a treaty to avoid double taxation is subject to a withholding rate of 4.9%. The payer is required to withhold income tax.
Nigeria
Principal repayments do not attract the payment of companies income tax and VAT. However, the CITA imposes income tax on interests payable under a loan.
a. The tax rate on the interest payment is 10% or 7.5% where the lender is resident in a country with which Nigeria has entered into a double taxation agreement/treaty. The borrower is required to withhold and remit the tax to the Federal Inland Revenue Service.
Interest payments on foreign loans with certain repayment periods above 2 years attract varying levels of tax exemption.
Norway
No taxes will be payable on aircraft loan repayments. Repayment of loans is not considered taxable income for the recipient.
Panama
Interest on account of payments made by a debtor to a lender under an aircraft finance agreement are subject to corporate income tax if the aircraft is economically used within Panama or by a local operator for international transport. The applicable tax rate is of 25% per cent of net taxable income. Payment must be made by the lender who receives the income.
Interest on account of payments made by a debtor to a non-domiciled lender under an aircraft finance agreement over an aircraft economically used within Panama or by a local operator for international transportation are subject to a withholding tax of 50% per cent of the applicable tax rate (25%) on 100 per cent of the amounts credited to the non-domiciled lender unless reciprocity agreements are in effect between the Republic of Panama and the country of the lender.
Peru
Paragraph b) of article 9 of the Income Tax Law indicate that in general, and regardless of the nationality or domicile of the parties involved in the operations and the place where the contracts were entered into or complied with, income from Peruvian source and, therefore, subject to Income Tax, was considered income produced by capital, goods or rights -including the royalties referred to in article 27- physically placed or economically used in the country.
In this sense, article 10 of the Income Tax Law provides that interest, commissions, premiums and any additional sum to the interest agreed upon for loans, credits or, in general, any capital placed or economically used in the country is also consider income Peruvian source.
Portugal
Corporate Income Tax should be due over the interest component of the loan repayments.
Puerto Rico
There is no state legislation covering this matter in Puerto Rico.
Romania
The repayment of capital in case of a loan agreement is not considered as taxable income but the interest part is a taxable income both for residents and for nonresidents:
- In case of residents the interest income is taken into consideration when assessing the overall profit of companies. The profit tax is 16% applied on net profits.
- In case of nonresidents a 16% withholding tax will apply under domestic tax legislation. This rate may be reduced, or the taxation may be restricted under DTTs concluded by Romania or under Council Directive 2003/49/EC on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States.
South Africa
- The South African Income Tax Act imposes an interest withholding tax on regular cross border finance provided to South African borrowers by non–resident lenders, subject to limited exceptions and any applicable treaty relief which may be available. Such withholdings tax if applicable is levied at a rate of 15% on the interest portion of such cross border financing.
Spain
A 0% withholding tax rate is applicable to interest payments to EU-based lenders.
In other cases, interest payments to foreign companies are normally taxed at a 19% withholding tax rate if no double tax treaty is in force between Spain and the country of residency of the lender.
Switzerland
Interest paid by a Swiss resident borrower are in principle not subject to Swiss federal withholding taxes of 35% unless a debt is qualified as a bond, debenture or bank deposit for Swiss withholding tax purposes. Furthermore, non-Swiss resident recipients of interest on loans secured by mortgage are not subject to federal and cantonal withholding taxes, unless the loan is secured by Swiss real estate.
United States (Miami)
Not at this time, but this is a changing landscape.