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%).

The current rate of VAT as prevailing in Israel is 17%.  However, pursuant to Section 30(a)(12) of the Israeli Value Added Tax Law, 5736-1975 (“the VAT Law”), an exemption (zero-rated VAT) will apply in the case of sale of an aircraft to a dealer (assuming, in this connection, that the purchaser is also registered in Israel for VAT purposes as a “dealer/business”) who engages in the ordinary course of business in the commercial provision of regular aviation services, on fixed routes, involving the transportation of passengers or  cargo.

N/A (Israel is not a member of the EU). It should nonetheless be noted in this context, that the Euro-Mediterranean Aviation Agreement between the EU (including its member states) and the Government of Israel (known as the “Open Skies Agreement”) was signed between the parties in 2012 and ratified by the Israeli government in 2013. To the best of our knowledge, the State of Israel has generally been compliant with the provisions of such agreement, as well as with the provisions of any other international agreement(s) relevant to the air transport sector subsequently signed and ratified by the Israeli government. However, as at the date of preparing this response, we are unaware whether the Israeli Tax Authority (“the ITA”) is contemplating publishing, or intends to publish, any written directives, guidelines or other clarification or reference concerning the implementation of the Open Skies Agreement for Israeli tax purposes.  From a practical perspective, it would appear that the relevant income tax and VAT assessors employed at the ITA are probably unaware of the provisions of the Open Skies Agreement and its effect on international aircraft operators. In any event, it should be noted that the tax exemptions currently included in the Open Skies Agreement are granted on the basis of reciprocity.

The sale of, or transfer of title/interest in and to, an aircraft by an Israeli resident to a foreign (i.e., non-Israeli) resident purchaser is subject to VAT unless exempted pursuant to applicable law. Moreover, 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).

In addition to the aforementioned exemption under Section 30(a)(12) of the VAT Law, the sale/transfer of an aircraft to a foreign purchaser may also benefit from the general exemption (zero-rated VAT) available under Section 30(a)(1) of the VAT Law applicable to export transactions, provided that, when seeking such exemption(s), the aircraft in question was in fact physically exported to another country and the relevant customs export clearance and other evidence supporting the conveyance of the aircraft from the territory of Israel was duly obtained and presented to the ITA.

As aforementioned, export transactions are generally VAT-exempted, provided that the asset being sold (an aircraft) was in fact physically exported from Israel. Likewise, no customs duties are imposed in respect of export transactions.

The importation of an aircraft into Israel is generally subject to VAT unless exempted pursuant to applicable law.  Under certain conditions, both customs duties and purchase tax would not be imposed in respect of such importation transaction but in order to obtain certainty in this respect, it is recommended that an approach be made to the relevant customs agent prior to embarking in a transaction of such nature.

As noted above, the rate of VAT currently prevailing in Israel is 17%.  However, pursuant to Section 30(a)(12) of the VAT Law, an exemption (zero-rated VAT) will apply in the case of importation of an aircraft by a dealer (assuming, in this connection, that the importer is registered in Israel for VAT purposes as a “dealer/business”) who engages in the ordinary course of business in the commercial provision of regular aviation services, on fixed routes, involving the transportation of passengers or cargo.

No, for the reason that no stamp duties or fees and/or documentary taxes are payable in this regard in Israel.

A registration fee must be paid when submitting an application for registering the aircraft (the amount of the fee is generally calculated according to the weight of the aircraft).

No, save for the imposition of purchase tax on the purchase of an aircraft solely for private use and not, for the avoidance of doubt, for agricultural or fire-fighting purposes.

In addition to VAT that would be imposed on lease payments in the ordinary course, the leasing of aircraft would generally attract income and withholding taxes as well.

The maximal withholding rate for the leasing of aircraft is 30%, however said rate may be reduced (pursuant to double taxation treaties to which Israel is party) or exempted (to the extent sought) by the ITA). Notwithstanding the foregoing, pursuant to section 2 of the Income Tax (Exemption) Order (Interest and Rent on Account of Aircraft and Vessels), 5736-1976 (“the Tax Exemption Order”), rent paid by an Israeli resident to a foreign (non-Israeli) resident solely for lease of an aircraft shall be exempt from tax.

With regard to VAT, it is not clear-cut from the language of the VAT Law whether the lease transaction would give rise to or constitute a taxable event or whether the lessee may benefit from a similar exemption granted for the sale/purchase of an aircraft and, if relevant, an approach can be made to the ITA to clarify the issue further.

According to the prevailing Israeli tax law and ITA guidelines, an airline will generally be entitled to an exemption from income/corporate tax imposed in Israel in respect of profits generated by it on account of “international aviation operations”. According to the position taken by the ITA in this regard, the exemption encompasses and extends to income generated from ancillary services, which may be discerned as relating to the operation of international carriage and thus would not be deemed separate from the airline’s ongoing activity in the ordinary course. The exemption would therefore cover, for example, income generated by the airline from the sale and issue of flight tickets and payments received by it for: (i) overweight baggage; (ii) changes made to, and the upgrading of, tickets; (iii) the carriage of cargo and animals; (iv) the provision of personal services (food and beverages, etc.); and (v) accompanying children, the elderly and the like.

With regard to VAT, the sale of international flight tickets (regardless if concerning flights departing from or travelling to Israel) is generally exempted from VAT (zero-rated VAT).

The non-commercial operation and use of corporate and/or private aircraft will in all likelihood subject to regular taxation (income/corporate tax and VAT).

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.

Where the borrower is a corporation, the corporate withholding rate payable on the interest component of the loan repayment is 23%, however said rate may similarly be reduced (pursuant to double taxation treaties to which Israel is party) or exempted (to the extent sought) by the ITA).  Notwithstanding the foregoing, pursuant to section 2 of the Tax Exemption Order, interest paid by an Israeli resident to a foreign (non-Israeli) resident shall be exempt from tax where the interest due and payable on a loan or credit granted for the purpose of purchasing an aircraft is paid to the manufacturer, builder or seller of such aircraft.

N/A

No cargo, airport or passenger taxes are levied by the government of Israel. However, airport fees charged by airport operators may include components deriving from incoming/outgoing passengers , cargo, etc.

No, an excise tax exemption applies for fuel that is used for operation of the aircraft.

Likewise, according to Article 9 of the Open Skies Agreement, it may be assumed that the purchase of fuel for international air transport purposes would be exempt from Israeli VAT and ancillary duties. However, in practice, it seems that the VAT Division within the ITA is not tasked with or accustomed to interpreting or implementing the provisions of such agreement.

No.