The European Standard Model
Martyn Fiddler Aviation provide a simple solution to compliantly handle your European VAT and importation
Crossing the borders of Europe in a business aircraft could create a liability of up to 40% of the aircraft value in Value Added Tax (VAT). Even if the aircraft and its owner are from outside Europe, crossing into a new VAT territory can still create a VAT presence and consequent potential liability; any liability is automatically created and could be hefty. The average VAT rate in the EU and UK is 20% of the aircraft’s value, so a total of 40% VAT is at risk for movement into both, if this subject is handled incorrectly.
The European Standard Model: A three step approach to VAT in Europe
To begin with, each aircraft owner’s particular situation must be analyzed, after this is completed the options for VAT compliance in each territory can be assessed and an overall approach created. Thereafter there must be ongoing monitoring to ensure the clients circumstances and the VAT regime have not changed, and if they do, the approach should be modified to remain compliant.
Step 1: Tax analysis
To analyze the specific circumstances of an aircraft (each are unique to an owner and their mission); tax specialists will consider:
- Where the aircraft is registered and owned
- Any import status it has in the area
- Whether the aircraft user or owner has connections, such as property, familial or business in the region
- Where they fly to in Europe
- Who flies on it
- How often they fly into and within Europe
- Whether they pick up passengers
- The degree to which the aircraft is used for business or private purposes
The tax specialist will use this information to consider what options are available to an aircraft owner for declaring their entry into all relevant territories and complying with the VAT rules. There may also be other factors that are relevant depending on the circumstances. These options are usually one of the following:
Temporary admission is very simple and effective although it does come with limitations on its use. There are also specific eligibility conditions to be met. Failure to adhere to such conditions could mean facing harsh tax consequences.
Full import requires accounting for VAT at the time of importation. It is possible that the aircraft owner will be required to pay the authorities the amount of VAT due on first arrival into the territory. In certain circumstances the VAT payable can be reclaimed or ‘zero rated’ but this will depend on the aircraft and owner’s circumstances. In some cases reclaim may not be granted.
Step 2: Compliance
For the majority of aircraft owners flying into the UK and the EU, their prime concern is ensuring VAT compliant entry combined with ease and flexibility. This involves the aircraft undergoing a 2 stage import process which complies with the rules of both VAT territories.
Temporary admission into one or both territories can be the most convenient and cheapest method, however it has strict eligibility conditions which means it is not available to everyone, and its various interpretations within the EU means it does not bring as much certainty as some require. Because of these issues a full importation into one or both jurisdictions is often necessary. Full importation is frequently cited as providing the greatest certainty as it generates import documents which can be kept on board an aircraft as proof of compliance with VAT rules in a territory.
Where a full import is required this will typically involve a UK VAT registered company importing the aircraft into the UK – this can be either the owner- ship entity or the aircraft operator depending on whether VAT is due on the import.
Thereafter, where a full import is required into the EU, this company employs the services of a fiscal representative* to account for VAT and perform a one- off importation into the EU.
The conditions for each stage are very exact, therefore professional advice from an experienced aviation tax advisor is considered essential. It is important to point out that in this process the company does not necessarily have to apply for a VAT registration in Europe and the aircraft registration, owner- ship and operation do not need to change.
* The use of a fiscal representative in this manner has been uniquely developed by Martyn Fiddler Aviation specifically for business aviation customers who want the most streamlined, cost and cash flow efficient, method to compliantly import their aircraft into Europe.
Step 3: Ongoing monitoring
Tax rules evolve and change over time. The same is true of an aircraft, its ownership and its mission. If an aircraft changes ownership (even within the same business structure), or if its use changes from business to private, the tax liability it will face when crossing borders may also change. Therefore periodic reviews of the aircraft use should be applied and are essential where there is a change of use or ownership of the aircraft.
Contact us to discuss the application of the European Standard Model along with any other thoughts or questions you may have on this subject and how it applies to your aircraft.