VAT and taxes on aircraft ownership — what to understand

The tax side is settled together with the choice of ownership structure. It can be reworked later, but at a price: the aircraft has to be taken out, re-registered and sometimes imported again.

What the tax picture is made of

• payments on import — they depend on the customs regime chosen
• taxes tied to ownership — calculated from who holds the aircraft and where it is registered
• the tax consequences of operation — private flights and commercial carriage live by different rules
• leasing — a separate construction with its own logic of payments

Specific rates, reliefs and the conditions for applying them change with the regulations. The calculation is worth checking against the rules in force as at the date of the deal. Questions that go beyond aviation practice are ones for a specialist tax adviser. Promising a “scheme” in advance is a disservice: that is precisely how owners end up with additional assessments.

Private operation or commercial

This is the main fork in the road. Commercial operation opens up the possibility of selling spare hours and changes the way incoming payments are treated, but it requires a certificated operator holding an AOC, the maintenance rules that go with it and the corresponding paperwork.

Private operation is simpler to administer and harder on the economics: every cost stays with the owner. The choice is made on the planned annual flight hours and on whether you are prepared to share the aircraft with other people's flights.

Ownership structures — what is chosen in practice

There are not many options: an individual, a Russian company, a foreign company, a leasing construction. Each has its own cost of entry, its own regime on import and its own consequences on sale.

• an individual — simple to administer, limited on deductions and on commercial operation
• a company — more demanding in accounting, but it opens up incoming payments and charter
• a foreign structure — today this calls for a separate check of applicability and risks
• leasing — payments instead of capital outlay, but the aircraft is not yours until it is bought out

The choice follows your operating scenario and your ownership horizon. The options that fit are worth costing out in money terms, to see where the difference arises.

I have taken a HondaJet onto the Russian register, moving it across from the Maltese one. As far as I know, buying a Russian aircraft and placing it on the Russian register brings the VAT rate down to zero, while property tax sits within one to two per cent and depends on the region where the owner is registered.

Frequently asked questions

Can VAT be reclaimed on the purchase of an aircraft?

The answer depends on the ownership structure and on how the aircraft is operated. What gets looked at is who the buyer is on paper, which register the aircraft goes onto, and whether it earns taxable revenue. There is no universal “yes” here — it is decided on the specific configuration of the deal, together with a tax adviser.

Is an aircraft subject to transport tax?

Aircraft are among the objects of taxation. The calculation depends on the type of aircraft and on the region where the owner is registered. In the ownership budget this sum is worth keeping on a line of its own, separate from property tax: the two are calculated on different grounds.

Who pays if additional assessments arrive after the deal?

The demand goes to the party the aircraft is registered to, and it is the owner who has to deal with it. So the reasoning behind the chosen structure is worth keeping in writing alongside the deal documents: a few years on it will have to be explained with documents. Where the structure was suggested by an adviser or a seller, get it recorded in writing which rules they are relying on — that is something you can point to in a dispute.

Alexander Filimonov — business aviation: sourcing, acquisition and entry into service of aircraft.