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The Cyprus Private aircraft leasing scheme

The Cyprus Private aircraft leasing scheme

19 September 2016 Tax Law

In 2015, the Cyprus government has introduced the new private aircraft leasing scheme for VAT purposes that offers substantial VAT savings, and in most cases, offers the lowest effective tax rate in EU.

The scheme involves a lease of the aircraft with an option to purchase it at an agreed price, and is similar to the existing scheme for pleasure boats. As in the pleasure boat leasing scheme, it reduces the percentage of the cost of an aircraft used for private purposes that is subject to VAT to reflect the proportion of its usage that takes place outside the EU. The private aircraft leasing scheme does not require detailed records to regarding the use of the asset to be submitted, instead, it bases the percentage of the cost subject to VAT on two factors; the type of the aircraft and its maximum take-off weight.

The scheme is available for any private aircraft owned by a company registered for VAT in Cyprus that is leased to any physical or legal person established, permanently resident or ordinarily resident within the Republic of Cyprus and not engaged in any business activity.

The scheme is based on the two main factors mentioned above and uses three aircraft types and four weight bands:

Maximum take-off weight (Kg)

Deemed percentage of use within EU

VAT charge percentage

Piston-engine aircraft

 

 

Large: over 15,001

40

7.6

Medium: between 5,000-5,701

60

11.4

Small: between 3,001-5,7000

80

15.2

Light: under 3,000

100

19

Turboprop aircraft

 

 

Large: over 15,001

25

4.75

Medium: between 5,701-15,000

35

6.65

Small: between 3,001-5,700

45

8.55

Light: under 3,000

55

10.45

Jet aircraft

 

 

Large: over 15,001

20

3.8

Medium: between 5,701-15,000

30

5.7

Small: between 3,001-5,700

40

7.6

Light: under 3,000

50

9.5

In order to obtain the benefits of the leasing scheme, the prior approval of the VAT commissioner must be obtained. The application for approval must be accompanied by a copy of the lease agreement, the documentation supporting the purchase price or value of the aircraft, the requisite noise certificate, manufacturer’s type certificate, certificate of airworthiness and airworthiness review certificate.

The lease agreement must satisfy the following requirements:

  • The lease period must be between 3 months and 5 years
  • At the commencement of the lease agreement the lessee must make an initial payment to the lessor amounting to at least 40% of the value of the aircraft.
  • Subsequent lease payments must be payable on a monthly basis.
  • The lessor is expected to make a profit from the monthly lease payments of at least 2.5% of the initial value of the aircraft.
  • If the lessee is entitled to purchase the aircraft at the end of the lease period the price must be at least 2.5% of the value of the aircraft, giving an overall profit on the leasing agreement of 5% of the value of the aircraft.

Furthermore, it is important to note that;

  • The profit of the leasing company is subject to corporate income tax at 12.5%.
  • The aircraft must fly to Cyprus within 2 months from the date of commencement of the lease agreement. The VAT Commissioner may allow an extension of this time limit, but any extension may not under any circumstances be beyond the time at which the option to purchase the aircraft is exercised.
  • The aircraft does not have to be registered under the Cyprus Aircraft Register but can be registered anywhere in the world.
  • Irrespective of the above usage tables, if any private aircraft is used solely and exclusively within Cyprus airspace, then its leasing is considered to be a taxable transaction and is taxable at the standard rate applicable in Cyprus and is calculated on the total value of the lease.