A top concern when buying an aircraft is mitigating the effects of VAT. A potential 20% tax on an asset the price of a jet is consequential and a vital part of a transaction to work out.
An unexpected benefit of Brexit is the capability of EU-owned aircraft to close a transaction in the United Kingdom – no longer having to take the aircraft offshore to Guernsey or somewhere similar. Because the UK is no longer part of the EU, the UK is deemed outside of the scope of EU VAT. As a result, EU VAT is no longer applicable on transactions completed in the United Kingdom.
Prior to Brexit
At closing, an EU aircraft would have to be exported from its home country, flown to a point outside of the EU VAT region (Guernsey was a typical location), transaction closed, tail number changed, and then flown to the buyer’s country for import. This involved many different logistics of moving the asset and crew to an offshore location simply to not be on EU soil during the official closing.
Post-Brexit
Now, the aircraft can have maintenance and closing completed in the United Kingdom. The jet is exported from the buyer’s country, flown to a UK maintenance facility to complete a Pre-Purchase Inspection, closed, tail number changed, and imported into the buyer’s country with no-EU VAT implication. This provides a more straight-forward system with less moving parts for closing a transaction. And because the UK has a deep maintenance base pool for many different aircraft types, this benefits almost all buyers and sellers and brings more business to the maintenance facilities. Additionally, transport logistics in London are far simpler than they are going to the usual offshore locations.
Customs Warehouse
Another structure being used more frequently is a customs warehouse. This provides further comfort for the parties that the transaction is completed in a VAT neutral facility. In effect, the aircraft is exported from the EU, held in a ‘warehouse’ while at the maintenance facility, and then after closing the aircraft leaves the ‘warehouse’ and re-imports into the EU.
*One item to note carefully is that the UK still maintains its own VAT scheme. VAT can still be applicable on the sale of aircraft while they are based here under the UK’s own VAT regime. As with all things tax related, we strongly recommend consulting a tax advisor before making any decisions.
