Recent changes introduced by Germany’s Federal Ministry of Finance (BMF) relating to VAT relief for the delivery of ships will also be of interest to those awaiting the delivery of aircraft in Germany. We look at the circumstances in which future and recently executed aircraft deliveries will be impacted.
The changes, introduced by decree by the BMF, have revoked the previous BMF decree dated 24 January 2008. The relief, according to the German VAT Act, is in effect a zero rating that allows for the recovery of input VAT. On this basis the following regulations will be valid with immediate effect for all pending cases, i.e. all tax assessments that have not been definitively assessed yet:
No VAT will be chargeable on the delivery of aircraft if
- the direct recipient of the aircraft is an international airline; or
- in the case of delivery to a third party, the final purpose of use by an international airline is already certain and can be proven at the time of delivery.
If the third party provides the aircraft directly to the operator, the legal situation remains unchanged and the tax relief continues to apply.
However, if the aircraft is provided to the operator under a head-lease/sub-lease structure, delivery to the head-lessor will be subject to VAT. According to the BMF, deliveries in a supply chain preceding the direct lease to the operator will also be subject to VAT.
In such cases, a VAT-free delivery is only possible if other exemptions apply:
- For deliveries within the EU, a tax-exempt intra-Community supply will typically be assumed where VAT identification numbers are used. Furthermore, the seller may only assume an intra-Community supply pursuant to § 6a Value Added Tax Act (UStG) if he is able to provide evidence that the asset has been brought to another EU member state, § 17a Value Added Tax Implementing Provision (UStDV), and accounts in its records to that effect, § 17c UStDV.
- In export cases, relief from VAT is possible; however, it is linked to onerous documentation obligations. The seller may only assume an export delivery pursuant to § 6 UStG if he is able to provide actual proof of the export by presenting an export certificate, § 9 UStDV, and accounts in its records to that effect, § 13 UStDV.
- In practice, the requisite documents for the formal requirements for § 6a UStG as well as § 6 UStG will regularly have to be provided by the purchaser to the seller. Should the requisite proof not be fully provided, VAT has to be invoiced by the seller and paid by the purchaser. Even though the purchaser can regularly use the VAT input tax refund procedure, this can lead to significant financing costs for the applicable VAT as a result of the normally long period until the input VAT is actually refunded.
In any event, a review should be carried out in all cases with regard to any VAT implications the delivery will have in the country of destination. And as an advance return for VAT can be subject to re-examiniation, the BMF’s new decree may also affect aircraft deliveries that took place within the first months of 2014.
In conclusion, the VAT implications of any aircraft or watercraft delivery in Germany should be reviewed in detail, particularly those with Head-Lease-Sub-Lease-structures.