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COMMERCIAL AND CORPORATE FLYING WITHIN THE EUROPEAN UNION

A quick overview of aircraft importation and admission issues – mainly for non-EU operators

Provides a quick introduction to aircraft importation and admission issues
How to choose between Temporary Admission and full importation

Updated October 2019

Operating inside the European Union?

If a non-EU operator operates inside the European Union (EU) with a non-EU registered aircraft, the operator will have to import or admit the aircraft into the EU and manage the exposure to EU Value Added Tax (VAT) and customs duty. The customs procedures related to customs duty (end-use exemption) changed drastically in 2015-16 and again in late 2017. VAT treatment has also changed in relation to leasing structures and the 0% airline exemption. The usage of Temporary Admission (TA) got a huge boost in 2014 after the EU Customs Code Committee took a stand and published a working paper which included clarification of many issues in the practical usage of this regulation. The TA regulation was earlier known as a risky option but is now a safe way to fly within the EU if applied the correct way. 

This continues to leave many operators without a clear view of current EU aircraft importation/admission issues and without the necessary knowledge to choose the most effective procedure for unrestricted access to enter into and operate within the EU. As VAT rates are between 17-27% and customs duty rates are between 2.7-7.7%, importation/admission is a very important aspect to consider before commencing or continuing EU operations. Compliance is always a huge issue when using both TA and full importation as non-compliance will most likely activate a direct payment of the VAT and customs duty.

What to do?
Any aircraft flying into the EU will fly under EU customs control either using the TA regulation or full importation. There are no other options. If the aircraft is not already fully imported, the aircraft will automatically be considered as flying under the TA regulation even though the owner or operator have not themselves taken any action to activate the TA regulation or realize that their aircraft is actually flying under the TA regulation. See figure 1.

All private individuals and corporations regardless of nationality and residency can use full importation (into free circulation) and act as the importer but some procedures require full payment of the VAT at 15-27% of the value of the aircraft. The full importation procedures are available in all 28 EU member states, but the practical handling and preconditions are often different. Full importation is mandatory for EU insiders which means that the aircraft is either owned, registered, operated, based or mainly used within the EU (just one criterion must be fulfilled).

On the other hand, full importation is optional for non-EU operators. The alternative is of course to use the TA regulation which can be used by entities and aircraft owned, operated, registered and based outside the customs territory of the Union (all criteria must be fulfilled). The TA use includes certain limitations when flying within the EU, but many non-EU operators will actually have the same flying privileges as under full importation, as the limitations do not influence the typical flight pattern.

If the aircraft have flights which start or end outside the EU, or the aircraft do not carry any EU residents as crew or passengers, and the crew/operator have the full understanding of the practical usage of the TA regulation in the different EU member states that the aircraft plan to visit, you will probably not need any help to document or clarify the compliance.

But if the aircraft have a more complex flight pattern and you want to avoid any uncertainty when flying within the EU, we suggest using the Secure Temporary Admission. The Secure Temporary Admission (STA) procedure is much more than barely handling necessary customs paperwork and works as a turnkey solution for non-EU owners and operators who want to fly within the EU.

If the aircraft is not eligible for TA or is violating the TA regulation, the aircraft could be forced into a full importation, meaning paying the VAT as well as the customs duty.

The descriptions of respectively TA and full importation may be simplified in this publication and does not necessarily describe the full set of conditions. Please, have a look at the publications ‘Short Stories’ and ‘What are the 10 typical errors and misunderstandings’ for a deeper insight. We have also pinpointed various selected links from these publications in order to enlighten the issues mentioned on the following pages.

 KNOW MORE: The short story about Temporary Admission
 KNOW MORE: Temporary Admission: what are the 10 typical errors and misunderstandings?
 KNOW MORE: The short story about full importation
 KNOW MORE: Full importation: what are the 10 typical errors and misunderstandings?

Watch a short presentation on how
to fly within the European Union

If you want to know how to fly within the European Union (EU) without problems please have a look at this new short video we have produced. The video is mainly targeting non-EU corporate/private operators, like the US Part 91.
Visit our website at: www.opmas.dk/short-presentation/

Watch a short presentation on how
to fly within the European Union

If you want to know how to fly within the European Union (EU) without problems please have a look at this new short video we have produced. The video is mainly targeting non-EU corporate/private operators, like the US Part 91.
Visit our website at: www.opmas.dk/short-presentation/

Figure 1: Flying within the European Union
Importation status versus privileges and restrictions for flying within the EU

Temporary Admission

To qualify for TA and thereby be eligible for conditional relief of the customs duties and the VAT, the aircraft must be registered/ owned outside the EU and – as a basic rule – be used privately by a non-EU resident person or company. TA involving EU residents and/or commercial activities is possible but comes with certain limitations and situations which must be avoided. 

The primary intention of the relief is to grant EU outsiders free access to fly unhindered in and amongst any of the EU member states. If the conditions are met, TA is a paperless routine and admission is granted automatically when crossing EU borders. Some of the common issues surrounding the use of the TA are discussed on the following pages. Please note that our Secure Temporary Admission procedure (STA) addresses most of the issues mentioned below. 

Private or commercial use of aircraft
The definitions of ‘private use’ and ‘commercial use’ are specific definitions used by the EU customs authorities in relation to the TA and should not be compared with similar definitions used by aviation regulators as these definitions are used in a different context. 

A flight deemed as ‘private use’ basically grants a lot of privileges when flying in the EU whereas ‘commercial use’ may be restricted. 

The definition of private versus commercial use of aircraft has historically given rise to discussions within member states and the EU Commission. However, in 2014 the EU Customs Code Committee took a stand and published a working paper with samples of ‘private’ versus ‘commercial’. The conclusions were;

– Corporate flights may be considered private use

– Group charters may be considered private use under certain circumstances
– Marketing material and corporate documents on board are acceptable and are not considered to be freight/cargo and thus commercial use of the aircraft

– EU residents are allowed on board but with certain limitations and situations which must be avoided

The working paper was based on 4 different cases and consisted of a description of each case supported by the EU Customs Code Committee’s comments and recommendations.

The working paper was based on 4 different cases and consisted of a description of each case supported by the EU Customs Code Committee’s comments and recommendations. Please, note that the working paper is only an opinion from the EU Customs Code Committee and thus not binding in any of the EU member states or in the European Court of Justice. Anyway, the above ‘private use’ definition is fully adapted in most EU member states including Denmark.

An aircraft registered with Isle of Man (M) registration
is only allowed to fly in the EU with a full importation

An aircraft registered with Isle of Man (M) registration is only allowed to fly in the EU with a full importation

Passenger and crew allowed on board
The EU Union Customs Code (2016) includes the below paragraph:

‘Natural persons who have their habitual residence in the customs territory of the Union shall benefit from total relief from import duties in respect of means of transport which they use commercially or privately provided that they are employed by the owner, hirer or lessee of the means of transport and that the employer is established outside that customs territory.

Private use of the means of transport is allowed for journeys between the place of work and the place of residence of the employee or with the purpose of performing a professional task of the employee as stipulated in the contract of employment.

At the request of the customs authorities, the person using the means of transport shall present a copy of the contract of employment.’

It is not set in stone who is – according to the EU Union Customs Code – deemed the ‘user’ of an aircraft and whether there is any difference between EU resident passengers and the crew but working papers from the EU Customs Code Committee mentions that the above paragraph about EU residents only relates to the pilots which means that there are no restrictions for EU resident passengers.

Particularly with respect to EU residents, some member states within the EU may have limitations and restrictions as to whom/what may be carried within their borders and how. Every case should always be verified by a customs authority well in advance.

 KNOW MORE: Short Stories: EU resident passengers on flights within the EU
 KNOW MORE: Short Stories: EU resident pilots on flights within the EU 
 KNOW MORE: Short Stories: Non-EU resident passengers and pilots on flights within the EU
 KNOW MORE: Short Stories: Does the owner of the aircraft have to be on board or present in the EU?

Entity responsible for the flight in the European Union
The entity responsible for the TA entry is called the declarant and should normally be the operator. The operator is, in general, the entity which employs the crew and provides services to keep the aircraft flying. If the aircraft is managed by a third party, the management company should be the operator. This is often a situation with a lot of pitfalls, as most aviation structures include many different entities such as user, owner, operator, lessee and lessor, etc. We regularly see a declarant nominated randomly and is therefore not a valid operator, or sometimes a declarant is simply chosen because it is the only non-EU entity in the owner/operator/user structure. It is important that the declarant is acceptable as the real, physical operator and can prove this fact as well as claim responsibility as the operator. The declarant must, of course, be a non-EU resident person.

 KNOW MORE: Survey 6: which entity is allowed to be the declarant?

Aircraft registration
The aircraft must be registered outside the customs territory of the Union. The Isle of Man and the Channel Islands are part of the customs territory of the Union and, for that reason, aircraft registered at Isle of Man (M) or Channel Islands (2/ZJ) are considered ‘registered in the EU’. Aircraft registered in the EU are not eligible for TA and are thus not allowed to fly in the customs territory of the Union without the payment of customs duty and VAT – not even a single entry into the EU is allowed. All aircraft using an aircraft registration within the customs territory of the Union must be fully imported at the first port of call in the EU, if not already imported. San Marino (T7) is not inside the customs territory of the Union hence TA may be used. The registered owner/operator mentioned on the certificate of registration must of course also be domiciled outside the customs territory of the Union.

 KNOW MORE: Survey 5: does the nationality of the aircraft registration matter?

Period of stay in the European Union
An aircraft assigned to the ‘private use’ category will be allowed a stay in the EU for up to 6 months at a time. When the aircraft crosses the EU’s external borders, a new 6 months period will begin. The TA regulation cannot be used if the aircraft has its normal home fixed base in the EU or if it is spending the majority of the time at the same place in the EU. This would be considered circumvention and may result in payment of the customs duty, the VAT and a fine.

An aircraft assigned to the ‘commercial use’ category will be allowed to stay for the time required to carry out the transport operation, often referred to as ‘period of discharge’.

An EU form is available for documentation purposes. This form is called the ‘Supporting Document for an oral customs declaration’. Please, be informed that very few customs officials are familiar with this form and lack experience in handling the form. You should make arrangements well in advance with a local handling agent if you want to use this form.

 KNOW MORE: Survey 7: how is the 6 months period of stay practically interpreted?
 KNOW MORE: Survey 8: what is the limit for multiple continuous stays at the same place?
 KNOW MORE: Survey 9: is a supporting form valid for one EU-trip or multiple EU-trips within 6 months?

Aircraft usage
The aircraft can be used for any purpose, such as private, leisure, entertainment, business/corporate use (as Part 91), and commercial group charters (as Part 135) without any consequence for the customs/VAT handling but under the condition that the aircraft will not be used for passenger transport subject to a personal ticket fee or direct payment per person.

Full importation

Some operators will also have the option to fully import an aircraft into one of the EU member states and settle the VAT in order to be able to fly unrestricted in the EU. The import VAT can be fully paid, reclaimed or be VAT exempt at zero rate – See figure 2.

Figure 2: Flying in the European Union
How the import VAT may be handled during a full importation?

Option 1: Paying the import VAT

This option is the only alternative for the private owners/companies with activities which is not considered as VAT taxable economic activities such as real estate, banking/finance, insurance, gaming, holding companies and other not listed activities. The import VAT must be paid and cannot be reimbursed later on.

Option 2: Deferring the import VAT

The procedure deferring the import VAT is available for aircraft owned and utilized by a company or as a business. As a rule of thumb – if it is a company generating a turnover at arm’s length prices and if it will make a profit in the long term, the VAT due on the aircraft may be deferred upon importation. Deferring is conditioned upon the company being subject to VAT and the use of the aircraft being linked to the company’s VAT taxable economic activities.

Aircraft must be used for the correct activities
Any importers using this option should initial check what kind of activities the aircraft will be used for in the future and again check whether or not these activities are considered a VAT taxable economic activity in the EU member state where the importation is planned. It is always a good idea to continuously check that the usage of the aircraft is as planned and is still considered a VAT taxable economic activity. The definitions of the latter can change over the years, mainly due to recommendations from the European VAT Committee which are again based on judgements of the European Court of Justice (ECJ). The VAT procedure is the same for any EU established company in any EU member state. It is all based on national legislation however the procedure requires paperwork which differs from member state to member state.

Know what you are signing up for
Nobody should sign up for this option without knowing the full set of conditions, the risks, and the on-going demand for a detailed documentation for the correct use of the aircraft. Most EU member states have a 5-year period of limitation, but the relevant documentation must be filed for 7 years and must be shown on demand during an audit. Written approvals by local customs authorities or legal opinions are available and recommended in most cases.

Only for business use – unless handled correctly
It is a common misunderstanding that it is acceptable to defer all of the import VAT if the aircraft is only used predominately for business purposes. The general rule is that the import VAT can be deferred 100%, only if the aircraft is used 100% for acceptable

VAT taxable economic activities. Any person using the aircraft for private, personal or entertainment purposes must compensate the importer directly for the use – otherwise the importer will have to pay the non-business part of the imposed import VAT back to the VAT authorities.

 KNOW MORE: Short Stories: Preconditions: for the VAT handling
 KNOW MORE: Short Stories: Preconditions: what is meant by correct use?
 KNOW MORE: Short Stories: Preconditions: what about non-business use?
 KNOW MORE: See survey 1: is the term “predominately used for business” accepted by various EU VAT authorities?

Not compatible with imputed income and SIFL
The use of imputed income to compensate any private/personal/entertainment use of a corporate aircraft is generally not accepted and will not exclude an EU VAT claim. Please, also be aware that the US use of SIFL will not solve the compensation problem as these values are often too low to be considered market-rate.

All non-business usage worldwide matters
It is also important to stress that most EU VAT authorities will not differentiate between non-business use in and outside the EU. This means that any non-business legs flown e.g. in the USA by an American Part 91 corporate operator will actually have an impact on the EU VAT handling if the aircraft has been fully imported in the EU and the import VAT has been deferred 100%.

 KNOW MORE: See survey 3: does the flight pattern/geography and size/type of compensation matter?

Option 3: The import VAT is exempt | UPDATED

The procedure with import VAT exemption is available for aircraft used by an international airline and no VAT is imposed as the rate is 0%.

An AOC license is not needed!
An AOC license is not needed, but the importer/operator must have some kind of operating structure where the aircraft is used commercially, and such a usage will often require an AOC license or similar structure. Other company structures may qualify as well, e.g. if an operating company is delivering flight services to companies under the same company umbrella and all services are invoiced at market rate.

What is commercial use?
It is a precondition that the aircraft is used solely for commercial use, but commercial use is not necessarily charter work as many AOC operators might think. Please see the below definition of commercial use:
‘commercial operation’ shall mean any operation of an aircraft, in return for remuneration or other valuable consideration, which is available to the public or, when not made available to the public, which is performed under a contract between an operator and a customer, where the latter has no control over the operator’.

Who can use the airline exemption?
The airline exemption is available for operators both inside and outside the EU. There are also other preconditions than the 2 mentioned above, so please ask for the full set of preconditions if relevant. All operators should also be aware that customs and VAT rules may sometimes contradict with the aviation regulation, and it is always the responsibility of the operator to stay compliant in all areas.

Since the judgement by the European Court of Justice in the A Oy case, it has been widely accepted that a leasing company leasing an aircraft to an airline may also benefit from the VAT exemption as a supplier and the exemption is not limited to the immediate supplier. The entire chain of lessors/lessees, etc. will qualify if the end-user is an international airline.

 KNOW MORE: Short Stories: Preconditions: for the VAT handling
 KNOW MORE: Short Stories: Preconditions: what is meant by correct use?
 KNOW MORE: OPMAS Review: The “airline” VAT exemption in the European Union

Risks when using leasing agreements and deferring import VAT
The Council Directive on the common system of value added tax (the VAT Directive) regulates the authorities right to claim and the companies right to defer VAT. Uncertainty as to the correct application of the provisions of the VAT Directive in the case of full importation of leased aircraft gave rise to consultations with the European VAT Committee back in 2013. Based on judgements of the European Court of Justice (ECJ) and opinions previously expressed by the European VAT Committee, the VAT Committee made it unambiguously clear that the importation of a leased aircraft is subject to import VAT and that neither the customs representative nor the lessee is entitled to defer VAT. Consequently, some EU member states have declined lessees domiciled in the EU access to defer import VAT, arguing that the lessees have not incurred the costs of acquisition and do not in fact own the imported aircraft.

In 2015, the Legal Division of the Danish Customs and Tax Administration published a draft administrative act pointing out that a lessee cannot defer import VAT. Based on input from the industry, the Danish Customs and Tax Administration identified that this approach – denying lessees to defer import VAT – led to situations whereby both the lessee and the lessor were denied the right to defer import VAT. The issue of the lessee’s right to defer import VAT – or lack of such right – was revisited by the European Commission in 2017, and once again the European Commission made it clear that the lessee did not have a right to defer import VAT.

The risk of being denied access to defer VAT should also be taken into consideration if using circular leasing agreements. Circular leasing agreements that do not in fact change the ownership or do not in fact imply any transfer of the right of disposal of the aircraft have been banned and may be considered as circumvention in the EU. Please, be cautious if the importer is not the real owner of the aircraft. Always ask yourself – which entity has the depreciation allowance and right of disposal of the aircraft?

 KNOW MORE: Read more about this issue on opmas.dk under “June 2017 news”
 KNOW MORE: See survey 4: has a lessee been denied the right to defer the VAT imposed during an importation?

Extra resources

HM Revenue & Customs (UK) – guideline to Temporary Admission and full importation
The best and most detailed guide – covering the UK way of doing it
Temporary Admission introduction
Notice 3001: customs special procedures for the Union Customs Code

EU Commission
EU Union Customs Code
About Temporary Admission (importation)

NBAA (USA)
Aircraft Operations to Europe
International Customs Duties and Taxes: Know Before You Go

Customs duty and end-use exemption
As per January 1st, 2018, a civil aircraft can be imported for free circulation with relief from customs duties if the aircraft has been duly entered on a register of a member state or a third country in accordance with the Convention on International Civil Aviation (ICAO) dated December 7th, 1944. Importation with customs relief per January 1st, 2018 is no longer conditioned upon applying for end-use procedure. Importation of civil aircraft can be made under customs relief by reference to the valid certificate of registration in the customs declaration for release for free circulation. Please, note that the presence of the relevant certificate on board of each aircraft is mandatory.

Even though the above-mentioned conditions are fulfilled, the customs duty can still be an issue in cases where an aircraft is smuggled in, wrongly or false declared through a full importation, or if the aircraft is using TA but is not eligible for TA or is violating the TA regulation.

 KNOW MORE: Read more about this issue on opmas.dk under “October 2017 news”

What is the real difference between Temporary Admission and full importation?

If you want to see the differences in detail, we suggest that you have a look at OPMAS’ Quick Guides. These guides are showing limitations, potential liability, no-goes, and include procedures which continuously must be handled correctly. Everything is listed point by point showing what you can and cannot do – in a short and precise way.

 KNOW MORE: See our Quick Guides for a deeper insight and comparison

The below figures are based on the EU Customs Code (UCC) and various EU working papers. This is in our opinion the correct interpretation of the regulations, but all EU member states have not necessarily implemented everything at present.

Most non-EU operators will practically have the same flying privileges using TA as given under full importation as the few limitations does not influence the typical flight – See figure 3.

Figure 3: What you can and cannot do
Simplified pros/cons list for a non-EU operator

Full importation includes a lot of potential risks and liabilities without any gains for the typical non-EU operator. An aircraft using TA can be used for any purpose, such as private, leisure, entertainment, business/corporate use, and commercial group charters without any consequence for the customs handling – See figure 4.

Figure 4: Risks and liability
Simplified pros/cons list for a non-EU corporate operator

Conclusion

Many non-EU operators can benefit from TA without any help from customs experts. We will, of course, be glad to assist in more complex cases and you are always welcome to contact us and hear about the options at no charge. We will send you our input to any questions the same day, often within 1-2 hours.

We recommend using TA, and if your intended flights involve multiple legs within the EU and you want to carry EU residents on board, we have our Secure Temporary Admission procedure (STA) whereby we can eliminate all risks.

Many non-EU operators will have the same flying privileges under TA as under full importation, as the limitations do not influence the typical flight pattern. TA offers the declarant more flexibility and extra advantages such as unrestricted personal/family/guest use without consequences and no tax/VAT liability. Please, see a list of the benefits below:

– No cash payment of the VAT or customs duties is required
– No VAT liability anywhere in the EU
– No customs duty liability anywhere in the EU
– No VAT and import registration are required in Denmark or anywhere in the EU
– No bond/security for import duties is required
– No on-going economic activity or activity subject to VAT is required anywhere in the EU for the next many years
– No fiscal liability anywhere
– No tax/VAT consequences when visiting other EU member states – you can fly freely within the EU
– No need for a formal export of the aircraft when eventually sold or lease/operating agreement is terminated (EURO 5-7,000 saved eventually)
– No VAT consequences when a corporate aircraft is used for non-business activities (entertainment or personal use) by executives.
– No need for due diligence to verify the ownership structure of the aircraft
– No change of the current aircraft registration or set-up of other contractual agreements like circular leasing structures, etc.
– Less record-keeping compared to a full importation based on an EU VAT and import registration

Many of the above points are often an issue when using full importation
Our advice has always been to ask for a ruling from the customs authorities before an importation in order to eliminate any doubt as the details of all cases are different and EU member states may have different opinions. This applies whether you intend to do a full importation or use TA with a complex flight pattern: Always ask for an assessment notice from the authorities!

If you have any questions or comments, please feel free to email us on: info@opmas.dk

Best regards
OPMAS

Please contact us if you want further explanations
on your options should you consider flying within the EU
Please contact us if you want further explanations on your options should you consider flying within the EU

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