Full importation: what are the 10 typical errors and misunderstandings?

Over the years, we have received hundreds of different case descriptions of how aircraft operators have planned for or used full importation. They have been submitted for us to comment and possibly rectify the use. We have compiled the most typical errors and misunderstandings in the list below.

Mistakes can be costly if the aircraft and preconditions the full importation procedure are checked through a customs ramp check or an audit by the VAT authorities. Most of the points summarized include such critical factors.

If you use the full importation procedure regularly or plan to do so, please have a look.

10 typical errors and misunderstandings

1. A corporate aircraft cannot be used predominately for business: It is simply fraud if the import VAT is 100% deducted based on known or planned non-business use if proper compensation is not paid back to the importing entity or repayment of the non-business part of the VAT is not made using the correct method.

2. A corporate aircraft can only be used for correct activities: The aircraft can only be used for activities defined as economic activities. The correct usage is typically required for a minimum of five years or as long as the importing entity has possession of the aircraft. Any other use will require a repayment of the VAT.

3. Non-business use outside the EU will affect the EU status: Most EU member states will include all worldwide non-business use of the aircraft during an audit. This means that any non-business legs flown, e.g., locally in the US by an American Part 91 operator, will impact the EU VAT assessment.

4. A lessee or operator cannot import an aircraft and deduct the imposed VAT: Only the real economic owner can import the aircraft. This is decided by the European Commission VAT Committee 1).

5. Only an aircraft used 100% for commercial activities can be VAT-exempt (0%): This is decided by the European Commission VAT Committee 2).

6. A commercial aircraft can only be VAT-exempt (0%) if leased or owned: This is decided by the European Commission VAT Committee. A managed aircraft is considered used by the owner and will not qualify 2).

7. The importation is not guaranteed to be valid indefinitely: The VAT part of the importation is only valid until the aircraft is sold unless the EU VAT is somehow accounted for. The aircraft is considered exported if sold or delivered outside the EU. It is up to the new owner to re-import the aircraft if the owner wants to fly within the EU.

8. Free circulation does not mean that the aircraft is free of duty, VAT, or taxes indefinitely: The term ‘free circulation’ only refers to the correct handling of the customs duty and not the VAT.

9. Grandfathering cannot be used in a customs and VAT context: In an aviation context, the term ‘grandfathering’ is often misused in connection with a sale or operator change as an effort to pass on the free circulation and VAT status. The customs and VAT status of an aircraft depends solely on the correct application of the customs code and how the VAT has been accounted for by the seller, new owner, or operator.

10. A full importation will entail that traffic rights (charter permits) are no longer needed for EU outsiders: Non-EU-based international charter operators may still need to obtain traffic rights on internal EU legs, but this is independent of the full importation status. Having a fully EU-imported aircraft instead of a TA aircraft will not improve the situation. Full importation does not grant EU outsiders better traffic rights than aircraft flying under TA or EU-registered aircraft.

Important things to know about full importation
Operators should be aware that full importation includes a potential VAT and tax liability, requires onwards continuous correct worldwide economic activity as well as correct handling of any potential worldwide non-business use and or non-commercial use; requirements that the TA procedure does not have. The statute of limitations is five years for full importation, and the use of the aircraft must worldwide stay fully compliant with current EU regulations until the end of this period.

How can we help?
If you have questions about the above, please do not hesitate to contact us.

1) Some EU member states allow a lessee to be the importing entity and to deduct any VAT imposed during the importation.
2) It is a precondition that the aircraft is used solely for commercial operation, but the precise definition of “commercial operation” can vary from one EU member state to another.