COMMERCIAL AND CORPORATE FLYING WITHIN THE EUROPEAN UNION
Short & Sweet mail no. 3
Is a full importation needed in both the UK and the EU27?
Should an aircraft be imported in both the UK and the EU?
Is dual importation a trap or a flexible approach?
What are the gains and the risks?
This Dual Importation Issue describes scenarios where an aircraft is brought into EU27/UK by an operator who uses the aircraft for corporate and business purposes (such as part 91).
We often hear the following questions from operators: “We have earlier chosen to fully import our aircraft into the EU – will we now have to fully import the same aircraft into the UK?” and “Shall we fully import a potential new 2021 aircraft into both the EU27 and the UK?”. The latter is often referred to as “dual importation”.
When is a single or a dual importation needed?
There is no logic behind fully importing an aircraft into every new economic zone or country that the aircraft will fly to. A full importation should only be performed within the EU27 or the UK if you absolutely have to as you commit to only use the aircraft for correct economic activity for the next many years while operating the aircraft.
A full importation into the UK will only be needed if the aircraft is owned, operated, or registered by a UK entity, will be based, registered, or spends the majority of its time within the UK. The same set of rules goes for the EU27. The gain of a single or a dual full importation is, of course, that the aircraft can move more freely within the customs zone(s) where it has been imported. But what would a dual importation entail?
The risk areas
Please, try to imagine the scenario when trying to comply with two or three different and conflicting sets of regulations on how to handle non-business use correctly, which will be the situation if, for example, a US part 91 operator chooses to import in both the EU27 and the UK. The FAA and IRS rules are often conflicting with the EU27 and UK rules on how to pay for non-business use and how much pay. An example: imputed income is commonly used by US operators but is not accepted within the EU27 and UK as a compensation method. It is often simply not possible to comply correctly with the rules in all jurisdictions at the same time. The EU27 and UK rules are aligned as they have the same EU28 origin but will eventually differ over the years.
The Paradise Papers have also showcased that it has a huge consequence with a risk of repayment of the imposed importation VAT if the VAT is deducted and deferred 100% even though the aircraft is only used predominately for business purposes.
A dual importation = dual VAT liability
EU27 and UK authorities will include all worldwide flights during an eventual audit of an imported aircraft. This means that any non-business legs flown locally in the US by a US Part 91 operator will actually have an impact on the VAT assessment in both the EU27 and the UK if these flights are not handled correctly according to the current VAT rules in both the EU27 and the UK. The consequence could be that you fail once but have to pay the VAT twice with repayments to both the EU27 and the UK for the same event even though the aircraft did not fly into the EU27 or the UK. The average EU27 and UK VAT rate is around 20% of the aircraft’s value, so we are talking about jeopardizing up to 40% of the aircraft’s value.
It is also a common misunderstanding that a full importation is a one-off transaction. Any wrong use and handling of the VAT can have a huge economic impact with a future VAT and tax liability for up to five to seven years after the importation date and with a potential repayment of the imposed VAT whenever importation VAT is deducted and deferred wrongly. A full importation must continuously be monitored and maintained by competent, internal staff on a trip-by-trip basis in order to be compliant with the current and any future regulations in all the involved jurisdictions. So, please forget about a full importation being a one-off thing.