Short & Sweet no. 4
What does ‘VAT paid’ mean?

• Are all imported aircraft VAT paid for good?
• How to ensure that an aircraft is correctly VAT paid?
• EU VAT is not a one-time transaction

The term ‘VAT paid’ is normally used when an aircraft has been fully imported into the EU, yet it is often used wrongly and misleadingly, rightly confusing aircraft sellers and buyers about the term ‘VAT paid’.

We frequently hear the following statement from potential aircraft buyers: “I prefer to buy a so-called VAT paid aircraft, so I do not have to pay any EU VAT”. However, this is rarely possible. The confusion might be enforced by the fact that many brokers advertise aircraft as VAT paid within the EU. The misinterpreted understanding is that “once imported, the VAT is paid for good”. However, this understanding of the term is simply not correct. Only if the seller is a private person and they already paid the VAT, then the VAT does not have to be charged again. In this context, the VAT paid status of the aircraft is also important.

EU VAT is not a one-time transaction
There are only a few examples where the EU output VAT is not due when an aircraft is sold. As mentioned above, one example is when a private person sells an aircraft. Such a seller had actually paid and could not deduct or defer the VAT when the aircraft was bought or imported. However, many other factors must also be considered, such as the place of delivery, the periods of stay outside the EU, etc. The EU VAT is simply not a one-time transaction. It is a transaction-based system, and any change of the ownership or operator will most likely mean that the EU VAT must somehow be accounted for again if the change happens within the EU. We have created some examples to illustrate the needed transaction pattern.

Example A: the VAT is exempted (0%)
Exempted VAT is often granted to commercial operators or airlines if the operator and the specific use of the aircraft meet certain preconditions. Any change of the operator or operation always requires a reassessment of the scenario, so the 0% VAT is not permanently granted. If the aircraft is handed over and a new EU operator does not qualify for a VAT exemption, the operator must charge VAT according to the principles below.

Example B: the VAT is deducted (rates between 17-27%)
The VAT imposed during an importation can be fully deducted if an aircraft is used solely for business purposes. When such an aircraft is sold again, the seller must charge VAT according to the principles below.

How to ensure that an aircraft is correctly VAT paid?
The VAT paid status can only survive a sale and be valid for the next owner or operator if an EU VAT-registered entity has charged the EU VAT on a local invoice or used a valid EU VAT number as well as issued an invoice that has been documented in the EU VAT system as an intra-Community acquisition.

Export sale
If an EU-imported aircraft is sold or delivered outside the EU, such as in the UK, US, or Switzerland, the EU VAT paid status is lost, and this is not dependent on whether the aircraft is officially exported via an EU customs procedure. An exported aircraft can be placed back into free circulation within the EU if it has never been outside the EU for more than three years straight, but the free circulation status only refers to the customs duty and not the VAT, which must be re-accounted somehow. Here, the new owner or operator can use either a full importation or a temporary admission if the aircraft shall be used within the EU again. The VAT imposed during the importation can never be reimbursed when an aircraft is exported. This is also a common misunderstanding.

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