Short & Sweet no. 5
What about private use of corporate aircraft?

• Can a corporate aircraft be used for private purposes without VAT consequences
• What does the term predominantly used for business actually mean?
• What are the definitions of private use and business use?

The following scenario examines the case of an aircraft imported and admitted by a non-EU corporation that operates and uses the aircraft for its own business. In VAT contexts, the term “predominantly used for business” often implies that some level of private use is permissible without VAT consequences. But is that really true? It is important to understand that many other factors are in play that also influence the situation. Let’s take a closer look.

The customs aspect of flying within the EU

Any aircraft flying into the EU will fly under customs control using either Temporary Admisison (TA) or full importation (FI). There are no other options. If the aircraft is not already fully imported, the aircraft will automatically be considered as flying under TA even though the owner or operator has not themselves taken any action to activate this procedure or realized that their aircraft is flying under TA. The TA procedure is thus always required for non-EU imported aircraft, even for flights with only one stop within the EU. Here, non-compliance with TA will most likely activate a direct payment of the VAT (ranging from 17-27%) and customs duty (ranging from 2.7-7.7%) for the owner or operator. The TA procedure can only be used by EU outsiders where the aircraft is owned (including any UBOs), operated, registered, and based outside the EU, leaving EU insiders only one option: full importation. EU outsiders can, of course, choose to use full importation instead of TA if they find it beneficial. However, both options can be used commercially, corporately, or privately if applied correctly.

It is often tricky for non-experts to see the differences between the two entry options, but the flexibility and long-term consequences are indeed very different, and certain preconditions must be considered when opting for either the TA or FI procedure. Non-compliance with the TA or FI procedure will likely activate a direct payment of the VAT (17-27%) and customs duty (2.7-7.7%).

Can a corporate aircraft be predominantly used for business without VAT consequences?

FI: No, not unless proper VAT corrections are made*
TA: Yes, even 100% private use is permitted under TA

*FI comment: Historically, “predominantly used for business” has historically been misused to justify private use of fully imported aircraft without VAT adjustment. Such uncorrected use, where full import VAT was deducted, is not acceptable under EU rules anywhere within the EU. After the Paradise Papers, the EU Commission took a clear stance: this kind of misuse would not be tolerated. A Dutch judgment reinforced this interpretation. The judgment will influence other EU member states as the Netherlands has normally been known as an ‘accommodating’ jurisdiction. Yet, with this judgment, they have raised the bar, signalling a stricter approach even in jurisdictions previously viewed as more lenient.

Definitions of business and private use
Business use generally includes:
– Any business travel in furtherance of the corporation’s affairs
– Flying with the management and staff to support the economic activities of the corporation

Private use generally includes:
– Entertainment of clients
– Staff commuting
– Hobby activities of shareholders, principal, management, etc.
– Any personal, recreational, or amusement travel
– Any travel in furtherance of another business than the importing entity’s affairs

Legal background for Temporary Admission

The Istanbul Convention from 1990, regulating the worldwide usage of TA, is not very precise, and the EU Commission has been and is continuously publishing various working papers and guidelines to clarify the correct understanding of TA and its usage in the EU. The 2014 working paper from the Union Customs Code Committee (available in English, French, and German) is especially important. Operators should always be aware that these documents are not legally binding for EU member states. Interpretations may vary between member states, which is why it is crucial to have a competent customs agency provide guidance based on the specific setup.

Important things to know about full importation

Operators should be aware that full importation includes a potential VAT and tax liability, requires continuous correct worldwide economic activity, and correct handling of any potential worldwide non-business use and/or non-commercial use. These requirements do not apply under TA. The statute of limitations is five years for full importation, and the aircraft’s use must stay fully compliant with current EU regulations worldwide throughout this period.

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