COMMERCIAL AND CORPORATE FLYING WITHIN THE EUROPEAN UNION
Short & sweet no. 17
What is the correct use of a corporate aircraft?
Don’t fall into the wrong use-trap
Can you be less than 100% EU-compliant?
What is the most frequent surprise for EU outsiders?
Full importation into the EU equals an obligation to be EU-compliant on all worldwide flights +
The message that your CFO will not appreciate
The customs aspect of flying within the EU
Any aircraft flying into the EU will operate under customs control using either the Temporary Admission procedure (TA) or full importation (FI). There are no other options. 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 with only one option: full importation. EU outsiders can, of course, choose to use full importation instead of TA if they find it beneficial.
The big surprise for EU outsiders
The problem always seems to surround how to handle any non-business use correctly. Here, many EU outsiders using full importation are often surprised and worried by the fact that the demand for correct usage of their fully EU-imported corporate aircraft is not only based on flights performed within the EU but includes all flights worldwide. Even non-business flights flown outside the EU will be considered non-compliant if tested by an EU VAT audit if the compensation methods for non-business use are not correctly applied according to EU regulations.
Can you be less than 100% EU-compliant?
The answer is no. Any non-compliance with the EU regulations will most likely activate a direct payment of the VAT (ranging from 17-27%) and customs duty (2.7%) for the owner or operator. The amount is based on the current value of the aircraft, taking into consideration the extent of ‘wrong use’. A 60% wrong usage will typically mean that 60% of the calculated import VAT must be paid back.
The different scenarios
The aircraft must be utilized 100% by the importing entity for business purposes in the pursuit of correct economic activities as defined1 by the EU Commission. We have listed different scenarios to visualize the correct understanding of business use to be fully compliant with the preconditions when using full importation.
The importing entity only uses the aircraft for flying with employees and board members to support activities related to the importing entity’s business.
The aircraft is partly used without proper payment2 by the UBO and other executives for personal, recreational, or amusement travel.
The UBO uses the aircraft for business activities unrelated to the importing entity without paying the importing entity a market rate payment for the trips.
The aircraft is used for holiday trips by the families of senior executives without proper payment.
The importing entity is acting as a lessor, and all leases – typically a dry lease covering the total usage of the aircraft – will be based on market rates and arm’s length prices and principles.
The importing entity acts as a corporate flight department, selling transportation services to group companies at a market rate and with a profit.
Various exotic papers scandals have shown that the risk of extensive audits exists and can be very costly. The Paradise Papers, mentioning Isle of Man importations, have shown that operators can be heavily hit if an aircraft with a full importation is not used the correct way after the importation.
THE MESSAGE THAT YOUR CFO WILL NOT APPRECIATE
We recently imported our corporate aircraft into the EU but have realized that we are now obliged to follow the EU regulations on how to handle compensations for non-business use worldwide. This means we might have to skip our home base FAA and IRS compliance if we also want to comply with the EU regulations, as the compensation methods are not 100% compatible. This could pose major problems for our operations, but I guess you know how to handle it”.”
List of all OPMAS
Short & Sweet mails:
No. 18 – Exporting an aircraft from the EU
Jun 2023 FI
No. 5 – What about private use
of corporate aircraft?
May 2021 TA FI
No. 4 – What does ‘VAT paid’ mean?
Mar 2021 FI
No. 2 – Flying commercially
within the EU
Feb 2021 TA FI
No. 1 – Flying with the
Nov 2020 TA FI