Malta Finance Leasing Rules for Aircrafts

Malta Releases Finance Leasing Rules Relating to Aircrafts

In yet another installment aimed at incentivizing the thriving aviation industry (following the VAT guidelines on aircraft leasing and highly qualified person rules), the Maltese authorities have released finance leasing rules relating to aircrafts.

A lease shall be deemed to constitute a finance lease, when it has a number of characteristics, all of which must be satisfied cumulatively, these being:

• The lessor is a finance leasing company (insofar that it is duly licensed financial institution by the requisite authorities);
• The period of the lease is for a period of at least four (4) years or more, and not shorter than the depreciation schedule prescribed by law;
• Notification of the lease contract is given to the Commissioner of Inland Revenue within three (3) months from the lease contract on the prescribed form.

Where a finance lease is terminated prior to the expiration of the currency of the lease agreement, notice thereof must be provided to the Commissioner of Inland Revenue within thirty (30) days of the termination of the group relief provisions.

In determining the income that is chargeable to tax, the following scenarios shall apply:

• The lessor is chargeable to tax on the full amount of the lease payments (albeit provisions may be made to income deductions);
• The lessee shall be entitled to a deduction of the full amount of the lease made by him in respect of the lease asset (inclusive of any deductions allowed by law).

Specifically to aviation, the following rules apply to finance lease:

• The lessor is charged to tax on the annual finance charge (this being the difference between the total lease payments less the capital element, divided by the currency of the lease);
• The lessee may, apart from the finance charge, claim a deduction in respect of repairs, maintenance and insurance;
• If the lessee elects to purchase the aircraft on the termination of the lease, and the lessor does not trade in the purchase and sale of the aircraft, the purchase price shall be considered to be of a capital nature – not taxable to the lessor.