Importing Aircraft, Part 4: Taxes

The first part of this series about importing aircraft addressed customs and tariffs, which seem to be ever-changing. But how does an aircraft buyer deal with that ever-present certainty: taxes?

Buying an Aircraft? Here Are the Taxes You Need to Know

Depending on the country, taxes on aircraft transactions can come as either sales tax (including “Goods and Services tax” – GST), or its sibling: value-added tax (VAT).

Sales tax and GST are similar, but depending on the country, they can apply to goods or both goods and services. The aircraft seller is often required to collect and remit the sales tax upon the sale.

In the U.S., state sales taxes range from 0% to 7.25%, with some local taxes added on top. Singapore, known for low taxes, charges a 9% GST. Canada charges a 5% federal GST, plus additional provincial taxes, or a “Harmonized Sales Tax,” totaling between 5% and 15%, depending on the province.

VAT is similar but has a different application mechanism. It applies at every level of production, rather than just the final sale to the end-user. VAT is collected at each level of sale, with the seller receiving a discount for the upstream VAT that they paid on their own purchase.

VAT is common in Europe and the UK, with rates typically around 20%. Switzerland is an outlier, currently at 8.1%, and the Scandinavian countries are on the high side at 25%.

How to Minimize Sales Tax and VAT?

Taxes on a multimillion-dollar aircraft transaction add up quickly and could make a foreign transaction economically unfeasible.

Buyers and sellers have two main tools to minimize these taxes.

Since sales taxes typically only apply when the sale occurs within the taxing jurisdiction, the first solution is easy—move the plane prior to closing.

Aircraft are uniquely mobile assets, making it fairly easy to reposition them to a tax-friendly jurisdiction for closing. Tax-friendly can mean a low tax rate, or a jurisdiction with an exemption to the sale. At the risk of sounding nationalistic, moving the aircraft to the U.S. before closing can be the simplest option.

If the plane has to come to the U.S. for an American buyer anyway, it might as well be flown to a tax-friendly state for closing. Some states have no sales tax, some have the sales taxes capped (South Carolina and North Carolina come to mind, at $500 and $2,500 max sales taxes, respectively), and some have other exemptions.

If the foreign seller is reluctant to move the aircraft to the U.S. before closing, options exist to complete the transaction overseas without sales tax implications.

The most common overseas exemption on sales taxes is on goods for export, which often includes aircraft. Local tax counsel is important to ensure the exemption. For instance, the EU is generally supposed to have an export exemption from VAT. However, the application of the exemption is applied on a country-by-country basis with unique quirks.

Singapore also has an export exemption, which, when combined with excellent maintenance facilities, makes it a great place to complete a pre-purchase inspection and complete closing on an Asian-origin aircraft.

Other countries have unique exemptions. For instance, the UK has a “customs warehouse” option where a plane based outside the UK can transact in the UK for export without incurring the UK’s VAT. This requires the assistance of partners in the UK or the Isle of Man to opine on the transaction structure and obtain the required paperwork, before the plan arrives in the jurisdiction

In Closing

While death and taxes may be inevitable, good planning can eliminate or at least reduce the sales taxes due at the time of an aircraft.

Stay tuned for upcoming articles that break down the challenges of buying a foreign aircraft—and how to navigate them with confidence.

Part 5: Logistics: Where to Inspect the Plane and Complete Closing?

Part 6: Contractual Quirks of Foreign Transactions

This article is not intended, nor should it be construed or relied upon, as legal advice. The comments, recommendations, and analysis expressed in this article are those of the individual author, John Farrish, are purely informational. This article does not create an attorney-client relationship between you and the author or his law firm. If specific legal information is needed, each person should retain and consult an attorney with knowledge of the subject matter.

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