Private Jet Tax in Europe

Private jets are expensive assets and, as a result, various amounts of tax are levied on them. Therefore, it is critical to be aware of, and understand, the different forms of tax that can be applied to private jets. Whether you are chartering, owning, or operating a private jet, different forms of tax will be applied.

Several categories of taxes become relevant when considering tax applicable on private jets, such as Luxury Tax, Value Added Tax, Excise Duty, Jet Fuel Tax, Ticket Tax, and so on. Taxation on fuel used in private jets has recently made headlines, after the European Commission released a draft of the European Union’s jet fuel tax policy in July 2021. According to this draft, private jets would be exempt from the proposed tax.  Use of an aircraft for pleasure or recreational purposes would also be exempted from the tax.

The knowledge of private jet tax is imperative, for owners of private jets, tax lawyers, and so on. This article aims to give an overview of the customs duty, VAT, jet fuel tax, and luxury tax payable in Europe. The aim is to first introduce the applicability of the tax in the European Union, followed by certain important aspects to be noted in the domestic laws of the member countries of the European Union.

The focus is on the domestic laws and rules of France, Germany, Isle of Man, Italy, Malta, and the United Kingdom. The article concludes by referring to demands by environmentalists for a more stringent taxation regime for private jets.

• Customs Duty and Value Added Tax
• Customs Duty in the European Union
• Exemption from VAT in the European Union
• Permanent Importation of Aircraft
• Jet Fuel Tax in the European Union
• Luxury Tax
• Conclusion

Customs Duty and Value Added Tax

An aircraft that enters the European Union border is considered ‘imported into the European Union and is thus liable to pay what is generally known as import duties. The entry into the European Union border can be by way of sale or lease of the aircraft or simply by crossing an external border of the European Union.

In the European Union, import duties can be largely classified into two types: Customs Duty and Value Added Tax (VAT). The importer is responsible for paying the Customs Duty and VAT.

Those using aircraft for private purposes, as well as operators of private jets, can claim exemptions for paying the customs duty and VAT, provided that certain conditions are met. There is more detail on these below.

Customs Duty in the European Union

Applicable Laws: For determining the customs duty payable in the European Union, regard must be had to the Common Customs Tariff of the European Union, as well as the Union Customs Code, abbreviated as UCC, which has been in force since 1st May 2016.

Temporary and Permanent Importation: As a general rule, all aircraft imported into the European Union have to fly into or out of a designated customs airport.  At the designated airport, two situations arise:

1. Firstly, the importer can claim relief from the customs duty on the ground that the aircraft is temporarily imported into the European Union or on the ground of end-use relief.
2. Secondly, the importer can pay the customs duty, which amounts to between 2.7% and 7.7% in case of an imported aircraft, which will be imported permanently.

Under the ground of temporary importation, the UCC permits that, if certain conditions are fulfilled, an aircraft can enter the European Union without any customs documentation required and it can exit from the European Union without paying VAT or any other import duties. This can also be termed as a situation where an aircraft has qualified for Temporary Admission, abbreviated as TA.

Exemption to private jet importers: A private jet importer can get an exemption from paying this tax if the criteria detailed below are met. It is not sufficient if only some of these conditions are met. Each and every condition is required to qualify for TA.

Registration of the aircraft:

1. Place of registration: It is registered outside the customs territory of the European Union.
2. Registration owner: The registration is owned by a person who is outside the customs territory of the European Union.

Use of the aircraft:

1. Purpose of the use: The aircraft has to be used for private purposes.
2. Used by whom: The aircraft has to be used by a person who is:
   1. Not a resident of the European Union.
   2. Residing in the country where the aircraft has been registered.
   3. Third parties who have been given authorisation to use the aircraft by the owner of the aircraft or its lessee.

Availability of the aircraft:

1. General rule: The aircraft is not available to residents of European Union within the boundaries of the European Union.
2. Exception to the general rule: The aircraft can be available to residents of European Union within the boundaries of the European Union when authorised or employed by the owner of the aircraft or its lessee.

Time spent in the European Union:

1. The aircraft has to spend more than 6 months in the European Union within a span of 12 months. For instance, from January 2020 to January 2021, the aircraft was in the European Union from March 2020 to October 2020.

There has generally been some confusion about what is included within the ambit of ‘private use’, which is an essential condition to claim exemption from paying the customs duty. There has been a lack of uniformity even within custom authorities of the European Union in applying for the exemption, because of different understandings of what is meant by private use. To clarify this, the European Commission released a Working Paper on 23rd November 2014 on this issue. The following conclusions were arrived at:

‘Private use’ of the aircraft can include:

1. Corporate flights
2. Group charters under certain situations
3. For ‘Private use’, the presence of the following can be permitted aboard the aircraft:
4. Marketing material and corporate documents are permitted aboard. These documents do not constitute cargo or freight which would lead to the inference that the flight is a commercial flight.
5. Subject to certain restrictions, EU residents are also permitted on the flight.

The following important points are relevant for custom duty in the below-discussed member countries of the European Union.

France

• France follows the general rules of custom duty delineated above and does not have any additional requirements which are needed for the aircraft to qualify for temporary admission. There are no local interpretations of these general rules which are applied by the French tax authorities.
• The understanding of ‘private use’ and ‘commercial use’ in France is based on the definitions of these terms given in Article 207/4 of Regulation 2446/2015.
• Private use is the use of means of transport for purposes other than commercial use.
• Commercial use consists of two main categories. Firstly, using means of transport for transporting people from one place to another, in exchange for remuneration. Secondly, using means of transport for transporting industrial or commercial goods. In this second category, it is not necessary that the goods have to be transported in exchange for remuneration.
• Customs authorities in France place an emphasis on the question of in whose name is the flight organised for determining whether it is a public or a private flight. Flights organised for an individual but in the name of another individual are considered public transport. On the other hand, flights which are organised for and in the name of the same individual are considered private transport.

Germany

• Importers looking to enter Europe through Germany have an obligation to ensure that they use an airport that has a permanent customs authority. This is important because the majority of airports in Germany do not have customs authorities permanently placed there.

Isle of Man

• Isle of Man follows the European Union guidelines delineated above and does not have any additional requirements which are needed for the aircraft to qualify for temporary admission.

Italy

• Italy follows the European Union guidelines delineated above and does not have any additional requirements which are needed for the aircraft to qualify for temporary admission.
• The understanding of ‘private use’ and ‘commercial use’ in Italy is the same as that of France, which we discussed above.

Malta

• Malta follows the European Union guidelines delineated above and does not have any additional requirements which are needed for the aircraft to qualify for temporary admission.

United Kingdom

• The United Kingdom follows the European Union guidelines delineated above and does not have any additional requirements which are needed for the aircraft to qualify for temporary admission.

Exemption from Value Added Tax (VAT) in the European Union

The intention behind collecting VAT from imported aircraft is to put non-community goods and community goods on a level playing field. The VAT is required to be paid by the importer at the same time as the customs duty payable under the UCC. The customs status of the aircraft can have a direct impact on the VAT to be paid, particularly the fact of whether the aircraft was imported permanently or temporarily.

Article 148 of the ​​Council Directive 2006/112/EC of 28 November 2006 on the common system of value-added tax provides for certain transactions for which VAT does not need to be paid. Aircraft that have been released from Temporary Admission, which was discussed in the section on customs duty above, can also benefit from Article 148.

Article 148(e) is relevant for the purpose of VAT exemption for operators of private jets. It provides that the following transaction is exempt from VAT:

1. What is the transaction: Supply of goods
2. Purpose of the transaction: Provisioning and fuelling of aircraft
3. The transaction deals with which type of aircraft: Aircraft which are operated by “airlines” for reward
4. Where do the aircraft operate: Chiefly on international routes.

“Airlines” here can include an operator of private jets who has been issued the Air Operator’s Certificate or an equivalent certificate. This was clarified by the European Court of Justice (CJEU) in the A Oy case decided on 19 July 2012.

The following important points are relevant for VAT in the below-discussed member countries of the European Union.

France

1. France follows the judgment in the A Oy case. However, it is important to note that, in France, there is another essential condition to obtain the VAT exemption. The flight operator must charge a transport service, payable by the owner of the aircraft. The consequence of failing to charge a transport service is that the flight will be considered ‘private’ and the operator will not be able to benefit from the exemption to pay VAT for the service which he provided to the aircraft.
2. Personal use of the aircraft in France: Use of an aircraft for personal use by the beneficial owner of the aircraft does not prevent one from claiming the VAT exemption as long as it is kept in mind that:
3. The personal use is made in compliance with the charter rates of that aircraft which are prevailing in that market.
4. The aircraft is available to be used by third persons. The beneficial owner does not have exclusive use of the aircraft.

Germany

1. German tax authorities follow the judgement in the A Oy case. In addition to the European VAT Directive, other statutes which are relevant in Gemany are:
   1. Fiscal Code Application Decree
   2. Section 4 No. 2 in connection with Section 8 paragraph 2 German VAT Act

2. Like France, German tax authorities also do not prevent the use of an aircraft for personal purposes by its owner from claiming exemption from paying VAT.

3. For claiming an exemption under Article 148, the aircraft to which the goods are supplied must be capable of being charged VAT.

4. Exemption for payment of VAT is granted by the customs authorities only to those holders of the Air Operator’s Certificate which are listed in Section 8 of Germany’s Sales Tax Act. To get the benefit of the VAT exemption, reimbursement of the tax paid can be applied for at the tax office concerned.

Isle of Man

1. Isle of Man tax authorities follow the judgement in the A Oy case, except on one point detailed below. The authorities are however careful that if an aircraft is leased for business purposes, then there should be very limited personal use of that aircraft. This is cared for because leasing an aircraft is considered sufficient for the aircraft to be used by an airline.
2. Isle of Man follow’s the UK’s HMRC’s views on private use of the aircraft. HMRC stands for Her Majesty’s Revenue and Customs. It is a non-ministerial department of the UK government and its role includes the collection of taxes. According to the UK’s HMRC’s, when an aircraft is used for private purposes, it no longer qualifies for the tax exemption. It has to be used wholly for commercial purposes to qualify for the exemption. This view is different from that of the A Oy judgement and does not seem to have any basis in UK or EU law.
3. For claiming an exemption under Article 148, the aircraft to which the goods are supplied must be capable of being charged VAT.

Italy

1. Personal use of the aircraft in Italy: Use of an aircraft for personal use by the beneficial owner of the aircraft does not prevent one from claiming the VAT exemption as long as it is kept in mind that:
2. The personal use is made in compliance with the charter rates of that aircraft which are prevailing in that market.
3. The aircraft is available to be used by third persons. The beneficial owner does not have exclusive use of the aircraft.

2. For claiming an exemption under Article 148, the aircraft to which the goods are supplied must be capable of being charged VAT.

Malta

1. Malta tax authorities follow the judgement in the A Oy case.
2. Currently, Malta does not have any domestic flights. However, should that become a possibility in the future, the VAT exemption will not be available to flights within Malta i.e. domestic flights.
3. For claiming an exemption under Article 148, the person who is carrying on the economic activity must be capable of being charged VAT.

United Kingdom

1. United Kingdom tax authorities follow the judgement in the A Oy case, except on one point detailed below.
2. UK’s HMRC’s views on private use of the aircraft: HMRC stands for Her Majesty’s Revenue and Customs. It is a non-ministerial department of the UK government and its role includes the collection of taxes. According to the UK’s HMRC’s, when an aircraft is used for private purposes, it no longer qualifies for the tax exemption. It has to be used wholly for commercial purposes to qualify for the exemption. This view is different from that of the A Oy judgement and does not seem to have any basis in UK or EU law.
3. For claiming an exemption under Article 148, the aircraft to which the goods are supplied must be capable of being charged VAT.

Permanent Importation of Aircraft

An aircraft is considered to be permanently imported into the European Union when the following conditions are met:

1. The aircraft enters any member country of the European Union.
2. The owner of the aircraft pays the applicable VAT in that member country.
3. The owner of the aircraft pays the applicable customs duty in that member country.

The result of Permanent Importation of an aircraft is as follows:

1. The aircraft can freely circulate within the European Union.
2. The aircraft can stay within the European Union for any period of time.
3. Ability for the aircraft to carry residents of the European Union for flights within the European Union.

The following important points are relevant for taxes payable when the aircraft is permanently imported in the below-discussed member countries of the European Union.

France

• 20% VAT is payable on aircraft that are permanently imported into France as well as those that are reimported.
• The customs duty payable on permanent importation is detailed in EU Regulation 2016/1821 of October 6, 2016, amending Annex I to EU Regulation 2658/87. There are exemptions from customs duties available to civil aircraft. Civil aircraft are defined as aircraft other than those which have a military registration or are connected with providing services for the state military. Thus, private jets would also be considered civil aircraft.

Germany

• 19% VAT is payable on aircraft that are permanently imported into Germany as well as those that are reimported.
• 0% customs duty is payable for civil use of the aircraft. Any use other than civil use will be charged 2.7% customs duty. Thus, private jets will have to pay 0% custom duty for the permanent importation of the aircraft.

Isle of Man

• 20% VAT is payable as the standard rate on aircraft that are permanently imported into Isle of Man as well as those that are reimported.
• 2.7% customs duty is payable for an empty operating weight of more than 2000kg. A higher customs duty is payable by smaller aircraft and helicopters.

Italy

• 22% VAT is payable on aircraft that are permanently imported into Italy as well as those that are reimported.
• The customs duty payable on permanent importation is detailed in EU Regulation 2016/1821 of October 6, 2016, amending Annex I to EU Regulation 2658/87. There are exemptions from customs duties available to civil aircraft. Civil aircraft are defined as aircraft other than those which have a military registration or are connected with providing services for the state military. Thus, private jets would also be considered civil aircraft.

Malta

• 18% VAT is payable as the standard rate on aircraft that are permanently imported into Malta. In certain cases, a lower VAT of 7% and 5% is payable.
• The customs duty applicable is determined by Chapter 337 of the Import Duties Act of Malta. It provides for different duties payable depending on factors such as the weight of the aircraft and its qualification. The duties payable can be represented as follows:

H.S. Code Number	Description	Unladen Weight	Rate of Tax
8802.20.10.00	Civil aircraft	Not more than 2000kg.	0
8802.20.90.00	Airplanes and aircraft other than civil aircraft	Not more than 2000kg.	7.7
8802.30.10.00	Civil aircraft	More than 2000kg but not more than 15000kg.	0
8802.30.90.00	Airplanes and aircraft other than civil aircraft	More than 2000kg but not more than 15000kg.	5.5

Explanation of certain industry terms used in the above table is as follows:

H.S. Code Number is a method used by customs authorities across the world to classify goods.

• The term unladen weight includes:
• The weight of the aircraft in normal flying order
• The weight of the equipment permanently attached to the aircraft
  
  

The term unladen weight excludes:

• The weight of the crew
• Fuel weight
• The weight of the temporary equipment on the aircraft

United Kingdom

• 20% VAT is payable as the standard rate on aircraft that are permanently imported into the United Kingdom as well as those that are reimported.
• 2.7% customs duty is payable for an empty operating weight of more than 2000kg. A higher customs duty is payable by smaller aircraft and helicopters.

Jet Fuel Tax in the European Union

In the European Union, tax on fuel used in aircraft is exempted. However, this exemption is not given to private jets. Importantly, member countries can decide on taxing fuel used for domestic flights, or flights between members of the European Union. Taxation on jet fuel for flights between member countries can be decided by bilateral or multilateral agreements between the concerned states.

To determine the tax payable on the fuel used in the aircraft, Directive 2003/96/EC, which is referred to as the Energy Tax Directive is relevant. This is a directive of the European Union, that establishes inter alia the tax to be paid on aviation fuels.

Article 14(1)(b) of the Energy Tax Directive can be understood as providing the following rules:

1. General Rule: Members of the European Union are directed to exempt from taxation the energy products which are supplied for the purpose of being used as fuel in aircraft.
2. Exception: The fuel used in aircraft that are used for private pleasure flying is not exempt from taxation.
3. The following are the essential ingredients of “private pleasure flying”. If these conditions are met, then tax will have to be paid on the fuel used in the aircraft.
4. Aircraft used by whom:
   1. The owner of the aircraft or
   2. A person who has hired the aircraft, or otherwise enjoys the use of the aircraft
5. The aircraft can be used for any purpose other than:
   1. Commercial use
   2. Transporting passengers/goods/services in exchange for remuneration
   3. Fulfilling the purposes of public authorities

Some key points about domestic taxation in the member countries of the European Union that private aircraft owners should be mindful of are mentioned in this section.

France

• The focus is on identifying whether the aircraft is performing a commercial activity, and not on whether the aircraft falls under the category of private pleasure flying. Thus, an exemption from tax can be claimed by demonstrating that the aircraft is being used for commercial purposes.
• Aircraft, including private jets, are not required to pay fuel tax on domestic flights within France or flights within the European Union.
• France also charges civil aviation tax and air ticket solidarity levy under article 302 bis K of the General Tax Code to public air transport corporations. However, as long as the invoice of the flight is not charged to the passenger, the flight is considered private and exempt from paying this tax. Thus, private jets are not required to pay these taxes.

Germany

• There are regional differences within Germany on the meaning of private pleasure flying, and thus no uniform statement can be made in this regard.
• Aircraft, including private jets, are required to pay fuel tax on domestic flights within Germany or flights within the European Union.
• The German Energy Tax Act exempts use of aviation turbine fuel from taxation. However, this exemption is not available to aircraft operated privately and for non-commercial purposes.
• Private non-commercial use can be understood as follows as per the Energy Tax Implementing Provision:
• Use of the aircraft by whom: The owner of the aircraft or its authorised user.
• Use of the aircraft for what purpose: Any purpose other than transporting passengers/cargo commercially, providing commercial services, rescue operations, scientific research, use by a public official for official purposes.
• The German Federal Fiscal court has ruled in 2016 in a case cited as BFH, January 1, 2016, VII R 11/15 that using a private aircraft for performing commercial service makes the aircraft capable for claiming reimbursement of the mineral oil tax paid. A service is considered commercial if it is performed in exchange for remuneration.

Isle of Man

• The general practice is that the exemption from fuel tax is only given to ticketed and overseas flights. However, this is not a completely settled position, and some confusion continues to exist about this.
• Aircraft, including private jets, are required to pay fuel tax on domestic flights within the Isle of Man.
• Aircraft, including private jets, are not required to pay fuel tax on flights within the European Union.

Italy

• The domestic law of Italy also exempts excise duty on fuel used in aircraft, other than aircraft used for private pleasure flying by way of the Legislative Decree No. 26 of 2 February 2007, which amended Table A, paragraph 2 of the ‘Single Text on Excises’ introduced by the Legislative Decree No. 504 of 1995.
• The domestic law of Italy recognizes the same understanding of ‘private pleasure flying’ as specified in Article 14(1)(b) of the Energy Tax Directive, by way of the Legislative Decree No. 504 of 1995 and stated in Circular 1/D of 28 January 2004 issued by the Customs Agency.
• Aircraft, including private jets, are not required to pay fuel tax on domestic flights within Italy or flights within the European Union.

Malta

• Article 14(1)(b) of the Energy Tax Directive has been incorporated in Malta’s domestic law by making amendments to Chapter 382 of the Excise Duty Act of Malta. The Fourth Schedule of this Act provides for the excise duties payable for use of kerosene as jet fuel. No excise duty is payable when kerosene jet fuel is used in private pleasure flying which has a direct destination outside the European Union.
• The domestic law of Malta recognizes the same understanding of ‘private pleasure flying’ as specified in Article 14(1)(b) of the Energy Tax Directive, by way of the Excise Duty (Goods Imported by Persons Travelling from Third Countries) Regulations (Subsidiary Legislation 382.02 to the Excise Duty Act, of the Laws of Malta).

United Kingdom

• The general practice is that the exemption from fuel tax is only given to ticketed and overseas flights. However, this is not a completely settled position and some confusion continues to exist about this.
• Aircraft, including private jets, are required to pay fuel tax on domestic flights within United Kingdom.
• Aircraft, including private jets, are not required to pay fuel tax on flights within the European Union.

Luxury Tax

The relevant things to be noted in regards to this luxury tax are as follows:

Applicable Laws: The laws which govern tax payable on aircraft in Italy are the Italian Navigation Code and the EU Regulations on the subject (including Regulations Regulation (UE) 800/2013 and Reg. (UE) 1199/2016.

What is the tax paid on:

1. Private jets registered with the Italian registry.
2. From 4th September 2013, the tax is also payable on private jets registered outside Italy, which have spent 6 months or more in Italy in a span of 12 months. The 6 months period need not be consecutive.

Who pays the tax: The tax is paid by the owner of the private jet or the lessee of the private jet.

When is the tax paid:

• The tax is paid annually for private jets registered in Italy.
• For private jets registered outside Italy which spend more than 6 months in a 12 month period: The tax is to be paid on the completion of the 6 month period.
• For private jets which spend less than 6 months in Italy: The tax has to be paid every month till the time the jet leaves Italy. The aircraft cannot leave Italy without paying this tax.

Rate of Taxation: A different rate of tax is charged on private jets depending on the Maximum weight at takeoff of the private aircraft. The maximum weight at takeoff, which is abbreviated as MTOW, is the upper limit of the weight which an aircraft is permitted to have at the time the pilot takes off from the land. The higher the MTOW, the greater is the tax that needs to be paid.

The tax rates are as follows:

Maximum Takeoff Weight	Euros that have to be paid per kg.
up to 1000kg	0.75
up to 2000kg	1.25
up to 4000kg	4.00
up to 6000kg	5.00
up to 8000kg	6.65
up to 10000kg	7.10
More than 10000kg	7.60

Exemptions from the luxury tax: Not all private jets have to pay this annual luxury tax. Some aircraft that are exempted are those which are owned by the State, aircraft used for emergencies such as medical rescue and firefighting, aircraft that have been registered with the Italian registry for more than 40 years, foreign state aircraft, and so on.

Impact of the tax: One of the consequences of this tax is that very few private jets are registered in Italy. Due to the burdensome nature of this tax, people prefer to operate their business jets commercially under an Air Operator’s Certificate.

Conclusion

In this article, we have discussed taxes payable by private jets in Europe, with a special emphasis on custom duty, VAT, jet fuel tax, and luxury tax.

Private jets in Europe largely go tax-free and are generally taxed lower compared to other forms of transport such as road transport. For instance, in France, private jet fuel is taxed 35% to 40% lower as compared to gasoline.

Thus, a wealthy individual who frequently commutes via private jet will end up paying lower taxes than an individual commuting by car or by train. Lower taxation rates combined with the huge environmental impact of private jet flights, which are often of a short distance, have led environmentalists to campaign for taxation on private jets.

It is argued that the heaviest polluters who are also the wealthiest, pay taxes that are disproportionate to the negative environmental impact that they cause.

In a study published in May 2021, authored by Andrew Murphy and Valentin Simon it has been recommended that by 2030, only electric or hydrogen-powered private aircraft should be permitted for journeys under 1,000km in Europe.

Furthermore, until fossil fuel jets are banned in 2030, two types of taxes should be charged on private jets: a ticket tax of at least 3,000 euros on all flights departing from Europe, as well as a tax on private jet fuel. It has been proposed that the collected tax be used to fund the development of environment-friendly technologies.

Disclaimer

The content of this publication is for general information only and it may not apply in a specific situation or to a specific transaction. Legal advice should always be sought before taking any action based on the information contained in this article.

This information is not intended to create, nor does receipt of it constitute, a lawyer-client relationship. Although Compare Private Planes have made every effort to ensure the accuracy of this publication, Compare Private Planes does not accept any responsibility for any errors or omissions contained herein or from consequences that may derive from errors, omissions, opinions, or advice given in this booklet.

Although the information is accurate as of the date they were written, be advised that the topics covered in this article are ever-evolving and the information contained herein may not reflect current legal developments, case law, or regulations.