This aviation blog post is part of a series on tax issues impacting business jet operators.
Valued Added Tax (VAT) can add 15-25% to all aircraft- and business-related expenses while in the European Union (EU). The good news is that these taxes, in many cases, can be exempted at the pump or reclaimed after the fact (for business aircraft operators who qualify for these exemptions).
For business aviation operators, savings on VAT can be tremendous and well worth the effort to exempt/reclaim. While VAT exemption is mostly limited to commercial or charter (non-scheduled commercial) operators, a wide range of operators (with the exception of private ‘leisure’) have options in reclaiming VAT. Work with your VAT recovery firm, as the benefits of VAT recovery are well worth exploring.
1. Understand the difference between a VAT recovery program and a point-of-sale exemption
There are two routes available to exempt or recover VAT. One option, when applicable, is to exempt VAT on jet fuel at point of sale (only possible for some operators). The other option is to reclaim VAT after the fact if you miss a point-of-sale exemption, or are not entitled to this exemption at the point of sale. In many cases, operators will be able to exempt certain VAT charges at the point of sale while recovering other VAT costs later. For example, you may be able to exempt VAT on jet fuel and some ground handling charges while making a claim to recover VAT for other expenses, such as hotel accommodation, catering, and local ground transport later.
2. Select a compliant, qualified VAT recovery service provider
There are many VAT recovery service providers from which to choose, and service options vary by provider. Some, for example, offer European Union (EU) VAT recovery, Mineral Oil Tax (MOT) recovery and Canadian GST/HST recovery services. Do your research. Important considerations are how long they have been in business, their track record, the experience level of their personnel, and testimonials from other clients.
You’ll also need your VAT recovery firm to be legally compliant in the way they offer services. Documentation must be correct and the invoice format must be compliant with regulations of different countries. Keep in mind that there’s a statute of limitations on VAT recovery. Depending on the country, your claim must be filed within 3-4 years of the date VAT was paid, so don’t delay working with a VAT recovery firm for too long.
3. Know the service fees involved in VAT recovery assistance
VAT recovery firms usually charge between 10-30% of taxes recovered. It can take months or even years to process VAT recovery claims. While service fees may seem high, VAT recovery firms ease the process and facilitate refunds. If you try to do VAT recovery on your own, the process may take longer and become frustrating. In addition, the cost savings may be outweighed by the time you invest to do it on your own.
4. Know your eligibility to recover VAT
Anyone can sign up with a VAT recovery firm of their choice. However, you may not be able to recover certain taxes if the purpose of the trip was ‘leisure.’ For more information, please contact your VAT recovery firm. Private (non-revenue) and charter (non-scheduled commercial) operators may reclaim VAT so long as the flight was business related. Operators should have a business ID number, a tax ID, or a VAT registration number to prove they’re a legitimate business and entitled to reclaim taxes. If they choose to do so, any country can request verification that the trip was for business and you’re entitled to exemption. Private non-revenue operators may be able to exempt VAT for jet fuel at point of sale in certain locations, including Sweden, UK, Spain, Italy and Shannon, Ireland.
Charter (non-scheduled commercial) operators often qualify for point-of-sale VAT exemption, but this is not always the case. In some cases, charter (non-scheduled commercial) operators may have to reclaim VAT after the fact (if they don’t meet ‘airline’ criteria). Certain operators are VAT exempt within the EU, including diplomatic, military, government, and NATO-related flights.
5. Determine if you can take advantage of point-of-sale exemptions
You can claim point-of-sale VAT exemptions if you’re considered an ‘airline’ or ‘non-airline’ within the EU. If you operate for ‘reward’ and majority (over 50% typically) of your charter (non-scheduled commercial) flights are on international routes, you may quality for VAT exempt jet fuel invoicing under EU Principal VAT Directive/Article 148-E. France, however, requires that 80% of your flights are on international routes to be exempt. For Switzerland, all flights must be commercial to receive Mineral Oil Tax exemption, but for VAT recovery, the holding of an air operator’s certificate (AOC) or inclusion on the Swiss Federal Tax Administration list of approved operators is sufficient.
If you’re considered non-airline (as a private non-revenue operator or charter [non-scheduled commercial] operator who does not meet the percentage criteria above), you don’t qualify to exempt VAT at the pump. You may, however, claim to recover VAT after the fact so long as you’re flying for business purposes and have a business or taxpayer ID issued by your home country. However, some exemption possibilities are available in Ireland (Shannon, only), Italy, Spain, Sweden, and the UK.
6. Know what information you need to provide to recover VAT after the fact
You’ll need to provide your VAT recovery firm with invoices indicating VAT paid. Many countries require specific invoice formats and your 3rd-party provider (the provider arranging services for your flight) should be aware of this. Some countries, like Bulgaria, Finland, Germany, and Norway, may require submission of original invoices, whereas other countries accept scanned copies. Depending on the country, you may be required to provide a tax ID or business ID number with your claim. For example, Spain requires a tax ID number in advance. It’s best practice to be proactive and have this evidence ready in case it’s requested by the VAT authorities. VAT recovery can go smoothly if correct documentation is provided. Additionally, a country may come back with requests for additional documentation or verification.
7. Do the math to see if VAT recovery is right for your operation
Savings can be significant if you qualify for VAT exemption or recovery after the fact. VAT in the EU ranges between 15 – 25%, and you can reclaim VAT on almost anything you purchase while in the EU on business-related trips. VAT can be recovered on services such as jet fuel, ground handling, hangarage, aircraft parking, in-flight catering, ground transportation, and hotels. Operators who take the time to recover VAT recognize the savings and generally maintain these programs.
8. Leverage your 3rd-party provider to facilitate the process
If you are working with a 3rd-party provider to arrange the details of your international trips, the provider should be able to offer compliant invoice services that conform to regulations of the appropriate country. In this way, operators can provide invoices directly to VAT recovery firms without investing resources in researching and complying with regulations of individual countries.
It pays to work with an experienced VAT recovery firm to evaluate VAT exemption and recovery options. Providing the relevant information to your VAT recovery provider does not change the manner in which you operate, but does allow you the opportunity to reclaim taxes when applicable. The ‘hassle factor’ in recovering VAT is minimal and payoffs can be substantial.
If you have any questions about this article, contact me at firstname.lastname@example.org.
Category : Best Practice
About James Burkhalter
James Burkhalter is an accountant with expertise in transactional taxes, including value added taxes applied to business aviation operators for aircraft handling, maintenance, supplies, aircraft importation, and fuel. James served at Universal Weather and Aviation, Inc. from 2010 until 2013 and at the time of his departure he held the position of Senior Transaction Tax Analyst.
About Steve Woods
Steve Woods is an expert on aviation fuel and taxes and fees related to Jet-A1 uplifts. He currently serves as director, Sales and Supply, Europe, Middle East &Africa, UVair, and has more than 15 years’ experience with Universal. Prior to joining the UVair Fuel team, Steve, a native of the United Kingdom, served in positions in both Trip Support Services and ground handling at Universal, lending him a breadth of knowledge of all areas of flight operations. One of Steve’s specialties is his understanding of the complicated and varying differences by country of value-added taxes throughout Europe, as he played an integral role in launching the UVair European Fuel Services Limited in 2009. Steve can be reached at email@example.com.
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