VAT exemptions on Jet A-1 fuel in Europe
Value-Added Tax (VAT) exemptions on Jet A-1 fuel uplifts within Europe are possible for both charter (non-scheduled commercial) and private non-revenue business flights not operating for "leisure" purposes. Keep in mind that regulations and exemption rules vary country-to-country (especially for business [non-commercial] flights) and that there are a wide range of regulatory nuances to consider. While VAT exemptions at the pump are more commonly available to commercial operators, private non-revenue operators, in certain cases, can also benefit from exemption opportunities.
The following is an overview of what you need to know:
1. VAT exemptions on Jet A-1 fuel vary across Europe
Within the European Union (EU), VAT exemptions on Jet A-1 fuel follow EU Directive 148 for all 27 states. However, rules and procedures differ somewhat from country to country, as each member state has certain latitude to add or remove from the directive. Non-EU countries within Europe – including Norway and Switzerland – also offer VAT exemptions on Jet A-1 fuel, but the rules are different. Some destinations, including the Channel Islands of Jersey and Guernsey, do not charge VAT at all. VAT exemption opportunities differ considerably between airline and non-airline qualifiers (see below for definitions of airline and non-airline), with the majority of at-the-pump tax exemptions going to "qualifying airline" operations.
2. There are enhanced tax benefits if you qualify as an "airline"
According to EU Directive 148-E, an operator may be considered an airline if greater than 50% of the operator’s turnover is the result of operating for reward, transporting passengers and/or goods chiefly on international routes. As an airline qualifier, you’ll need to fly a majority of flights on international routes, and that is generally considered anything over 50%. However, one of the local provisions each member state can apply is its definition of "majority," which can differ across Europe. In France and Belgium, for example, you must operate at least 80% of your flights on international legs to qualify as an airline with VAT-exempt status. However, Switzerland requires simply for you to be operating for commercial purposes, but that is in stark contrast to the Swiss rules on the charging/exemption of Mineral Oil Tax (MOT) that requires all your operations to be to international destinations. In addition, to achieve exemption from MOT, each flight must be for commercial purposes, and operators must file flight plans as "commercial" in order to qualify for VAT exemption on Jet A-1 fuel. The flight plan information enters a system that enables the fuel suppliers to determine whether MOT should be charged or exempted. (We will delve further into MOT and other Excise Duties in future articles.)
Some countries have additional rules relating to VAT exemption for commercial operators based in those countries. One example is Germany. A German-based commercial operator must be on a list of recognized airlines to qualify for VAT exemption, and that list is managed and maintained by the German tax authorities. So, even if you meet the VAT exemption criteria of the EU directive, you must apply to be on Germany’s recognized airline list and re-apply each year to achieve VAT exemption. Furthermore, operators eligible for VAT exemption on Jet A-1 fuel uplift should always present their Air Operator’s Certificate (AOC) to the fueler and ensure that fuel tickets state "commercial" prior to signing the ticket as correct.
3. VAT exemptions on Jet A-1 fuel are possible in Europe for non-airline operators
There are several locations in Europe where business (non-leisure) flights may be VAT-exempt at the pump. Sweden does not charge VAT on aviation fuel regardless of the type of flight, and there’s a VAT exemption on fuel in the UK for business-related (non-leisure) flights with eventual destinations outside of the UK. Italy will exempt business operators from VAT on fuel so long as the next leg is to a destination outside of the EU. Likewise, Shannon, Ireland (EINN), which operates as a free trade zone, offers exemption from VAT on all flights whose next destination is to a country outside of the EU. This situation is unique to EINN and doesn’t extend to other locations in Ireland. You’ll be charged VAT, at the current rate of 23%, on fuel at other airports in Ireland. Spain also offers an exemption possibility to business-related (non-leisure) flights. There are also VAT exemptions across Europe for official diplomatic or consular flights, as well as flights operating on behalf of international organizations, including NATO and the IMF.
4. It makes a difference whom you buy fuel from
If operators buy fuel directly from a fuel supplier, they must prove to that fuel supplier that they’re VAT-exempt to gain the exemption, assuming that the flight is eligible for exemption. If, however, you’re buying fuel from a reseller, which is typically the case with contract fuel, you need to ensure the reseller operates a VAT compliance program that can guarantee you receive the exemption your operating status entitles you to. Legally, all fuel invoiced to a reseller by the physical suppliers must include VAT. That means if your reseller does not run a VAT compliance program, or you are not signed up for the reseller’s program, then you run a high risk of being charged VAT that you will have to reclaim yourself. Best practice is to be signed up for your vendor’s compliance program to ensure you receive the exemptions you are due. Additionally, it’s still best to check the delivery ticket is completed in a way that reflects your operating status, as this will help to ensure you are receiving exemption from other taxes such as MOT and excise duties.
5. There are reverse-charge mechanism VAT exemptions
Another possibility for VAT zero rating is called the "reverse-charge mechanism." It is only applicable for operators who hold VAT registrations in the countries in which they are based and where fuel is uplifted in those countries. As this process can be rather complex, it’s best to talk with your fuel reseller to determine if a reverse-charge mechanism is applicable in your case. If, for example, your aircraft is based in France, you may be able to exempt VAT if your company is also based (and VAT-registered) in France. If your aircraft is registered to a company outside of France – even if you have a VAT-registered French subsidiary – you will not quality for a reverse-charge mechanism VAT exemption at the pump. Best practice is to confirm with your fuel supplier or reseller to see if reverse-charge mechanism opportunities may be available to you.
6. VAT may be reclaimed after the fact
If you believe you’re VAT-exempt but are charged VAT at the pump, there are tax recovery options available. VAT recovery firms, however, can take several months to recover VAT, and fees are usually in the 25-35% range of the VAT amount recovered. For that reason, it’s best that operators try to obtain a VAT exemption at the pump whenever possible. In order to reclaim VAT after the fact, it’s necessary to obtain a VAT-compliant invoice from your fueler. A VAT-compliant invoice is a requirement to obtain a VAT refund later, and each country has specific wording that must appear on the fuel invoice in order to reclaim VAT. See our previous article on the process of reclaiming VAT on your fuel uplifts.
7. Consider regulatory nuances
AOC holders should confirm airline-qualifying requirements with their fuel resellers, as some countries mandate that 80% or even 100% of your flights be international in order to qualify for VAT exemption at the pump. Beware of VAT exemption nuances here and there across Europe.
8. Register and re-register with a VAT exemption program
Operators should consider doing business with a supplier and/or reseller who has a VAT exemption program in place in order to take maximum advantage of VAT exemptions at the pump. Tax savings can be significant, as VAT rates range from 7.6% to 25% within Europe. When you are part of a VAT exemption program where the reseller is VAT-registered in the European countries you are traveling to, you’ll improve your VAT exemption options. In addition, it’s typically required that you re-register with a VAT exemption program, or declare no change in your VAT exemption status, at least once a year. When you join a VAT exemption program, make sure you understand how the re-registration process works and stay on top your annual renewals.
For best results in exempting VAT at the pump, work with a fuel reseller that understands VAT regulations across Europe and can provide guidance for the particular country or location you’re operating to. Consider registering for a European VAT exemption program to take full advantage of qualifying VAT exemptions.
If you have any questions about this article, contact Christine Vamvakas at email@example.com.