Aviation Fueling in the Far East: Understanding Fuel Taxes
This aviation blog post is the second part in a series on aviation fueling in the Far East and continues from our last post “Aviation Fueling in the Far East: 4 Things Business Aviation Operators Should Know“.
Aviation fuel tax rates in the Far East are generally not as high as they are in other regions around the world. In addition, you’ll avoid expensive mineral oil taxes that can double the base price of aviation fuel. Nonetheless, caution is advised when planning aviation-fuel uplifts in the Far East because multiple aviation fuel taxes can apply in this region, and these taxes may not be transparent or reclaimable. It’s always best practice to plan aviation fuel uplifts in advance. This will save you both time and money and avoid surprises when operating in this region.
1. Understanding applicable aviation-fuel taxes
In the Far East, as in other regions of the world, you may be subject to Value Added Tax (VAT), excise tax and ‘into plane’ fees, as well as local state/province taxes. Mineral Oil Taxes (MOT) – common in Europe – have not yet been implemented in the Far East. Aviation-fuel tax rates vary from location to location and may add 3 – 30% to base fuel cost. In Japan, local operators pay an aviation fuel tax, but it is not applied to international operators. Be aware that, in many cases, aviation fuel tax policies are not necessarily clear due to constant changes in tax regulations. If you utilize a 3rd-party provider or fuel supplier, they can clearly state all applicable taxes to prevent potential disputes in invoicing.
2. Knowing aviation fuel tax exemption options
Unlike the European Union (EU), where VAT can be exempted at the pump or reclaimed later, it’s difficult to reclaim these fuel taxes in the Far East. Aviation fuel tax exemptions are usually applicable only to charter (non-scheduled commercial) operations, rather than private non-revenue/business flights. We consider it best practice to check on tax exemption opportunities and ensure that local regulations do not prevent you from applying for them. Be aware that some locations may charge VAT and excise taxes on charter flights even though they’re not supposed to. If aviation fuel taxes are applied incorrectly, a 3rd-party provider or local aviation fuel vendor may be able to assist in removing the tax, but this can be difficult. Many locations don’t have enough general aviation traffic to justify fine tuning their tax system regarding fuel. In some cases, there might be some ambiguity from local authorities as to how to process a fuel-tax refund.
3. Determining documentation requirements for aviation-fuel-tax exemption
You’ll usually need to present an air operator certificate (AOC) to the local fueler in order to obtain an aviation fuel tax exemption. Send required documentation like the AOC to the local fueler in advance, to ensure applicable exemptions are made. The more information provided the better, so that local fuelers can be prepared and schedule the correct fuel truck. In certain countries, both an AOC and a bilateral relationship will be required to exempt aviation fuel taxes. The Philippines, for example, has a domestic excise tax on aviation fuel. The only exemption is for AOC holders of aircraft registered in countries with which the Philippines have bilateral relationships. Aviation fuel suppliers in the Far East are generally aware of documentation required to negate aviation fuel taxes, but local fuelers do not always share information, and you may risk paying unnecessary taxes. In Malaysia and the Philippines, for example, aviation fuel suppliers are government owned and information supplied to local fuelers may be unclear as to fuel tax exemption. If you neglect to provide correct documentation to exempt taxes, it will be difficult to refund taxes later.
4. Being aware of unique aviation fuel taxes
Japan levies an aviation fuel tax on local operators, but international operators, both private non-revenue and charter (non-scheduled commercial), do not pay this tax. There are no aviation fuel taxes for operations to and within China. However, international 3rd-party providers cannot provide fuel arrangements for Chinese-registered aircraft operating in China. These operators must buy fuel from local suppliers due to domestic tax agreements. All of the above are examples of unique processes in this region that need to be taken into consideration when planning your trip, as each country in Asia is different.
When operating to the Far East, we recommend that you always confirm fuel credit availability. Applicable aviation fuel tax exemptions may be possible. However, rules and requirements vary widely with regard to aviation fuel taxes and tax exemptions, so advanced research is recommended. Planning your uplifts will save you time on the ground, while ensuring lowest available pricing and maximum benefits in terms of tax savings.
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