Benefits of EU VAT Exemption Programs for Jet A-1 Uplifts
With Value Added Tax (VAT) rates as high as 27% in the European Union (EU),there’s a significant benefit for business aircraft operators taking steps to exempt taxes at the pump on Jet A-1 fuel uplifts throughout Europe. While various VAT exemption programs exist, they’re all different in terms of countries covered and enrollment procedures. Due diligence is essential when selecting VAT exemption program providers.
The following is an overview of what you need to know:
1. Basics of a VAT exemption program for Jet A-1 uplifts and ground services
"VAT exemption programs" can be more accurately described as "VAT compliance programs." They ensure correct invoicing for the operator and provide VAT invoices in compliant formats particular to the individual EU country. Such programs allow for – depending on the operator’s particular circumstances – VAT exemptions on Jet A-1 fuel uplifts and/or aircraft services.
2. VAT programs may apply to both charter (non-scheduled commercial) and private non-revenue operators
VAT exemptions, in the majority of EU countries, are available to charter operators who are considered "airlines" for VAT purposes. At certain EU locations, private non-revenue operators may also enjoy benefits of VAT exemption. At other locations, private flights operating for "business" (although not exempt from VAT at the pump) will be issued with VAT-compliant invoices so that they may reclaim VAT paid after the fact. Keep in mind that private "pleasure" operators are seldom VAT-exempt. Shannon (EINN) is a somewhat rare case in that private non-revenue operations – for both business and pleasure – are VAT-exempt, so long as the destination is outside the EU.
3. The majority of VAT exemptions apply to charter operations
VAT exemptions in the EU are primarily designed for scheduled airline operations. Under current regulations, however, corporate charter operations with air operator certificates (AOC) are considered "airline" activity and are usually VAT-exempt. To be exempt from VAT, under EU rules, the "majority" of a charter operator’s flights must be to international destinations. For most EU countries, this means that more than 50% of movements should be international. In some countries (for example, France) 80% of operations must be to international locations in order for a charter operator to be VAT-exempt.
4. Various Jet A-1 fuel providers offer VAT exemptions
If you buy fuel directly from a supplier, that supplier can apply a VAT exemption to the invoice – assuming that the operator is qualified for this exemption. 3rd-party providers may also arrange VAT exemptions, assuming they’re VAT-registered in the country where the fuel uplift takes place and file VAT returns in that country. Otherwise, they will not be able to allow VAT exemptions for an operator. Note that 3rd-party providers are not necessarily VAT-registered with the same countries. In order to pass along VAT exemptions to an operator, 3rd-party providers must be diligent in maintaining VAT registration, and ongoing VAT reporting, for each country. Additionally, if a supplier is not VAT-registered in a specific country, then they are unable to provide VAT-compliant invoices that are required to make reclaims. This is important to business operators who are not exempt at the point of sale but are able to reclaim the VAT through their company returns.
5. VAT exemption services vary
EU VAT exemption services differ from company to company. To exempt VAT on behalf of an operator, a 3rd-party provider must satisfy particular requirements for the country in question. Compliance will be verified, from time to time, via random audits. Issues can, and do, arise if a 3rd-party provider’s interpretation of the rules differs from that of local authorities.
6. VAT exemption enrollment process
Each 3rd-party provider has a different VAT exemption enrollment process, and time involved to process enrollments varies. The most important aspect, in selecting a 3rd-party provider, is to ensure that they’re compliant with all regulations/processes regarding exempting VAT. During the enrollment process, it’s essential that information collected and transmitted satisfies tax authorities for all relevant EU countries. Usually, a separate form must be filled out by the operator for each country the 3rd-party provider is VAT-registered with.
7. Program enrollment is renewed on a periodic basis (i.e., re-enrollment)
Enrollment in VAT exemption program is normally valid for either 12 months or one calendar year. The reason for renewing VAT exemption enrollment is to maintain accurate operator information, and it’s required. It’s best to check with your 3rd-party provider, from time to time, to ensure that you remain enrolled and compliant for VAT exemption. If you do not re-register in a timely fashion, you may experience a lapse in enrollment, resulting in no longer receiving VAT exemption at the pump. It’s the responsibility of the operator to provide the 3rd-party provider with accurate and up-to-date information to avoid any penalties resulting from obtaining VAT exemptions that an operator is not eligible for. For example, if your flight status changes from charter to private non-revenue, your 3rd-party provider must be advised to ensure that invoices, and VAT collection, are updated accurately.
8. VAT rates and exemptions vary from country to country
VAT rates in the EU range from 8-27%. Currently, the lowest VAT rate is in Switzerland, at 8%, while the highest VAT rate is in Denmark, at 27%. Other countries on the high side of the VAT collection scale include Greece and Portugal, both at 23%, and Germany at 19%. Over recent years, there’s been a trend toward VAT rate increases with each change in government in a particular country.
9. Ensure that your VAT provider is compliant
It’s important for operators to be diligent that 3rd-party providers are compliant with all government mandates/regulations. With regulations such as the Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act in place, it’s imperative to ensure that your 3rd-party provider is complaint. The cheapest price is not always the best value, particularly as compliance is such a key consideration.
10. VAT Resources
When choosing 3rd-party VAT exemption providers, don’t be afraid to ask questions – in terms of compliance, procedures and countries covered. It’s always best to involve your accounting and finance departments in the evaluation process. If you’re unsure about something, always ask.
If you have any questions about this article or need assistance with enrolling in a VAT-compliant program for Jet A-1 uplifts, contact Christine Vamvakas at firstname.lastname@example.org.